<PAGE> 1
File Nos. 33-62470 and 811-7704
As filed with the Securities and Exchange Commission on April 15, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 33 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35 [X]
SCHWAB CAPITAL TRUST
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code:
(415) 627-7000
William J. Klipp
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)
Copies of communications to:
John H. Grady, Jr. Esq. Martin E. Lybecker Frances Cole, Esq.
Morgan Lewis & Bockius LLP Ropes & Gray Charles Schwab
1701 Market Street One Franklin Square Investment Management, Inc.
Philadelphia, PA 19103 1301 Franklin, NW, 101 Montgomery Street
Suite 800 East 120K-14-109
Washington, DC 20005 San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On April 15, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) 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
PROSPECTUS
April 15, 1999
SCHWAB
TOTAL STOCK MARKET INDEX FUND(TM)
As with all mutual funds, the Securities and Exchange
Commission (SEC) has not approved these securities or
passed on whether the information in this prospectus
is adequate and accurate. Anyone who indicates
otherwise is committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 3
ABOUT THE FUND
Schwab Total Stock Market Index Fund(TM)
ABOUT THE FUND
4 Strategy
5 Main Risks
6 Performance
6 Fees and Expenses
7 Fund Management
INVESTING IN THE FUND
9 Buying Shares
11 Selling/Exchanging Shares
12 Transaction Policies
13 Distributions and Taxes
<PAGE> 4
SCHWAB TOTAL STOCK MARKET INDEX FUND(TM)
GOAL
The fund seeks to track the total return of the entire U.S. stock market, as
measured by the Wilshire 5000 Equity Index.
INDEX
The fund's benchmark index includes all publicly traded common stocks of
companies headquartered in the United States for which pricing information is
readily available--currently more than 7,400 stocks. The index weights each
stock according to its market capitalization (total market value of all shares
outstanding).
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN STOCKS THAT ARE INCLUDED IN THE INDEX.
It is the fund's policy that under normal circumstances it will invest at least
80% of total assets in these stocks; typically, the actual percentage is
considerably higher.
Because it would be impractical to invest in every company in the U.S. stock
market, the fund uses statistical sampling techniques to assemble a portfolio
whose performance is expected to resemble that of the index. The fund generally
expects that its portfolio will include the largest 2,500 to 3,000 U.S. stocks
(measured by market capitalization), and that its industry weightings, dividend
yield and price/earnings ratio will be similar to those of the index.
The fund may use certain techniques in seeking to enhance after-tax performance,
such as adjusting its weightings of certain stocks or choosing to realize
certain capital losses and use them to offset capital gains. These strategies,
along with the fact that index funds historically have shown low portfolio
turnover compared to actively managed funds, may help the fund reduce its
taxable distributions. All other factors being equal, this can mean lower
realized capital gains and lower operating expenses.
Like many index funds, the fund also may invest in futures contracts and lend
securities in seeking to enhance total return and minimize the gap between its
performance and that of the index. However, the fund's performance normally is
below that of the index.
THE U.S. STOCK MARKET
The U.S. stock market is commonly divided into three segments, based on market
capitalization.
Mid- and small-cap stocks are the most numerous, but make up only about
one-third of the total value of the market. In contrast, large-cap stocks are
relatively few in number but make up approximately two-thirds of the market's
total value. In fact, the largest 3,000 of the market's listed stocks represent
about 98% of its total value. (All figures on this page are as of 12/31/1998).
In terms of performance, these segments can behave somewhat differently from
each other, over the short term as well as the long term. For that reason, the
performance of the overall stock market can be seen as a blend of the
performance of all three segments.
4 TOTAL STOCK MARKET INDEX FUND
<PAGE> 5
With its very broad exposure to the U.S. stock market, this fund is designed for
long-term investors who want exposure to all three tiers of the market: large-,
mid- and small-cap.
MAIN RISKS
STOCK MARKETS RISE AND FALL DAILY. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.
YOUR INVESTMENT FOLLOWS THE U.S. STOCK MARKET, AS MEASURED BY THE INDEX. It
follows these stocks during upturns as well as downturns. Because of its
indexing strategy, the fund will not take steps to reduce market exposure or to
lessen the effects of a declining market.
MANY FACTORS CAN AFFECT STOCK MARKET PERFORMANCE. Political and economic news
can influence marketwide trends; the outcome may be positive or negative, short
term or long term. Other factors may be ignored by the market as a whole but may
cause movements in the price of one company's stock or the stocks of one or more
industries (for example, rising oil prices may lead to a decline in airline
stocks).
Because the fund encompasses stocks from across the economy, it is broadly
diversified, which reduces the impact of the performance of any given industry,
individual stock or market segment. But whenever any particular market segment
outperforms the U.S. stock market as a whole, the fund may underperform funds
that have greater exposure to that segment. Likewise, whenever U.S. stocks fall
behind other types of investments--bonds, for instance--the fund's performance
also will lag these investments. Because the fund gives greater weight to larger
stocks, most of its performance will reflect the performance of the large-cap
segment.
OTHER RISK FACTORS
Although the fund's main risks are those associated with its stock investments,
its other investment strategies also involve risks.
For example, the fund's use of sampling may increase the gap between the
performance of the fund and that of the index. Futures contracts, which the fund
uses to gain exposure to stocks for its cash balances, also could cause the fund
to track the index less closely if they don't perform as expected.
The fund also may lend a portion of its securities to certain financial
institutions in order to earn income. These loans are fully collateralized.
However, if the institution defaults, the fund's performance could be reduced.
INDEX OWNERSHIP
Wilshire and Wilshire 5000 are registered service marks of Wilshire Associates,
Inc. The fund is not sponsored, endorsed, sold or promoted by Wilshire
Associates, and Wilshire Associates is not in any way affiliated with the fund.
Wilshire Associates makes no representation regarding the advisability of
investing in the fund or in any stock included in the Wilshire 5000.
TOTAL STOCK MARKET INDEX FUND 5
<PAGE> 6
PERFORMANCE
Because this is a new fund, no performance figures or financial highlights are
given. Information will appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in the total return for each share class.
The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 10.
<TABLE>
<CAPTION>
FEE TABLE (%)
- ---------------------------------------------------
INVESTOR SELECT
SHARES SHARES(TM)
- ---------------------------------------------------
<S> <C> <C>
SHAREHOLDER FEES
(% of transaction amount)
- ---------------------------------------------------
Redemption fee, charged only
on shares you sell within 180
days of buying them 0.50 0.50
ANNUAL OPERATING EXPENSES
(% of average net assets)
- ---------------------------------------------------
Management fees 0.30 0.30
Distribution (12b-1) fees None None
Other expenses* 0.34 0.17
-----------------
Total annual operating expenses 0.64 0.47
EXPENSE REDUCTION 0.24 0.20
-----------------
NET OPERATING EXPENSES** 0.40 0.27
=================
</TABLE>
* Based on estimated expenses for the current fiscal year.
** Guaranteed by Schwab and the investment adviser through 2/28/2001.
ESTIMATED EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ----------------------------------------------------
<S> <C> <C>
Investor Shares $41 $147
Select Shares $28 $102
</TABLE>
6 TOTAL STOCK MARKET INDEX FUND
<PAGE> 7
FUND MANAGEMENT
The fund's investment adviser, Charles Schwab Investment Management, Inc., has
more than $81 billion under management.
THE INVESTMENT ADVISER for the Schwab Total Stock Market Index Fund is Charles
Schwab Investment Management, Inc., 101 Montgomery Street, San Francisco, CA
94104. Founded in 1989, the firm today serves as investment adviser for all of
the SchwabFunds.(R) The firm manages assets for more than 3 million accounts.
(All figures on this page are as of 12/31/1998).
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Total Stock Market Index Fund. As compensation for
these services, the firm receives a management fee from the fund. This fee is
calculated as follows: 0.30% of the fund's average daily net assets up to $500
million, and 0.22% of the fund's average daily net assets over $500 million.
GERI HOM, a vice president of the investment adviser, has overall responsibility
for fund management. Prior to joining the firm in 1995, she worked for nearly 15
years in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management of
the fund. Prior to joining the firm in 1998, he worked for 20 years in equity
index management, most recently at Wilshire Associates, Inc.
YEAR 2000 ISSUE
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser will continue to take steps to enable its systems to
handle the year 2000 problem. The investment adviser also is seeking assurances
that its service providers and business partners are taking similar steps as
well. However, it is impossible to know in advance exactly how this issue will
affect fund administration, fund performance or securities markets in general.
FUND MANAGEMENT 7
<PAGE> 8
INVESTING IN THE FUND
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a share class and a distribution option for your
investment. Helpful information on taxes is included as well.
8 INVESTING IN THE FUND
<PAGE> 9
BUYING SHARES
Shares of the fund may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the fund. If you are
investing through a third-party investment provider, some of the instructions,
minimums and policies may be different. Some investment providers may charge
transaction or other fees. Contact your investment provider for more
information.
Because this is a new fund, Schwab is first seeking investors for it during an
initial offering period. As of the date of this prospectus, Schwab anticipates
that this period will begin on 4/16/1999 and end on 5/28/1999, although the
period may be extended. Shares in the fund are not actually purchased until the
completion of the initial offering period.
INVESTING IN THE FUND 9
<PAGE> 10
BUYING SHARES CONTINUED
DIFFERENT TYPES OF SCHWAB BROKERAGE ACCOUNTS ARE AVAILABLE, with varying account
opening and balance requirements. Some Schwab brokerage account features can
work in tandem with features offered by the fund.
For example, when you sell shares in the fund, the proceeds automatically are
paid to your Schwab brokerage account. From your account, you can use features
such as MoneyLink,(R) which lets you move money between your brokerage accounts
and bank accounts, and Automatic Investment Plan (AIP), which lets you set up
periodic investments.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
STEP 1
CHOOSE A SHARE CLASS. Your choice may depend on the amount of your investment.
The minimums shown below are for each share class.
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM ADDITIONAL
SHARE CLASS INVESTMENT INVESTMENTS MINIMUM BALANCE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Investor Shares $1,000 ($500 for $100 $1,000 ($500 for
retirement and retirement and
custodial accounts) custodial accounts)
- -------------------------------------------------------------------------------
Select Shares(TM) $50,000 $1,000 $40,000
</TABLE>
STEP 2
CHOOSE AN OPTION FOR FUND DISTRIBUTIONS. The three options are described below.
If you don't indicate a choice, you will receive the first option.
Option Features
- --------------------------------------------------------------------------------
Reinvestment All dividends and capital gain distributions are invested
automatically in shares of your share class.
- --------------------------------------------------------------------------------
Cash/reinvestment You receive payment for dividends, while any capital gain
mix distributions are invested in shares of your share class.
- --------------------------------------------------------------------------------
Cash You receive payment for all dividends and capital gain
distributions.
STEP 3
PLACE YOUR ORDER using any of the methods described at right. Make checks
payable to Charles Schwab & Co., Inc.
10 INVESTING IN THE FUND
<PAGE> 11
SELLING/EXCHANGING SHARES
Use any of the methods described below to sell shares of the fund. When selling
or exchanging shares, please be aware of the following policies:
- - The fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the
proceeds may be delayed until the check for purchase clears; this may take
up to 15 days from the date of purchase.
- - As indicated in the fund's fee table, the fund charges a redemption fee,
payable to the fund, on the sale or exchange of any shares that have been
held for less than 180 days; in attempting to minimize this fee, the fund
will first sell any shares in your account that aren't subject to the fee
(including shares acquired through reinvestment or exchange).
- - There is no redemption fee when you exchange between share classes within
this fund.
- - Exchange orders must meet the minimum investment and other requirements
for the fund and share class into which you are exchanging.
- - You will need to obtain and read the prospectus for the fund into which
you are exchanging prior to placing your order.
METHODS FOR PLACING ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at:
P.O. Box 7575, San Francisco, CA 94120-7575
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
WHEN PLACING ORDERS
With every order to buy, sell or exchange shares, you will need to include the
following information:
- - Your name
- - Your account number (for SchwabLink transactions, include the master
account and subaccount numbers)
- - The name and share class of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy, sell or exchange
- - For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the time
you mail them.
INVESTING IN THE FUND 11
<PAGE> 12
TRANSACTION POLICIES
THE FUND IS OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
IS OPEN. The fund calculates its share price each business day, for each share
class, after the close of the NYSE (generally 4 p.m. Eastern time). The fund's
share price is its net asset value per share, or NAV, which is the fund's net
assets divided by the number of its shares outstanding. Orders to buy, sell or
exchange shares that are received in good order prior to the close of the fund
will be executed at the share price calculated that day.
In valuing its securities, the fund uses market quotes if they are readily
available. In cases where quotes are not readily available, the fund may value
securities based on fair values developed using methods approved by the fund's
Board of Trustees.
THE FUND AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is
closed for any reason or your balance falls below the minimum for your
share class as a result of selling or exchanging your shares
- - To modify or terminate the exchange privilege upon 60 days' written notice
to shareholders
- - To refuse any purchase or exchange order, including those that appear to
be associated with short-term trading activities
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted,
or otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
12 INVESTING IN THE FUND
<PAGE> 13
DISTRIBUTIONS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service (IRS) web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS AND GAINS YOUR
FUND EARNS. The fund distributes to its shareholders substantially all of its
net investment income and net capital gains, if any. The fund expects to pay
income distributions and capital gain distributions every year, typically in
December, to all shareholders of record.
UNLESS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT, YOUR
FUND DISTRIBUTIONS GENERALLY HAVE TAX CONSEQUENCES. The fund's net investment
income and short-term capital gains are distributed as dividends and are taxable
as ordinary income. Other capital gain distributions are taxable as long-term
capital gains, regardless of how long you have held your shares in the fund.
Distributions generally are taxable in the tax year in which they are declared,
whether you reinvest them or take them in cash.
GENERALLY, ANY SALE OF YOUR SHARES IS A TAXABLE EVENT. A sale may result in a
capital gain or loss for you. The gain or loss generally will be treated as
short term if you held the shares for 12 months or less, long term if you held
the shares longer.
FOR TAX PURPOSES, AN EXCHANGE BETWEEN FUNDS IS DIFFERENT FROM AN EXCHANGE
BETWEEN CLASSES. An exchange between funds is considered a sale. An exchange
between classes within a fund is not reported as a taxable sale.
AT THE BEGINNING OF EVERY YEAR, THE FUND PROVIDES SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DISTRIBUTIONS the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
distributions and transactions in their monthly account statements.
SCHWAB BROKERAGE ACCOUNT CUSTOMERS WHO SELL FUND SHARES typically will receive a
report that calculates their gain or loss using the "average cost"
single-category method. This information is not reported to the IRS, and you
still have the option of calculating gains or losses using any other methods
permitted by the IRS.
MORE ON DISTRIBUTIONS
If you are investing through a taxable account and purchase shares of a fund
just before it declares a distribution, you may receive a portion of your
investment back as a taxable distribution. This is because when a fund makes a
distribution, the share price is reduced by the amount of the distribution.
You can avoid "buying a dividend," as it is often called, by finding out if a
distribution is imminent and waiting until afterwards to invest. Of course, you
may decide that the opportunity to gain a few days of investment performance
outweighs the tax consequences of buying a dividend.
INVESTING IN THE FUND 13
<PAGE> 14
NOTES
14 NOTES
<PAGE> 15
NOTES 15
<PAGE> 16
SCHWAB
TOTAL STOCK MARKET INDEX FUND(TM)
TO LEARN MORE
This prospectus contains important information on the fund and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
P.O. Box 7575
San Francisco, CA 94120-7575
800-435-4000
www.schwab.com/schwabfunds
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBER
Schwab Total Stock Market
Index Fund 811-7704
PROSPECTUS
April 15, 1999
SCHWABFUNDS(R)
MKT3847FLT
<PAGE> 17
STATEMENT OF ADDITIONAL INFORMATION
SCHWAB CAPITAL TRUST
SCHWAB TOTAL STOCK MARKET INDEX FUND
APRIL 15, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the fund's prospectus dated April 15, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, day or night, or write to the fund at P.O. Box 7575, San
Francisco, CA 94120-7575. For TDD service call 800-345-2550, day or night. The
prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The Schwab Total Stock Market Index Fund is a series of Schwab Capital Trust
(the trust).
TABLE OF CONTENTS
Page
----
INVESTMENT STRATEGIES, RISKS AND LIMITATIONS...................................2
MANAGEMENT OF THE FUND.........................................................9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................11
INVESTMENT ADVISORY AND OTHER SERVICES........................................12
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................13
DESCRIPTION OF THE TRUST......................................................14
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................15
TAXATION......................................................................17
CALCULATION OF PERFORMANCE DATA...............................................18
1
<PAGE> 18
INVESTMENT STRATEGIES, RISKS AND LIMITATIONS
The following investment strategies, risks and limitations supplement those set
forth in the prospectus and may be changed without shareholder approval unless
otherwise noted. Also, policies and limitations that state a maximum percentage
of assets that may be invested in a security or other asset, or that set forth a
quality standard, shall be measured immediately after and as a result of the
fund's acquisition of such security or asset unless otherwise noted. Any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the fund's
investment policies and limitations. The fund will invest in securities or
engage in techniques that are intended to help achieve its investment objective.
INVESTMENT OBJECTIVE
The fund's investment objective is to seek to track the total return of the
entire U.S. stock market. In pursuing its objective, the fund uses the
Wilshire 5000 Equity Index to measure the total return of the U.S. stock
market. The Wilshire 5000 Equity Index is representative of the performance
of the entire U.S. stock market. The index measures the performance of all
U.S. headquartered equity securities with readily available price data. It
is a market-value weighted index consisting of approximately 7,400 stocks.
INVESTMENT STRATEGIES AND RISKS
BORROWING may subject the fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. The fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, the fund will
not purchase securities while borrowings represent more than 5% of its total
assets.
CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure. For example, the automobile industry may have a greater exposure to a
single factor, such as an increase in the price of oil, which may adversely
affect the sale of automobiles and, as a result, the value of the industry's
securities. The fund will not concentrate its investments, unless its index is
so concentrated.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Typically, no interest will accrue to the fund until the security
is delivered. The fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When the fund sells a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with respect to that security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could suffer
losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. The fund is a series of an
open-end investment management company. The fund is a diversified mutual fund.
2
<PAGE> 19
EQUITY SECURITIES represent ownership interests in a corporation, and are
commonly called "stocks." Equity securities historically have outperformed most
other securities, although their prices can fluctuate based on changes in a
company's financial condition, market conditions and political, economic or even
company-specific news. When a stock's price declines, its market value is
lowered even though the intrinsic value of the company may not have changed.
Sometimes factors, such as economic conditions or political events, affect the
value of stocks of companies of the same or similar industry or group of
industries, and may affect the entire stock market.
Types of equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which are probably the most recognized
type of equity security, usually entitle the owner to voting rights in the
election of the corporation's directors and any other matters submitted to the
corporation's shareholders for voting. Preferred stocks do not ordinarily carry
voting rights or may carry limited voting rights, but normally have preference
over the corporation's assets and earnings. For example, preferred stocks have
preference over common stock in the payment of dividends. Preferred stocks also
may pay specified dividends.
Convertible securities are typically preferred stock or bonds that are
exchangeable for a specific number of another form of security (usually the
issuer's common stock) at a specified price or ratio. A corporation may issue a
convertible security that is subject to redemption after a specified date and
usually under certain circumstances. A holder of a convertible security that is
called for redemption would be required to tender it for redemption to the
issuer, convert it to the underlying common stock or sell it to a third party.
Convertible bonds typically pay a lower interest rate than nonconvertible bonds
of the same quality and maturity, because of the convertible feature. This
structure allows the holder of the convertible bond to participate in share
price movements in the company's common stock. The actual return on a
convertible bond may exceed its stated yield if the company's common stock
appreciates in value and the option to convert to common shares becomes more
valuable.
Convertible preferred stocks are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds, however, they do not have a maturity date. Due to their fixed income
features, convertible securities provide higher income potential than the
issuer's common stock, but typically are more sensitive to interest rate changes
than the underlying common stock. In the event of liquidation, bondholders have
claims on company assets senior to those of stockholders; preferred stockholders
have claims senior to those of common stockholders.
Convertible securities typically trade at prices above their conversion value,
which is the current market value of the common stock received upon conversion,
because of their higher yield potential than the underlying common stock. The
difference between the conversion value and the price of a convertible security
will vary depending on the value of the underlying common stock and interest
rates. When the underlying value of the common stocks decline, the price of the
issuer's convertible securities will tend not to fall as much because the
convertible security's income potential will act as a price support. While the
value of a convertible security also tends to rise when the underlying common
stock value rises, it will not rise as much because their conversion value is
more narrow. The value of convertible securities also is affected by changes in
interest rates. For example, when interest rates fall, the value of convertible
securities may rise because of their fixed income component.
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<PAGE> 20
Warrants are a type of security usually issued with bonds and preferred stock
that entitles the holder to a proportionate amount of common stock at a
specified price for a specific period of time. The prices of warrants do not
necessarily move in parallel with the prices of the underlying common stock.
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 will lose the
purchase price it paid for the warrant and the right to purchase the underlying
security.
FUTURES CONTRACTS are securities that represent an agreement between two parties
that obligates one party to buy and the other party to sell specific securities
at an agreed-upon price on a stipulated future date. In the case of futures
contracts relating to an index or otherwise not calling for physical delivery at
the close of the transaction, the parties usually agree to deliver the final
cash settlement price of the contract. The fund may purchase and sell futures
contracts based on securities, securities indices or any other futures contracts
traded on U.S. exchanges or boards of trade that the Commodities Futures Trading
Commission (CFTC) licenses and regulates on foreign exchanges.
The fund must maintain a small portion of its assets in cash to process
shareholder transactions in and out of the fund and to pay its expenses. In
order to reduce the effect this otherwise uninvested cash would have on its
ability to track the performance of the index as closely as possible, the fund
may purchase futures contracts representative of some of the securities in its
index. Such transactions allow the fund's cash balance to produce a return
similar to that of the underlying security or index on which the futures
contract is based. However, because there is not currently available any futures
contract tied directly to either the total return of the U.S. stock market or
the fund's index, there is no guarantee that this strategy will be successful.
When buying or selling futures contracts, the fund must place a deposit with its
broker equal to a fraction of the contract amount. This amount is known as
"initial margin" and must be in the form of liquid debt instruments, including
cash, cash-equivalents and U.S. government securities. Subsequent payments to
and from the broker, known as "variation margin" are made at least daily as the
value of the futures contracts fluctuate. This process is known as
"marking-to-market". The margin amount will be returned to the fund upon
termination of the futures contracts assuming all contractual obligations are
satisfied. The fund's aggregate initial and variation margin payments required
to establish its futures positions may not exceed 5% of its net assets.
While the fund intends to purchase and sell futures contracts in order to
simulate full investment in the securities comprising its index, there are risks
associated with these transactions. Adverse market movements could cause the
fund to experience substantial losses when buying and selling futures contracts.
Of course, barring significant market distortions, similar results would have
been expected if the fund had instead transacted in the underlying securities
directly. There also is the risk of losing any margin payments held by a broker
in the event of its bankruptcy. Additionally, the fund incurs transaction costs
(i.e. brokerage fees) when engaging in futures trading.
Futures contracts normally require actual delivery or acquisition of an
underlying security or cash value of an index on the expiration date of the
contract. In most cases, however, the contractual obligation is fulfilled before
the date of the contract by buying or selling, as the case may be, identical
futures contracts. Such offsetting transactions terminate the original contracts
and cancel the obligation to take or make delivery of the underlying securities
or cash. There may not always be a liquid secondary market at the time the fund
seeks to close out a futures position. If the fund is unable to close out its
position and prices move adversely, the fund would have to
4
<PAGE> 21
continue to make daily cash payments to maintain its margin requirements. If the
fund had insufficient cash to meet these requirements it may have to sell
portfolio securities at a disadvantageous time or incur extra costs by borrowing
the cash. Also, the fund may be required to make or take delivery and incur
extra transaction costs buying or selling the underlying securities. The fund
seeks to reduce the risks associated with futures transactions by buying and
selling futures contracts that are traded on national exchanges or for which
there appears to be a liquid secondary market.
ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of the fund's
investments is monitored under the supervision and direction of the board of
trustees. Investments currently not considered liquid include repurchase
agreements not maturing within seven days and certain restricted securities.
INDEXING STRATEGIES involve tracking the investments and, therefore, performance
of an index. The fund's indexing strategy is to match the total return of the
U.S. stock market as measured by the Wilshire 5000 Equity Index. The fund
normally will invest at least 80% of its total assets in the securities of its
index. Moreover, the fund will invest so that its portfolio performs similarly
to that of its index, matching its holdings in a particular security to its
weight in the index. Because it would be too expensive to buy all of the stocks
included in the index, the investment adviser may use statistical sampling
techniques in an attempt to replicate the total return of the U.S. stock market
using a smaller number of securities. These techniques use a smaller number of
index securities than that included in the index, which, when taken together,
are expected to perform similarly to the index. These techniques are based on a
variety of factors, including capitalization, dividend yield, price/earnings
ratio, and industry factors.
The fund will seek a correlation between its performance and that of its index
of 0.90 or better. A perfect correlation of 1.0 is unlikely as the fund incurs
operating and trading expenses unlike its index. In the event its intended
correlation is not achieved, the board of trustees will consider alternative
arrangements for the fund.
LENDING of portfolio securities is a common practice in the securities industry.
The fund will engage in security lending arrangements with the primary objective
of increasing its income. For example, the fund may receive cash collateral and
it may invest it in short-term, interest-bearing obligations, but will do so
only to the extent that it will not lose the tax treatment available to mutual
funds. Lending portfolio securities involves risks that the borrower may fail to
return the securities or provide additional collateral. Also, voting rights with
respect to the loaned securities may pass with the lending of the securities,
and efforts to call such securities promptly may be unsuccessful, especially for
foreign securities. The fund may loan portfolio securities to qualified
broker-dealers or other institutional investors provided: (1) the loan is
secured continuously by collateral consisting of U.S. government securities,
letters of credit, 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; (2) the fund may at any time call the loan and obtain
the return of the securities loaned; (3) the fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed one-third of the total assets of
the fund.
REPURCHASE AGREEMENTS. Repurchase agreements involve the 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
5
<PAGE> 22
does not perform as agreed. Repurchase agreements will be collateralized by
First Tier Securities.
RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. Restricted securities may be considered to be liquid if an
institutional or other market exists for these securities. In making this
determination, the fund, under the direction and supervision 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 fund invests in restricted securities that are deemed liquid, the
general level of illiquidity in the fund's portfolios may be increased if
qualified institutional buyers become uninterested in purchasing these
securities.
SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased and sold by the fund,
including those managed by its investment adviser. Because other investment
companies employ investment advisers and other service providers, investments by
the fund may cause shareholders to pay duplicative fees.
SMALL-CAP STOCKS are common stocks issued by U.S. operating companies with
market capitalizations that place them below the largest 1,000 such companies.
Historically, small-cap stocks have been riskier than stocks issued by large- or
mid-cap companies for a variety of reasons. Small-cap companies may have less
certain growth prospects and are typically less diversified and less able to
withstand changing economic conditions than larger capitalized companies.
Small-cap companies also may have more limited product lines, markets or
financial resources than companies with larger capitalizations, and may be more
dependent on a relatively small management group. In addition, small-cap
companies may not be well known to the investing public, may not have
institutional ownership and may have only cyclical, static or moderate growth
prospects. Most small-cap company stocks pay low or no dividends.
These factors and others may cause sharp changes in the value of a small-cap
company's stock, and even cause some small-cap companies to fail. Additionally,
small-cap stocks may not be as broadly traded as large- or mid cap stocks.
Accordingly, it may be difficult for the fund to dispose of securities of these
small-cap companies at prevailing market prices in order to meet redemptions.
This lower degree of liquidity can adversely affect the value of these
securities. For these reasons and others, the value of the fund's investments in
small-cap stocks is expected to be more volatile than other types of
investments, including other types of stock investments. While small-cap stocks
are generally considered to offer greater growth opportunities for investors,
they involve greater risks and the share price of a fund that invests in
small-cap stocks may change sharply during the short term and long term.
STOCK SUBSTITUTION STRATEGY is a strategy, whereby the fund may, in
extraordinary circumstances, substitute a similar stock for a security in the
index.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
U.S. Treasury securities, include bills, notes and bonds, and are backed by the
full faith and credit of the United States. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some U.S.
government securities are supported by a line of credit that the issuing entity
has with the U.S. Treasury. Others are supported solely by the credit of the
issuing agency or instrumentality.
6
<PAGE> 23
There can be no assurance that the U.S. government will provide financial
support to U.S. government securities of its agencies and instrumentalities if
it is not obligated to do so under law. Of course U.S. government securities,
including U.S. Treasury securities, are among the safest securities, however,
not unlike other fixed-income securities, they are still sensitive to interest
rate changes, which will cause their yields to fluctuate.
INVESTMENT LIMITATIONS
The following investment limitations may be changed only by vote of a majority
of the fund's shareholders.
THE FUND MAY NOT:
1) Purchase securities of any issuer, except as consistent with the
maintenance of its status as a diversified company under the Investment
Company 1940 Act (the "1940 Act");
2) Concentrate investments in a particular industry or group of industries,
except as permitted under the 1940 Act, or the rules or regulations
thereunder; and
3) (i) Purchase or sell commodities, commodities contracts, futures 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, except as permitted by the 1940 Act, or the rules or regulations
thereunder.
THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN UNDERSTANDING
THE ABOVE POLICIES AND RESTRICTIONS.
Diversification. 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
securities of other registered investment companies) if, as a result, more than
5% of its total assets would be invested in the securities of such issuer, or
more than 10% of the issuer's voting securities would be held by the fund.
Concentration. The Securities and Exchange Commission defines concentration as
investing 25% or more of an investment company's total assets in an industry or
group of industries, with certain exceptions.
Borrowing. The 1940 Act restricts the fund from borrowing (including pledging,
mortgaging or hypothecating assets) in excess of 33 1/3% of its total assets
(not including temporary borrowings not in excess of 5% of its total assets).
Lending. Under the 1940 Act, the fund may only make loans if expressly
permitted by its investment policies.
NON-FUNDAMENTAL INVESTMENT POLICIES.
The following investment policies and restrictions are non-fundamental and may
be changed by the Trust's Board of Trustees. The fund may not:
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<PAGE> 24
1) Purchase securities of any issuer, if as a result, more than 15% of its
net assets would be invested in illiquid securities, including repurchase
agreements with maturities in excess of 7 days.
2) Invest for the purpose of exercising control or management of another
issuer.
3) Purchase securities of other investment companies, except as permitted by
the 1940 Act, including any exemptive relief granted by the SEC.
4) Sell securities short unless it owns the security or the right to obtain
the security or equivalent securities (transactions in futures contracts
and options are not considered selling securities short).
5) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities and
provided that margin payments in connection with futures contracts and
options on futures shall not constitute purchasing securities on margin.
6) Borrow money except that the fund may (i) borrow money from banks and (ii)
engage in reverse repurchase agreements with any party; provided that (i)
and (ii) in combination do not exceed 33 1/3% of its total assets (any
borrowings that come to exceed this amount will be reduced to the extent
necessary to comply with the limitation within three business days) and
the fund will not purchase securities while borrowings represent more than
5% of its total assets.
7) Concentrate investments in a particular industry or group of industries,
as concentration is defined under the Investment Company Act of 1940 or
the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time except to the extent the investments of
its index are concentrated.
8) Lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (this restriction
does not apply to purchases of securities or repurchase agreements).
Policies and limitations that state a maximum percentage of assets that may be
invested in a security or other asset, or that set forth a quality standard
shall be measured immediately after and as a result of the fund's acquisition of
such security or asset, unless otherwise noted. Except with respect to
non-fundamental limitations (1) illiquid securities and (6) borrowing, any
subsequent change in net assets or other circumstances will not be considered
when determining whether the investment complies with the fund's investment
policies and limitations.
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<PAGE> 25
MANAGEMENT OF THE FUND
The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUST AFFILIATIONS
- -------------------------------------------------------------------------------
CHARLES R. SCHWAB* Chairman and Chairman, Co-Chief Executive
July 29, 1937 Trustee Officer and 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).
STEVEN L. SCHEID*+ President and Executive Vice President and
June 28, 1953 Trustee Chief Financial Officer, The
Charles Schwab Corporation;
Enterprise President - Financial
Products and Services and Chief
Financial Officer, Charles
Schwab & Co., Inc.; Chief Executive
Officer, Chief Financial Officer
and Director, Charles Schwab
Investment Management, Inc. From
1994 to 1996, Mr. Scheid was
Executive Vice President of Finance
for First Interstate Bancorp and
Principal Financial Officer from
1995 to 1996. Prior to 1994, Mr.
Scheid was Chief Financial Officer,
First Interstate Bank of Texas.
DONALD F. DORWARD Trustee Executive Vice President and
September 23, 1931 Managing Director, Grey
Advertising. From 1990 to 1996,
Mr. Dorward was President and
Chief Executive Officer, Dorward
& Associates (advertising and
marketing/consulting firm).
- ----------
* This trustee is an "interested person" of the trust.
+ Effective August 18, 1998, Mr. Scheid was elected as President and trustee.
9
<PAGE> 26
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUST AFFILIATIONS
- -------------------------------------------------------------------------------
ROBERT G. HOLMES Trustee Chairman, Chief Executive
May 15, 1931 Officer and Director, Semloh
Financial, Inc. (international
financial services and
investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens
June 28, 1938 & Company (investments) and
Chairman and Chief Executive
Officer of North American Trust
(real estate investment trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive
August 18, 1943 Officer and Director, Wilsey
Bennett, Inc. (truck and air
transportation, real estate
investment, management, and
investments).
TAI-CHIN TUNG Treasurer and Vice President, Treasurer and
March 7, 1951 Principal Controller, Charles Schwab
Financial Investment Management, Inc.
Officer 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.
WILLIAM J. KLIPP* Executive Vice Executive Vice President,
December 9, 1955 President, Chief SchwabFunds(R), Charles Schwab &
Operating Co., Inc.; President and Chief
Officer and Operating Officer, Charles
Trustee Schwab Investment Management,
Inc.
STEPHEN B. WARD Senior Vice Senior Vice President and Chief
April 5, 1955 President and Investment Officer, Charles
Chief Investment Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief
September 9, 1955 Counsel and Assistant Corporate
Secretary, Charles Schwab
Investment Management, Inc.
Each of the above-referenced officers and/or trustees also serves in the same
capacity as described for the trust, for The Charles Schwab Family of Funds,
Schwab Investments and Schwab Annuity Portfolios. The address of each individual
listed above is 101 Montgomery Street, San Francisco, California 94104.
- ----------
* This trustee is an "interested person" of the trust.
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<PAGE> 27
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 following table provides information concerning
compensation of the trustees.
<TABLE>
<CAPTION>
($) Pension or ($)
Aggregate Retirement Total
Name of Trustee Compensation Benefits Compensation
from the Accrued as from Fund
Total Stock Part of Fund Complex 2
Market Expenses
Index Fund 1
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles R. Schwab 0 N/A 0
Timothy F. McCarthy 3 0 N/A 0
Tom D. Seip 4 0 N/A 0
Steven L. Scheid 5 0 N/A 0
William J. Klipp 0 N/A 0
Donald F. Dorward $532 N/A $99,050
Robert G. Holmes $532 N/A $99,050
Donald R. Stephens $532 N/A $99,050
Michael W. Wilsey $532 N/A $99,050
</TABLE>
1 Estimated compensation for the fiscal year ended October 31, 1999.
2 Unless otherwise stated, information is for the fund complex, which included
38 funds as of October 31, 1998.
3 Mr. McCarthy served as President and trustee until November 24, 1997.
4 Mr. Seip served as President and trustee until May 15, 1998.
5 Mr. Scheid became President and trustee on August 18, 1998.
DEFERRED COMPENSATION PLAN
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, the officers and trustees of the fund, as a group owned of
record or beneficially less than 1% of the outstanding voting securities of the
fund.
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<PAGE> 28
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the fund's investment adviser and
administrator pursuant to Investment Advisory and Administration Agreements
(Advisory Agreements) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-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 adviser and Schwab.
For its advisory and administrative services to the fund, the investment adviser
is entitled to receive an annual fee, accrued daily and paid monthly, of 0.30%
of the fund's average daily net assets not in excess of $500 million, and 0.22%
of such net assets over $500 million.
The investment adviser and Schwab have voluntarily guaranteed that, through at
least February 28, 2001, the total operating expenses (excluding interest, taxes
and extraordinary expenses) of the Investor Shares and Select Shares for the
fund will not exceed 0.40%, and 0.27%, respectively, of the average daily net
assets of each class.
YEAR 2000 presents uncertainties and possible risks to the smooth operations of
the fund and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the fund's and its service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the fund
could be material. The fund's investment adviser is taking steps to minimize the
risks of year 2000 for the fund, including seeking assurances from the fund's
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
fund, however, minimizing year 2000 risk for the fund is a priority of the
investment adviser.
Because the fund pursues an indexing strategy as opposed to focusing on the
fundamentals of an issuer, the investment adviser generally will not take into
account the extent to which an issuer has prepared or is preparing for the year
2000 problem when managing the fund's portfolio. It is possible that the fund's
portfolio and performance may be materially affected by an issuer's year 2000
related problems.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal underwriter for
shares of the fund and is the trust's agent for the purpose of the continuous
offering of the fund's shares. The 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
12
<PAGE> 29
assignment under the Distribution Agreement are identical to those described
above with respect to the Advisory Agreement.
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 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 the contract with the fund,
Schwab is entitled to receive an annual fee, payable monthly from the fund, 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 each share class
of the fund, Schwab is entitled to receive an annual fee, payable monthly from
each share class of the fund, in the amount of 0.20% of the Investor Shares'
average daily net assets and 0.05% of the Select Shares' average daily net
assets.
CUSTODIAN AND FUND ACCOUNTANT
PFPC Trust Company, Airport Business Center, 200 Stevens Drive, Suite A-440,
Lester, Pennsylvania 19133 serves as custodian for the fund. SEI Fund Resources,
One Freedom Valley Dr., Oaks, Pennsylvania 19456, serves as fund accountant for
the fund.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the fund. The accountant maintains all books and records related
to the fund's transactions.
INDEPENDENT ACCOUNTANT
The Fund's independent accountants audit and report on the annual financial
statements of each series of the trust and review certain regulatory reports and
the fund's federal income tax return. They also perform other professional
accounting, auditing, tax and advisory services when the trust engages them to
do so.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
For reporting purposes, the 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
13
<PAGE> 30
fund does not expect that its portfolio turnover rate will exceed 100% in any
given year, a turnover rate lower than that of most non-index mutual funds.
The fund's portfolio turnover rates will be set forth in the financial highlight
tables in the prospectus in the future. The fund does not anticipate significant
variations in its portfolio turnover rate from one year to the next.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for the fund, the investment adviser seeks
to obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the fund primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
In assessing these criteria, the investment adviser will, among other things,
monitor the performance of brokers effecting transactions for the fund to
determine the effect, if any, that the fund's transactions through those brokers
have on the market prices of the stocks involved. This may be of particular
importance for the fund's investments in relatively smaller companies whose
stocks are not as actively traded as those of their larger counterparts. The
fund 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.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment 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 also may be used by the investment adviser when
providing advisory services to its clients.
In determining when and to what extent to use Schwab or any other affiliated
broker-dealer as its broker for executing orders for the fund on securities
exchanges, the investment adviser follows procedures, adopted by the board of
trustees, that are designed to ensure that affiliated brokerage commissions (if
relevant) are reasonable and fair in comparison to unaffiliated brokerage
commissions for comparable transactions. The Board reviews the procedures
annually and approves and reviews transactions involving affiliated brokers
quarterly.
In an attempt to obtain best execution for the fund, the investment adviser may
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 fund to trade directly with other institutional
holders on a net basis. At times, this may allow the fund to trade larger blocks
than would be possible trading through a single market maker.
DESCRIPTION OF THE TRUST
The fund is a series of Schwab Capital Trust, an open-end investment management
company organized as a Massachusetts business trust on May 7, 1993. The fund is
composed of multiple classes of shares: Investor Shares and Select Shares.
The Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by the fund or
share class. The fund's initial and subsequent minimum investment and balance
requirements are set forth in the prospectus.
14
<PAGE> 31
These minimums may be waived for certain investors, including trustees, officers
and employees of Schwab, or changed without prior notice.
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 bylaws of the trust provides 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, or of the Declaration of Trust or of the
bylaws permits or requires that (1) 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 (2) 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. There is a remote possibility
that the fund could become liable for a misstatement in the prospectus or SAI
about another fund.
As more fully described in the Declaration of Trust, the trustees may each year,
or more frequently, distribute to the shareholders of each series accrued income
less accrued expenses and any net realized capital gains less accrued expenses.
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. Distributions will be paid in cash or shares or a combination
thereof as determined by the trustees. Distributions paid in shares will be paid
at the net asset value as determined in accordance with the bylaws.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUND
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
15
<PAGE> 32
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 the
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 fund reserves the right to waive the early redemption fee for certain
tax-advantaged retirement plans.
The fund has made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
The fund is designed for long-term investing. Because short-term trading
activities can disrupt the smooth management of the fund and increase its
expenses, the fund reserves the right to refuse any purchase or exchange order
that appears to be associated with short-term trading activities or "market
timing." Because market timing decisions to buy and sell securities typically
are based on an individual investor's market outlook, including such factors as
the perceived strength of the economy or the anticipated direction of interest
rates, it is difficult for a fund to determine in advance what purchase or
exchange orders may be deemed to be associated with market timing or short-term
trading activities.
PRICING OF SHARES
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. Securities for which
market quotations or closing values 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
guidelines and procedures adopted by the board of trustees. These procedures
require that securities be valued on the basis of prices provided by approved
pricing services, except when a price appears manifestly incorrect or events
occurring between the time a price is furnished by a service and the time a fund
calculates its share price materially affect the furnished price. The board of
trustees regularly reviews fair values assigned to portfolio
16
<PAGE> 33
securities under these circumstances and also when no prices from approved
pricing services are available.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUND
It is the fund's policy to qualify for taxation as a "regulated investment
company"(RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, the fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.
The Code imposes a non-deductible excise tax on RICs 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 net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the deficiency. 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.
The fund's transactions in futures contracts, options and certain other
investment activities may be restricted by the Code and are subject to special
tax rules. In a given case, these rules may accelerate income to the 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 fund will
endeavor to make any available elections pertaining to these transactions in a
manner believed to be in the best interest of the fund and its shareholders.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the fund's prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the fund.
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 the fund.
Any dividends declared by the fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. Long-term
capital gains distributions are taxable as long-term capital gains, regardless
of how long you have held your shares. However, if you receive a long-term
capital gains distribution with respect to fund 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 gains distribution, be treated as a long-term capital
loss. For corporate investors in the fund, dividend distributions the fund
designates 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 fund were a regular corporation. Distributions
by the fund also may be
17
<PAGE> 34
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.
The 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." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
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 generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien." Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
CALCULATION OF PERFORMANCE DATA
Average annual total return is a standardized measure of performance calculated
using methods prescribed by SEC rules. It is calculated by determining the
ending value of a hypothetical initial investment of $1,000 made at the
beginning of a specified period. The ending value is then divided by the initial
investment, which is annualized and expressed as a percentage. It is reported
for periods of one, five and 10 years or since commencement of operations for
periods not falling on those intervals. In computing average annual total
return, a fund assumes reinvestment of all distributions at net asset value on
applicable reinvestment dates.
An after-tax total return for the fund may be calculated by taking that fund's
total return and subtracting applicable federal taxes from the portions of the
fund's total return attributable to capital gain and ordinary income
distributions. This after-tax total return may be compared to that of other
mutual funds with similar investment objectives as reported by independent
sources.
The fund may advertise the percentage of its total return that 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.
The fund also may 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 commencement of
operations to the end of the fiscal year.
The performance of the fund may be compared with the performance of other mutual
funds by comparing the ratings of mutual fund rating services, various indices,
U.S. government obligations, bank certificates of deposit, the consumer price
index and other investments for
18
<PAGE> 35
which reliable data is available. An index's performance data assumes the
reinvestment of dividends but does not reflect deductions for administrative,
management and trading expenses. The fund will be subject to these costs and
expenses, while an index does not have these expenses. In addition, various
factors, such as holding a cash balance, may cause the fund's performance to be
higher or lower than that of an index.
TAX EFFICIENCY
Taxes can erode the returns a shareholder earns from a mutual fund investment
and are an important, and often overlooked, factor when evaluating a mutual
fund's performance. For many mutual funds, shareholder tax liability is of
minimal concern in the investment management process. In contrast, the
investment adviser of the fund employs specific investment policies designed to
reduce capital gain distributions while achieving each fund's investment
objective. These policies include selling the highest tax cost securities first,
not re-balancing the portfolio to reflect changes in their indexes, trading only
round-lots or large blocks of securities and focusing on individual tax lots in
deciding when and how to manage the realization of capital gains. In addition,
the investment adviser monitors, analyzes and evaluates the fund's portfolio as
well as market conditions to carefully manage necessary trading activity and to
determine when there are opportunities to realize capital losses, which offset
realized capital gains. These policies will be utilized to the extent they do
not have a material effect on the fund's ability to track or match the
performance of its index. They may affect the composition of the fund's index
holdings as compared to the index. By deferring or avoiding the realization of
capital gains, where possible, until an investor sells shares, those unrealized
gains can accumulate in the fund, helping to build the value of a shareholder's
investment. In addition, shareholders are given greater control over the timing
of the recognition of such gains and the impact on their tax situations. There
can be no assurance that the investment adviser will succeed in avoiding
realized net capital gains.
The fund may refer to recent studies that analyze certain techniques and
strategies the fund may use or promote the advantages of investing in a series
that is part of a large, diverse mutual fund complex. From time to time, the
fund may include discussions in advertisements of the income tax savings
shareholders may experience as a result of its 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
fund. In addition, such advertisements may include comparisons of the fund's
performance against that of investment products that do not employ the fund's
policy of seeking to limit capital gains.
19
<PAGE> 36
PART C
OTHER INFORMATION
SCHWAB CAPITAL TRUST
Item 23. Exhibits.
(a) Articles of Agreement and Declaration of Trust,
Incorporation dated May 6, 1993 is incorporated by
reference to Exhibit 1 of
Post-Effective Amendment No. 21 to
Registrant's Registration on Form
N-1A, electronically filed on December
17, 1997.
(b) By-Laws Amended and Restated Bylaws
are incorporated by reference to
Exhibit 2 of Post-Effective Amendment
No. 7 to Registrant's Registration
Statement on Form N-1A, electronically
filed on February 27, 1996.
(c) Instruments Defining (i) Article III, Section 5, Article V,
rights of Security Article VI, Article VIII, Section 4
Holders and Article IX, Sections 1, 5 and 7 of
the Agreement and Declaration of
Trust, dated May 6, 1993, referenced
in Exhibit (a) above, are incorporated
herein by reference to Exhibit 1 to
Post-Effective Amendment No. 21 of
Registrant's registration Statement on
Form N-1A electronically filed on
December 17, 1997.
(ii) Articles 9 and 11 of the Amended and
Restated Bylaws are incorporated
herein by reference to Exhibit 2 of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 27, 1996.
(d) Investment Advisory (i) Investment Advisory and Administration
Contracts Agreement between Registrant and
Charles Schwab Investment Management,
Inc. (the "Investment Manager"), dated
June 15, 1994, is incorporated herein
by reference to Exhibit 5(a) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(ii) Amended Schedules A and B to
Investment Advisory and Administration
Agreement referenced in Exhibit (d)(i)
above is incorporated herein by
reference to Exhibit (d)(ii) of
Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 26, 1999.
(iii) Amended Schedules A and B to the
Investment Advisory and Administration
Agreement between Registrant and the
Investment Manager, referenced in
Exhibit (d)(i) above are,
electronically filed herewith.
Part C
<PAGE> 37
(vi) Investment Sub-Advisory Agreement
between Investment Manager, on behalf
of the Schwab Analytics Fund(R), and
Symphony Asset Management is
incorporated herein by reference to
Exhibit 5(d) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement on Form N-1A,
electronically filed on May 17, 1996.
(e) Underwriting (i) Distribution Agreement between
Contracts Registrant and Charles Schwab & Co.,
Inc. ("Schwab"), dated July 21, 1993,
is incorporated herein by reference to
Exhibit 6(a) of Post-Effective
Amendment No. 21 to Registrant's
Registration Statement on Form N-1A,
electronically filed on December 17,
1997.
(ii) Amended Schedule A to the Distribution
Agreement, referenced at Exhibit
(e)(i) above, is incorporated herein
by reference to Exhibit (e)(ii) of
Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 26, 1999.
(iii) Amended Schedule A to the Distribution
Agreement between Registrant and
Schwab, referenced at Exhibit (e)(i)
above, is electronically filed
herewith.
(f) Bonus or Profit Inapplicable
Sharing Contracts
(g) Custodian Agreements (i) Custodian Agreement between Registrant
and Morgan Stanley Trust Company,
dated April 4, 1997, is incorporated
herein by reference to Exhibit 8(a) of
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
April 14, 1997.
(ii) Amended Appendix 2 to Custodian
Agreement between the Registrant and
Morgan Stanley Trust Company referred
to at Exhibit g(i) above, is
incorporated herein by reference to
Exhibit (g)(ii) of Post-Effective
Amendment No. 30 to Registrant's
Registration Statement on Form N-1A,
electronically filed on December 29,
1998.
(iii) Amended Custodian Agreement referenced
at Exhibit g(i) above, between
Registrant and Morgan Stanley Trust
Company, is incorporated herein by
reference to Exhibit 8(c) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(iv) Accounting Services Agreement between
Registrant and SEI Investments, dated
April 1, 1998, is incorporated herein
by reference to Exhibit 8(d) of
Post-Effective Amendment No. 26 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
August 14, 1998.
Part C
<PAGE> 38
(v) Amended Schedule A to the Accounting
Services Agreement referenced at
Exhibit (g)(iv) above, is incorporated
herein by reference to Exhibit (g)(v)
of Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N1-A, electronically filed on
February 26, 1999.
(vi) Form of Amended Schedule A to the
Accounting Services Agreement
referenced at Exhibit (g)(iv) above,
is electronically filed herewith.
(vii) Custodian Services Agreement between
Registrant, on behalf of the Schwab
S&P 500 Fund, and PNC Bank, National
Association ("PNC Bank"), dated
February 21, 1996, is incorporated
herein by reference to Exhibit 8(c) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 27, 1996.
(viii) Schedule A to the Custodian Services
Agreement referenced at Exhibit
(g)(vii) above between Registrant, on
behalf of the Institutional Select
Index Funds is incorporated herein by
reference to Exhibit (g)(viii) of
Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N1-A, electronically filed on
February 26, 1999.
(ix) Form of Schedule I to the Custodian
Services Agreement referenced at
Exhibit (g)(vii) above, is
electronically filed herewith.
(x) Accounting Services Agreement between
Registrant, on behalf of the Schwab
S&P 500 Fund, and PFPC Inc., dated
February 21, 1996, is incorporated
herein by reference to Exhibit 8(d) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 27, 1996.
(xi) Amended Schedule to the Accounting
Services Agreement referenced at
Exhibit g(x) above between Registrant,
on behalf of the Schwab S&P 500 Fund
and the Schwab Analytics Fund, and
PFPC Inc. is incorporated herein by
reference to Exhibit 8(f) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement on
Form N-1A, electronically filed on May
17, 1996.
(xii) Transfer Agency Agreement between
Registrant and Schwab, dated July 21,
1993, is incorporated herein by
reference to Exhibit 8(j) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(xiii) Amended Schedules A and C to the
Transfer Agency Agreement referenced
at Exhibit (g)(xii) above is
incorporated herein by reference to
Exhibit (xiii) of Post-Effective
Amendment No. 32 to Registrant's
Registration Statement on Form N1-A,
electronically filed on February 26,
1999.
Part C
<PAGE> 39
(xiv) Amended Schedules A and C to the
Transfer Agency Agreement between
Registrant and Schwab referenced at
Exhibit (g)(xii) above, are
electronically filed herewith.
(xv) Shareholder Service Agreement between
Registrant and Schwab, dated July 21,
1993 is incorporated herein by
reference to Exhibit 8(l) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(xvi) Amended Schedules A and C to the
Shareholder Service Agreement between
Registrant and Schwab referenced at
Exhibit g(xii) above, is incorporated
herein by reference to Exhibit (xvi)
of Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N1-A, electronically filed on
February 26, 1999.
(xvii) Amended Schedules A and C to the
Shareholder Service Agreement between
Registrant and Schwab referenced at
Exhibit (g)(xv) above, are
electronically filed herewith.
(xviii) Amended Schedule A, dated November 1,
1998 to Accounting Services Agreement
between the Registrant and SEI
Investments referenced as Exhibit
(g)(iv) above, is incorporated herein
by reference to Exhibit (g)(xiv) of
Post-Effective Amendment No. 30 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 29, 1998.
(xix) Amended Custodian Services Agreement
by and between Registrant and PNC
Bank, National Association, dated
November 1 1998, referenced as Exhibit
(g)(vii) above, is incorporated herein
by reference to Exhibit (g)(xv) of
Post-Effective Amendment No. 30 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 29, 1998.
(h) Other Material License Agreement between Schwab
Contracts Capital Trust and Standard & Poor's is
incorporated herein by reference to
Exhibit (h) of Post-Effective
Amendment No. 32 to Registrant's
Registration Statement on Form N1-A,
electronically filed on February 26,
1999.
(i) Legal Opinion Opinion of Morgan, Lewis and Bockius
LLP is filed herewith.
(j) Other Opinions Inapplicable.
(k) Omitted Financial Inapplicable.
Statements
Part C
<PAGE> 40
(l) Initial Capital (i) Purchase Agreement for the Schwab
Agreement International Index Fund(R), dated
June 17, 1993, is incorporated herein
by reference to Exhibit 13(a) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(ii) Purchase Agreement for the Schwab
Small-Cap Index Fund(R), dated October
13, 1993, is incorporated herein by
reference to Exhibit 13(b) of
Post-Effective Amendment No. 21 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
December 17, 1997.
(iii) Purchase Agreement for the Schwab
MarketTrack Portfolios - Growth
Portfolio, Balanced Portfolio and
Conservative Portfolio (formerly
Schwab Asset Director(R)- High Growth,
Schwab Asset Director - Balanced
Growth, and Schwab Asset Director -
Conservative Growth Funds) is
incorporated herein by reference to
Exhibit 13(c) of Post-Effective
Amendment No. 6 to registrant's
Registration Statement on Form N-1A,
electronically filed on December 15,
1996.
(iv) Purchase Agreement for the Schwab S&P
500 Fund-Investor Shares and
e.Shares(R) is incorporated herein by
reference to Exhibit 13(d) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
February 27, 1996.
(v) Purchase Agreement for the Schwab
Analytics Fund(R) is incorporated
herein by reference to Exhibit 13(e)
to Post-Effective Amendment No. 13 of
Registrant's Registration Statement on
Form N-1A, electronically filed on
October 10, 1996.
(vi) Purchase Agreement for Schwab
MarketManager International Portfolio
(formerly Schwab OneSource(R)
Portfolios-International) is
incorporated herein by reference to
Exhibit 13(f) of Post-Effective
Amendment No. 13 to Registrant's
Registration Statement on Form N-1A,
electronically filed on October 10,
1996.
(vii) Purchase Agreement for Schwab
MarketManager Growth Portfolio and
Balanced Portfolio (formerly Schwab
OneSource Portfolios-Growth Allocation
and Schwab OneSource
Portfolios-Balanced Allocation) is
incorporated herein by reference of
Exhibit 13(g) to Post-Effective
Amendment No. 14 to Registration
Statement on Form N-1A, electronically
filed on December 18, 1996.
(viii) Purchase Agreement for Schwab
MarketManager(TM) Small Cap Portfolio
(formerly Schwab OneSource(R)
Portfolios-Small Company) is
incorporated herein by reference to
Exhibit 13(h) of Post-Effective
Amendment No. 21 to Registrant's
Registration Statement on Form N-1A,
electronically filed on December 17,
1997.
Part C
<PAGE> 41
(ix) Purchase Agreement for MarketTrack(TM)
All Equity Portfolio is incorporated
herein by reference to Exhibit 13(i)
of Post-Effective Amendment No. 26 to
Registrant's Registration Statement on
Form N-1A, electronically filed on
August 14, 1998.
(x) Purchase Agreement for Institutional
Select S&P 500 Fund, Institutional
Select Large-Cap Value Index Fund and
Institutional Select Small-Cap Value
Index Fund is incorporated herein by
reference to Exhibit (l)(x) of
Post-Effective Amendment No. 32 to
Registrant's Registration Statement on
Form N1-A, electronically filed on
February 26, 1999.
(xi) Purchase Agreement for Schwab Total
Stock Market Index Fund is filed
herewith.
(m) Rule 12b-1 Plan Inapplicable.
(n) Financial Data (i) Inapplicable.
Schedule
(o) Rule 18f-3 Plan (i) 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 herein by
reference to Post Effective Amendment
18 to Registrant's Registration
Statement on Form N1-A, electronically
filed on April 14, 1997.
(ii) Amended Schedule A to the Amended and
Restated Multiple Class Plan and the
Amended and Restated Multiple Class
Plan, referenced at Exhibit (o)(i)
above, for Schwab Total Stock Market
Index is filed herewith.
Item 24. Persons Controlled by or under Common Control with the Fund.
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 25. 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
Part C
<PAGE> 42
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 26. Business and Other Connections of Investment Adviser
Registrant's Investment Manager, Charles Schwab Investment Management, Inc., a
Delaware corporation, organized in October 1989 to serve as Investment Manager
to Registrant, also serves as the Investment Manager to The Charles Schwab
Family of Funds, Schwab Investments, 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, The Charles Schwab Family of Funds,
Schwab Investments and Schwab Annuity Portfolios and any other investment
companies that Schwab may sponsor in the future.
The business, profession, vocation or employment of a substantial nature in
which each director and/or senior or executive officer of the Investment Manager
(CSIM) and/or Schwab & Co. Inc. (principal underwriter) is or has been engaged
during the past two fiscal years 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, Co-Chief Executive
Officer and Director
Charles Schwab Investment Management, Inc. Chairman and Director
</TABLE>
Part C
<PAGE> 43
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Charles Schwab Trust Company Chairman and Director
Mayer & Schweitzer, Inc. Chairman and Director
until January 1999
Schwab Retirement Plan Services, Inc. Chairman and Director
until January 1999
Charles Schwab Limited Chief Executive Officer
Performance Technologies, Inc. Chairman and Director
until January 1999
TrustMark, Inc. Chairman and Director
until January 1999
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems Director
David S. Pottruck Charles Schwab & Co., Inc. Chief Executive Officer and
Director
The Charles Schwab Corporation President, Co-Chief Executive
Officer and Director
Schwab Retirement Plan Services, Inc. Director until January 1999
Charles Schwab Limited Director until January 1999
Charles Schwab Investment Management, Inc. Director
Mayer & Schweitzer, Inc. Director until January 1999
Performance Technologies, Inc. Director until January 1999
TrustMark, Inc. Director until January 1999
Steven L. Scheid, Charles Schwab & Co., Inc. Enterprise President - Financial
President and Trustee Products and Services, Chief
Financial Officer and Director
The Charles Schwab Corporation Executive Vice President and
Chief Financial Officer
</TABLE>
Part C
<PAGE> 44
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab Investment Management, Inc. Chief Executive Officer, Chief
Financial Officer and Director
The Charles Schwab Trust Company Director until July 1998
Charles Schwab Limited Finance Officer
Schwab Retirement Plan Services, Inc. Director until January 1999
Performance Technologies, Inc. Director until January 1999
Mayer & Schweitzer, Inc. Director until January 1999
Willie C. Bogan The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Management, Inc. Corporate Secretary
Karen W. Chang Charles Schwab & Co., Inc. Enterprise President - General
Investor Services
The Charles Schwab Corporation Executive Vice President
John P. Coghlan Charles Schwab & Co., Inc. Enterprise President - Retirement
Plan Services and Services to
Investment Managers
The Charles Schwab Corporation Executive Vice President
The Charles Schwab Trust Company President, Chief Executive Officer
and Director
Schwab Retirement Plan Services, Inc. Director
Frances Cole, Charles Schwab Investment Management, Inc. Senior Vice President, Chief
Secretary Counsel and Assistant Corporate
Secretary
Linnet F. Deily Charles Schwab & Co., Inc. President - Schwab Retail Group
The Charles Schwab Corporation Executive Vice President
Christopher V. Dodds Charles Schwab & Co., Inc. Executive Vice President - Finance
The Charles Schwab Corporation Executive Vice President and
Controller
Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice President -
Corporate Oversight and Corporate
Secretary
</TABLE>
Part C
<PAGE> 45
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Charles Schwab Corporation Executive Vice President - General
Counsel and Corporate Secretary
Wayne W. Fieldsa Charles Schwab & Co., Inc. Enterprise President - Brokerage
Operations
Lon Gorman Charles Schwab & Co., Inc. Enterprise President - Capital
Markets and Trading
The Charles Schwab Corporation Executive Vice President
James M. Hackley Charles Schwab & Co., Inc. Executive Vice President - Retail
Client Services
Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President - Mutual
Fund Operations
William J. Klipp, Charles Schwab & Co., Inc. Executive Vice President -
Trustee, Executive Vice SchwabFunds
President and Chief
Operating Officer
Charles Schwab Investment Management, Inc. Executive Vice President,
President and Chief Operating
Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President and Chief
Strategy Officer
Charles Schwab & Co., Inc. Executive Vice President and Chief
Strategy Officer
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
</TABLE>
Part C
<PAGE> 46
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Susanne D. Lyons Charles Schwab & Co., Inc. Enterprise President - Retail
Client Services
The Charles Schwab Corporation Executive Vice President
Frederick E. Matteson Charles Schwab & Co., Inc. Executive Vice President - Schwab
Technology Services
John P. McGonigle Charles Schwab & Co., Inc. Executive Vice President - Third
Party Funds
Geoffrey Penney Charles Schwab & Co., Inc. Executive Vice President -
Financial Products and
International Technology
George Rich Charles Schwab & Co., Inc. Executive Vice President - Human
Resources
Gideon Sasson Charles Schwab & Co., Inc. Enterprise President - Electronic
Brokerage
The Charles Schwab Corporation Executive Vice President
Elizabeth Sawi Charles Schwab & Co., Inc. Executive Vice President
Leonard Short Charles Schwab & Co., Inc. Executive Vice President - CRS
Advertising and Branch Management
Luis E. Valencia Charles Schwab & Co., Inc. Enterprise President -
International
The Charles Schwab Corporation Executive Vice President
Stephen B. Ward, Charles Schwab Investment Management, Inc. Senior Vice President and Chief
Senior Vice President and Investment Officer
Chief Investment Officer
</TABLE>
Item 27. Principal Underwriters.
(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.
Part C
<PAGE> 47
(b) See Item 26(b) for information on the officers and directors of
Schwab. The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.
(c) Not applicable.
The following information, which is believed to be accurate, is based upon
information provided by Symphony. The business, profession, vocation or
employment of a substantial nature in which each director and/or officer of
Symphony is or has been engaged during the past two fiscal years for his or her
own account in the capacity of director, officer, employee, partner or trustee
is as follows:
<TABLE>
<CAPTION>
Name Name of Company Capacity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew T. Rudd Symphony Asset Management, Inc. Director and Chairman
BARRA, Inc. Director, Chief Executive Officer and
Chairman
Jeffrey L. Skelton Symphony Asset Management, Inc. Director, Chief Executive Officer and
President
BARRA, Inc. President, BARRA Ventures Div. until 1994
Neil L. Rudolph Symphony Asset Management, Inc. Chief Operating Officer/Chief Compliance
Officer
Wells Fargo Nikko Investment Advisors Managing Director, Chief Operating
Officer -- Mutual Fund Group until 1994
Praveen K. Gottipalli Symphony Asset Management, Inc. Director of Investments
BARRA, Inc. Director of Active Strategies until 1994
Michael J. Henman Symphony Asset Management, Inc. Director of Business Development
Wells Fargo Nikko Investment Advisors Managing Director
until 1994
</TABLE>
Item 27. 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
Part C
<PAGE> 48
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 26(b) for information on the officers and directors of
Schwab. The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.
(c) Not applicable.
Item 28. 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; 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(R) 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, PNC Bank, National Association/PFPC
Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809, Chase Manhattan Bank, 1
Pierrepont Plaza, Brooklyn, New York 11201, and SEI Fund Resources, Oaks
Pennsylvania 19456; Registrant's former custodians and fund accountants,
Federated Services Company, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222,
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02180; or Ropes & Gray, 1301 K Street, N.W., Suite 800 East, Washington,
District of Columbia 20005.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
Part C
<PAGE> 49
THE CHARLES SCHWAB FAMILY OF FUNDS
SCHWAB INVESTMENTS
SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS
POWER OF ATTORNEY
I, the undersigned trustee and/or officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios
(each a "Trust" and collectively the "Trusts"), and each a Massachusetts
business trust, do hereby constitute and appoint Frances Cole, Matthew O'Toole,
Richard W. Grant and John H. Grady, Jr., and each of them singly, my true and
lawful attorneys, with full power to them and each of them, to sign for me and
in my name and the capacity listed below, any and all amendments to the
Registration Statement on Form N1-A of each Trust, and to file the same with all
exhibits thereto, and other documents in connection thereunder, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in the premises, as fully as to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys or any of them may lawfully do
or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
/s/ Charles R. Schwab Date: 4/9/99
Charles R. Schwab,
Chairman and Trustee
/s/ William J. Klipp Date: 2/25/99
William J. Klipp
Executive Vice President, Trustee and
Chief Operating Officer
/s/ Tai-Chin Tung Date: 2/25/1999
Tai-Chin Tung
Treasurer and Principal Financial Officer
/s/ Steven L. Scheid Date: 2/25/99
Steven L. Scheid
President and Trustee
/s/ Donald F. Dorward Date: 2/25/99
Donald F. Dorward
Trustee
/s/ Robert G. Holmes Date: February 25, 1999
Robert G. Holmes
Trustee
<PAGE> 50
/s/ Donald R. Stephens Date: 3/3/99
Donald R. Stephens
Trustee
/s/ Michael W. Wilsey Date: 2/25/99
Michael W. Wilsey
Trustee
<PAGE> 51
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 certifies that it meets all of the requirements for the effectiveness
of this Registration Statement pursuant to Rule 485(b) under the 1933 Act and
has duly caused this Post Effective Amendment No. 33 to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Washington, District
of Columbia, on the 12th day of April, 1999.
SCHWAB CAPITAL TRUST
Registrant
Charles R. Schwab*
---------------------------
Charles R. Schwab, Chairman
Pursuant to the requirements of the 1933 Act, this Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A has been signed below
by the following persons in the capacities indicated this 12th day of April,
1999.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
- --------- -----
Charles R. Schwab* Chairman and Trustee
- --------------------
Charles R. Schwab
Steve Scheid* President and Trustee
- --------------------
Steve Scheid
William J. Klipp* Executive Vice President,
- -------------------- Trustee and
William J. Klipp Chief Operating Officer
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/ John H. Grady, Jr.
------------------------------------
John H. Grady, Jr., Attorney-in-Fact
pursuant to Powers of Attorney
</TABLE>
<PAGE> 52
EXHIBIT INDEX
EXH. NO. DOCUMENT
(d)(iii) Amended Schedules A and B to the Investment Advisory and
Administration Agreement
(e)(iii) Amended Schedule A to the Distribution Agreement
(g)(vi) Form of Amended Schedule A to the Accounting Services Agreement
(g)(ix) Form of Schedule I to the Custodian Services Agreement
(g)(xiv) Amended Schedules A and C to the Transfer Agency Agreement
(g)(xvii) Amended Schedules A and C to the Shareholder Service Agreement
(i) Opinion of Morgan, Lewis and Bockius LLP
(l)(xi) Purchase Agreement for Schwab Total Stock Market Index Fund
(o)(ii) Amended Schedule A and the Amended and Restated Multiple Class Plan
Part C
<PAGE> 1
EXHIBIT (d)(iii)
AMENDED SCHEDULE A
TO THE INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
Fund Effective Date
- ---- --------------
Schwab International Index Fund - Investor Shares July 21, 1993
Schwab International Index Fund - Select Shares April 30, 1997
Schwab Small-Cap Index Fund - Investor Shares October 14, 1993
Schwab Small-Cap Index Fund - Select Shares April 30, 1997
Schwab MarketTrack Growth Portfolio (formerly September 25, 1995
known as Schwab Asset Director-High Growth Fund)
Schwab MarketTrack Balanced Portfolio (formerly September 25, 1995
known as Schwab Asset Director-Balanced Growth Fund)
Schwab MarketTrack Conservative Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-Conservative Growth Fund)
Schwab S&P 500 Fund - e.Shares February 28, 1996
Schwab S&P 500 Fund - Investor Shares February 28, 1996
Schwab S&P 500 Fund - Select Shares April 30, 1997
Schwab Analytics Fund May 21, 1996
Schwab MarketManager International Portfolio September 2, 1996
(formerly known as Schwab OneSource
Portfolios-International)
Schwab MarketManager Growth Portfolio (formerly October 13, 1996
known as Schwab OneSource Portfolios-Growth
Allocation)
Schwab MarketManager Balanced Portfolio (formerly October 13, 1996
known as Schwab OneSource Portfolios-Balanced
Allocation)
Schwab MarketManager Small Cap Portfolio (formerly August 3, 1997
known as Schwab OneSource Portfolios-Small Company)
Schwab Market Track All Equity Portfolio (formerly April 16, 1998
known as Schwab Asset Director-Aggressive Growth Fund)
Institutional Select S&P 500 Fund October 28, 1998
Institutional Select Large Cap-Value Index Fund October 28, 1998
Institutional Select Small-Cap Value Index Fund October 28, 1998
Schwab Total Stock Market Index Fund - Investor Shares April 15, 1999
Schwab Total Stock Market Index Fund - Select Shares April 15, 1999
<PAGE> 2
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
Name: William J. Klipp
Title: 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
<PAGE> 3
EXHIBIT (d)(iii)
SCHEDULE B
TO THE INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
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 MarketTrack Growth Portfolio Fifty four-one-hundredths of one
(formerly known as Schwab Asset percent (0.54%) of the Fund's average
Director-High Growth Fund) daily net assets not in excess of
$500 million, and forty nine-one
hundredths of one percent (0.49%) of
such net assets over $500 million
Schwab MarketTrack Balanced Portfolio Fifty four-one-hundredths of one percent
(formerly known as Schwab Asset (0.54%) of the Fund's average daily net
Director-Balanced Growth Fund) assets not in excess of $500 million,
and forty nine-one-hundredths of one
percent (0.49%) of such net assets over
$500 million
Schwab MarketTrack Conservative Fifty four-one-hundredths of one
Portfolio (formerly known as Schwab percent (0.54%) of the Fund's average
Asset Director-Conservative Growth daily net assets not in excess of
Fund) $500 million, and forty
nine-one-hundredths of one percent
(0.49%) of such net assets over $500
million
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.
<PAGE> 4
Fund Fee
- ---- ---
Schwab Analytics Fund Fifty four-one-hundredths of one
percent (0.54%) of the Fund's average
daily net assets not in excess of
$500 million, and forty
nine-one-hundredths of one percent
(0.49%) of such net assets over $500
million
Schwab MarketManager International Fifty four-one-hundredths of one
Portfolio (formerly known as Schwab percent (0.54%) of the Fund's average
OneSource Portfolios-International) daily net assets not in excess of
$500 million, and forty
nine-one-hundredths of one percent
(0.49%) of such net assets over $500
million
Schwab MarketManager Growth Portfolio Fifty four-one-hundredths of one percent
(formerly known as Schwab OneSource (0.54%) of the Fund's average daily net
Portfolios-Growth Allocation) assets not in excess of $500 million,
and forty nine-one-hundredths of one
percent (0.49%) of such net assets over
$500 million
Schwab MarketManager Balanced Fifty four one-hundredths of one
Portfolio (formerly known as Schwab percent (0.54%) of the Fund's average
OneSource Portfolios-Balanced daily net assets not in excess of
Allocation) $500 million, and forty
nine-one-hundredths of one percent
(0.49%) of such net assets over $500
million
Schwab MarketManager Small Cap Fifty four one-hundredths of one percent
Portfolio (formerly known as Schwab (0.54%) of the Fund's average daily net
OneSource Portfolios-Small Company) assets not in excess of $500 million,
and forty nine-one-hundredths
of one percent (0.49%) of such net
assets over $500 million
Schwab Market Track All Equity Fifty four-one-hundredths of one percent
Portfolio (formerly known as Schwab (0.54%) of the Fund's average daily net
Asset Director-Aggressive Growth Fund) assets not in excess of $500 million,
and forty nine-one-hundredths of one
percent (0.49%) of such net assets over
$500 million
Institutional Select S&P 500 Fund Twenty one hundredths of one percent
(0.20%) of the Fund's average daily net
assets not in excess of $1 billion; and
eighteen one hundredths of one percent
(0.18%) of such net assets over $1
billion.
Institutional Select Large-Cap Value Twenty one hundredths of one percent
Index Fund (0.20%) of the Fund's average daily
net assets not in excess of $1 billion;
and eighteen one hundredths of one
percent (0.18%) of such net assets over
$1 billion.
Institutional Select Small-Cap Value Twenty-five one hundredths of one
Index Fund percent (0.25%) of the Fund's average
daily net assets not in excess of $1
billion; and twenty-three one hundredths
of one percent (0.23%) of such net
assets over $1 billion.
<PAGE> 5
Fund Fee
- ---- ---
Schwab Total Stock Market Index Fund Thirty one
hundredths of one percent (0.30%) of the
Fund's average daily net assets not in
excess of $500 million; and twenty-two
one hundredths of one percent (0.22%) of
such net assets over $500 million.
SCHWAB CAPITAL TRUST
By: /s/ William J. Klipp
Name: William J. Klipp
Title: 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
<PAGE> 1
EXHIBIT (e)(iii)
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB & CO., INC.
Fund Effective Date
- ---- --------------
Schwab International Index Fund - Investor Shares July 21, 1993
Schwab International Index Fund - Select Shares April 30, 1997
Schwab Small-Cap Index Fund - Investor Shares October 14, 1993
Schwab Small-Cap Index Fund - Select Shares April 30, 1997
Schwab MarketTrack Growth Portfolio (formerly September 25, 1995
known as Schwab Asset Director-High Growth Fund)
Schwab MarketTrack Balanced Portfolio (formerly September 25, 1995
known as Schwab Asset Director-Balanced Growth Fund)
Schwab MarketTrack Conservative Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-Conservative Growth Fund)
Schwab S&P 500 Fund - e.Shares February 28, 1996
Schwab S&P 500 Fund - Investor Shares February 28, 1996
Schwab S&P 500 Fund - Select Shares April 30, 1997
Schwab Analytics Fund May 21, 1996
Schwab MarketManager International Portfolio September 2, 1996
(formerly known as Schwab OneSource
Portfolios-International)
Schwab MarketManager Growth Portfolio (formerly October 13, 1996
known as Schwab OneSource Portfolios-Growth Allocation)
Schwab MarketManager Balanced Portfolio (formerly October 13, 1996
known as Schwab OneSource Portfolios-Balanced Allocation)
Schwab MarketManager Small Cap Portfolio (formerly August 3, 1997
known as Schwab OneSource Portfolios-Small Company)
Institutional Select S&P 500 Fund October 28, 1998
Institutional Select Large Cap-Value Index Fund October 28, 1998
Institutional Select Small-Cap Value Index Fund October 28, 1998
Schwab Total Stock Market Index Fund - Investor Shares April 15, 1999
Schwab Total Stock Market Index Fund - Select Shares April 15, 1999
<PAGE> 2
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/ Ron Carter
Name: Ron Carter
Title: Senior Vice President
<PAGE> 1
EXHIBIT (g)(vi)
FORM OF SCHEDULE A
ACCOUNTING SERVICES AGREEMENT
BETWEEN
SCHWAB INVESTMENTS,
SCHWAB CAPITAL TRUST,
SCHWAB ANNUITY PORTFOLIOS AND
SEI FUND RESOURCES
LIST OF FUNDS
Name of Fund Date
- ------------ ----
Schwab MarketTrack Growth Portfolio 4/30/98
Schwab MarketTrack Balanced Portfolio 4/30/98
Schwab MarketTrack Conservative Portfolio 4/30/98
Schwab MarketTrack All Equity Portfolio 4/15/98
Schwab International Index Fund: Investor Shares, Select Shares 4/30/98
Schwab Small-Cap Index Fund: Investor Shares, Select Shares 4/30/98
Schwab MarketManager International Portfolio 4/30/98
Schwab MarketManager Balanced Portfolio 4/30/98
Schwab MarketManager Growth Portfolio 4/30/98
Schwab MarketManager Small Cap Portfolio 4/30/98
Schwab MarketTrack Growth Portfolio II 4/30/98
Schwab S&P 500 Fund: Select Shares, Investor Shares, e.Shares 11/1/98
Schwab S&P 500 Portfolio 11/1/98
Schwab 1000 Fund: Select Shares, Investor Shares 11/1/98
Schwab Analytics Fund 11/1/98
Institutional Select S&P 500 Fund 2/1/99
Institutional Select Large-Cap Value Index Fund 2/1/99
Institutional Select Small-Cap Value Index Fund 2/1/99
Schwab Total Stock Market Index Fund - Select Shares, Investor Shares 6/1/99
<PAGE> 2
SCHWAB INVESTMENTS
SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS
By _____________________________
Name: William J. Klipp
Title: Executive Vice President and Chief
Operating Officer
SEI FUND RESOURCES
By ______________________________
Name: Todd Cipperman
Title: Vice President
<PAGE> 1
EXHIBIT (g)(ix)
FORM OF SCHEDULE I
CUSTODIAN SERVICES AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND PFPC TRUST COMPANY
LIST OF FUNDS
Schwab S&P 500 Fund
Schwab Analytics Fund
Institutional Select S&P 500 Fund
Institutional Select Large-Cap Value Index Fund
Institutional Select Small-Cap Value Index Fund
Schwab Total Stock Market Index Fund
PFPC TRUST COMPANY
By: ______________________
Joseph T. Gramlich
Title: Vice President
SCHWAB CAPITAL TRUST
By: ______________________
Tai-Chin Tung
Title: Treasurer and Principal Financial Officer
<PAGE> 1
EXHIBIT (g)(xiv)
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB AND CO, INC.
Fund Effective Date
- ---- --------------
Schwab International Index Fund - Investor Shares July 21, 1993
Schwab International Index Fund - Select Shares April 30, 1997
Schwab Small-Cap Index Fund - Investor Shares October 14, 1993
Schwab Small-Cap Index Fund - Select Shares April 30, 1997
Schwab MarketTrack Growth Portfolio (formerly September 25, 1995
known as Schwab Asset Director-High Growth Fund)
Schwab MarketTrack Balanced Portfolio (formerly September 25, 1995
known as Schwab Asset Director-Balanced Growth Fund)
Schwab MarketTrack Conservative Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-Conservative Growth Fund)
Schwab S&P 500 Fund - e.Shares February 28, 1996
Schwab S&P 500 Fund - Investor Shares February 28, 1996
Schwab S&P 500 Fund - Select Shares April 30, 1997
Schwab Analytics Fund May 21, 1996
Schwab MarketManager International Portfolio September 2, 1996
(formerly known as Schwab OneSource
Portfolios-International)
Schwab MarketManager Growth Portfolio October 13, 1996
(formerly known as Schwab OneSource
Portfolios-Growth Allocation)
Schwab MarketManager Balanced Portfolio October 13, 1996
(formerly known as Schwab OneSource
Portfolios-Balanced Allocation)
Schwab MarketManager Small Cap Portfolio August 3, 1997
(formerly known as Schwab OneSource
Portfolios-Small Company)
Schwab Market Track All Equity Portfolio April 16, 1998
(formerly known as Schwab Asset
Director-Aggressive Growth Fund)
Institutional Select S&P 500 Fund October 28, 1998
Institutional Select Large-Cap Value Index Fund October 28, 1998
<PAGE> 2
Institutional Select Small-Cap Value Index Fund October 28, 1998
Schwab Total Stock Market Index Fund - Investor Shares April 15, 1999
Schwab Total Stock Market Index Fund - Select Shares April 15, 1999
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/ Ron Carter
Name: Ron Carter
Title: Senior Vice President
<PAGE> 3
EXHIBIT (g)(xiv)
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB AND CO, INC.
FEES
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT
AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:
<TABLE>
<CAPTION>
FUND FEE
- ---- ---
<S> <C>
Schwab International Index Fund - Five one-hundredths of one percent
Investor Shares (.05%) of the Fund's average daily
net assets
Schwab International Index Fund - Five one-hundredths of one percent
Select Shares (.05%) of the Fund's average daily
net assets
Schwab Small-Cap Index Fund - Five one-hundredths of one percent
Investor Shares (.05%) of the Fund's average daily
net assets
Schwab Small-Cap Index Fund-Select Shares Five one-hundredths of one percent
(.05%) of the Fund's average daily
net assets
Schwab MarketTrack Growth Portfolio Five one-hundredths of one percent
(formerly known as Schwab Asset (.05%) of the Fund's average daily
Director-High Growth Fund) net assets
Schwab MarketTrack Balanced Portfolio Five one-hundredths of one percent
(formerly known as Schwab Asset (.05%) of the Fund's average daily
Director-Balanced Growth Fund) net assets
Schwab MarketTrack Conservative Portfolio Five one-hundredths of one percent
(formerly known as Schwab Asset (.05%) of the Fund's average daily
Director-Conservative Growth Fund) net assets
Schwab S&P 500 Fund-Investor Shares Five one-hundredths of one percent
(.05%) of the Fund's average daily
net assets
Schwab S&P 500 Fund-e.Shares Five one-hundredths of one percent
(.05%) of the Fund's average daily
net assets
Schwab S&P 500 Fund-Select Shares Five one-hundredths of one percent
(.05%) 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 MarketManager International Portfolio Five one-hundredths of one percent
(formerly known as Schwab OneSource (.05%) of the Fund's average daily
Portfolios-International) net assets
Schwab MarketManager Growth Portfolio Five one-hundredths of one percent
(formerly known as Schwab OneSource (.05%) of the Fund's average daily
Portfolios-Growth Allocation) net assets.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FUND FEE
- ---- ---
<S> <C>
Schwab MarketManager Balanced Portfolio Five one-hundredths of one percent
(formerly known as Schwab OneSource (.05%) of the Fund's average daily
Portfolios-Balanced Allocation) net assets.
Schwab MarketManager Small Cap Portfolio Five one-hundredths of one percent
(formerly known as Schwab OneSource (.05%) of the Fund's average daily
Portfolios-Small Company) net assets.
Schwab Market Track All Equity Portfolio Five one-hundredths of one percent
(formerly known as Schwab Asset (.05%) of the Fund's average daily
Director-Aggressive Growth Fund) net assets
Institutional Select S&P 500 Fund Five one-hundredths of one percent
(.05%) of the Fund's average daily
net assets
Institutional Select Large-Cap Value Five one-hundredths of one percent
Index Fund (.05%) of the Fund's average daily
net assets
Institutional Select Small-Cap Value Five one-hundredths of one percent
Index Fund (.05%) of the Fund's average daily
net assets
Schwab Total Stock Market Index Fund - Five one-hundredths of one percent
Investor Shares (.05%) of the Fund's average daily
net assets
Schwab Total Stock Market Index Fund - Five one-hundredths of one percent
Select Shares (.05%) of the Fund's average daily
net assets
</TABLE>
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/ Ron Carter
Name: Ron Carter
Title: Senior Vice President
<PAGE> 1
EXHIBIT (g)(xvii)
SCHEDULE A
TO THE SHAREHOLDER SERVICE AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB AND CO, INC.
Fund Effective Date
- ---- --------------
Schwab International Index Fund - July 21, 1993
Investor Shares
Schwab International Index Fund - April 30, 1997
Select Shares
Schwab Small-Cap Index Fund - October 14, 1993
Investor Shares
Schwab Small-Cap Index Fund - April 30, 1997
Select Shares
Schwab MarketTrack Growth Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-High Growth Fund)
Schwab MarketTrack Balanced Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-Balanced Growth Fund)
Schwab MarketTrack Conservative Portfolio September 25, 1995
(formerly known as Schwab Asset
Director-Conservative Growth Fund)
Schwab S&P 500 Fund - Investor Shares February 28, 1996
Schwab S&P 500 Fund -e.Shares February 28, 1996
Schwab S&P 500 Fund - Select Shares April 30, 1997
Schwab Analytics Fund May 21, 1996
Schwab MarketManager International Portfolio September 2, 1996
(formerly known as Schwab OneSource
Portfolios-International)
Schwab MarketManager Growth Portfolio October 13, 1996
(formerly known as Schwab OneSource
Portfolios-Growth Allocation)
Schwab MarketManager Balanced Portfolio October 13, 1996
(formerly known as Schwab OneSource
Portfolios-Balanced Allocation)
Schwab MarketManager Small Cap Portfolio August 3, 1997
(formerly known as Schwab OneSource
Portfolios-Small Company)
Schwab MarketTrack All Equity Portfolio April 16, 1998
(formerly known as Schwab Asset
Director-Aggressive Growth Fund)
<PAGE> 2
Institutional Select S&P 500 Fund October 28, 1998
Institutional Select Large-Cap Value October 28, 1998
Index Fund
Institutional Select Small-Cap Value October 28, 1998
Index Fund
Schwab Total Stock Market Index Fund - April 15, 1999
Investor Shares
Schwab Total Stock Market Index Fund - April 15, 1999
Select Shares
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/ Ron Carter
Name: Ron Carter
Title: Senior Vice President
<PAGE> 3
EXHIBIT (g)(xvii)
SCHEDULE C
TO THE SHAREHOLDER SERVICE AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND CHARLES SCHWAB AND CO, INC.
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT
AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab International Index Fund - Twenty one-hundredths of one percent (.20%)
Investor Shares of the Fund's average daily net assets
Schwab International Index Fund - Five one-hundredths of one percent (0.05%)
Select Shares of the class' average daily net assets
Schwab Small-Cap Index Fund- Twenty one-hundredths of one percent (.20%)
Investor Shares of the Fund's average daily net assets
Schwab Small-Cap Index Fund- Five one-hundredths of one percent (0.05%)
Select Shares of the class' average daily net assets
Schwab MarketTrack Growth Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab Asset of the Fund's average daily net assets
Director-High Growth Fund)
Schwab MarketTrack Balanced Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab Asset of the Fund's average daily net assets
Director-Balanced Growth Fund)
Schwab MarketTrack Conservative Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab Asset of the Fund's average daily net assets
Director-Conservative Growth Fund)
Schwab S&P 500 Fund -Investor Shares Twenty one-hundredths of one percent (.20%)
of the class' average daily net assets
Schwab S&P 500 Fund - e.Shares Five one-hundredths of one percent (0.05%)
of the class' average daily net assets
Schwab S&P 500 Fund - Select Shares Five one-hundredths of one percent (0.05%)
of the class' average daily net assets
Schwab Analytics Fund Twenty one-hundredths of one percent (.20%)
of the Fund's average daily net assets.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab MarketManager International Twenty one-hundredths of one percent (.20%)
Portfolio (formerly known as Schwab of the Fund's average daily net assets.
OneSource Portfolios-International)
Schwab MarketManager Growth Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab OneSource of the Fund's average daily net assets.
Portfolios-Growth Allocation)
Schwab MarketManager Balanced Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab OneSource of the Fund's average daily net assets.
Portfolios-Balanced Allocation)
Schwab MarketManager Small Cap Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab OneSource of the Fund's average daily net assets.
Portfolios-Small Company)
Schwab Market Track All Equity Portfolio Twenty one-hundredths of one percent (.20%)
(formerly known as Schwab Asset of the Fund's average daily net assets
Director-Aggressive Growth Fund)
Institutional Select S&P 500 Fund Five one-hundredths of one percent (0.05%)
of the Fund's average daily net assets
Institutional Select Large-Cap Five one-hundredths of one percent (0.05%)
Value Index Fund of the Fund's average daily net assets
Institutional Select Small-Cap Five one-hundredths of one percent (0.05%)
Index Fund of the Fund's average daily net assets
Schwab Total Stock Market Index Twenty one-hundredths of one percent (0.20%)
Fund - Investor Shares of the Fund's average daily net assets
Schwab Total Stock Market Index Five one-hundredths of one percent (0.05%)
Fund - Select Shares of the Fund's average daily net assets
</TABLE>
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/ Ron Carter
Name: Ron Carter
Title: Senior Vice President
<PAGE> 1
EXHIBIT (i)
April 12, 1999
Schwab Capital Trust
101 Montgomery Street
San Francisco, CA 94104
Re: Opinion of Counsel regarding Post-Effective Amendment No. 33 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-62470).
Ladies and Gentlemen:
We have acted as counsel to Schwab Capital Trust, a Massachusetts trust (the
"Trust"), in connection with the above-referenced Registration Statement (as
amended, the "Registration Statement") which relates to the Trust's units of
beneficial interest, par value $.00001 per share (collectively, the "Shares") of
the Total Stock Market Index Fund. This opinion is being delivered to you in
connection with the Trust's filing of Post-Effective Amendment No. 33 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission pursuant to Rule 485(b) of the Securities Act of 1933 (the
"1933 Act"). With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification on
our part except to the extent otherwise expressly stated, and we express no
opinion with respect to the subject matter or accuracy of such assumptions or
items relied upon.
In connection with this opinion, we have reviewed, among other things, executed
copies of the following documents:
(a) a certificate of the Commonwealth of Massachusetts as to the
existence and good standing of the Trust;
(b) the Agreement and Declaration of Trust for the Trust and all
amendments and supplements thereto (the "Declaration of Trust");
(c) a certificate executed by Frances Cole, the Secretary of the Trust,
certifying as to, and attaching copies of, the Trust's Declaration
of Trust and Amended and
<PAGE> 2
Restated By-Laws (the "By-Laws"), and certain resolutions adopted by
the Board of Trustees of the Trust authorizing the issuance of the
Shares; and
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Declaration
of Trust and By-Laws, and for the consideration described in the Registration
Statement, will be legally issued, fully paid and nonassessable under the laws
of the Commonwealth of Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis and Bockius LLP
Morgan, Lewis and Bockius LLP
<PAGE> 1
EXHIBIT (l)(xi)
PURCHASE AGREEMENT
Schwab Capital Trust (the "Trust"), a Massachusetts business trust, and
Charles Schwab & Co., Inc. ("Schwab"), a California corporation, hereby agree on
the 9th day of April, 1999 as follows:
1. The Trust hereby offers and Schwab hereby purchases 1 unit of
beneficial interest of each class of Series P of the Trust representing
interests in the two classes of shares known as Schwab Total Stock Market Index
Fund - Investor Shares and the Schwab Total Stock Market Index Fund - Select
Shares, respectively, (such 1 unit of beneficial interest being hereafter
collectively known as a "Share") at a price of $20.00 per Share. Schwab hereby
acknowledges purchase of the Shares, and the Trust hereby acknowledges receipt
from Schwab of funds in the amount of $40.00 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.
<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/ Koji Felton By: /s/ Stephen B. Ward
Koji Felton Name: Stephen B. Ward
Title: Senior Vice President and
Chief Investment Officer
Attest: CHARLES SCHWAB & CO., INC.
/s/ Koji Felton By: /s/ Ron Carter
Koji Felton Name: Ron Carter
Title: Senior Vice President
<PAGE> 1
EXHIBIT (o)(ii)
SCHWAB CAPITAL TRUST
AMENDED AND RESTATED MULTIPLE CLASS PLAN
This document amends and restates the MULTIPLE CLASS PLAN (the "Plan") of
SCHWAB CAPITAL TRUST, a Massachusetts business trust (the "Trust"), adopted on
February 28, 1996 pursuant to Rule 18f-3(d) under the Investment Company Act of
1940, as amended (the "1940 Act"). The Plan is applicable to the Trust's
investment portfolio(s) identified on Schedule A hereto, as such Schedule may be
amended from time to time (each a "Fund", collectively the "Funds").
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its current and future
investors; and
WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees"),
including a majority of the Trustees who are not "interested persons" of the
Trust, as such term is defined by the 1940 Act, mindful of the requirements
imposed by Rule 18f-3(d) under the 1940 Act, has determined to adopt this Plan
to enable the Fund to provide appropriate services to certain designated classes
of shareholders of the Fund;
NOW, THEREFORE, the Trust designates the Plan as follows:
1. Designation of Classes. Each Fund listed in "Group I" on Schedule A
shall offer its Shares in three classes: Investor Shares, e.Shares and Select
Shares. Each Fund listed in "Group II" on Schedule A shall offer its units of
beneficial interest ("Shares") in two classes: Investor Shares and Select
Shares.
2. Redesignation of Existing Shares. The currently outstanding Shares of
each Fund listed in Group I on Schedule A shall continue to be designated as
Investor Shares and e.Shares, as appropriate. The currently outstanding Shares
of the Funds listed in "Group II" on Schedule A shall be redesignated as
Investor Shares.
3. Purchases: Investor Shares and Select Shares are distributed to the
general public pursuant to procedures outlined in the Trust's Registration
Statement. The e.Shares may be purchased only through electronic means pursuant
to procedures established by the distributor, as outlined in the Trust's
Registration Statement, e.g., through SchwabLink(TM).
4. Minimum Transaction Requirements. The minimum initial investment,
subsequent investment, and Fund balance requirements applicable to the Select
Shares shall be higher than those applicable to Investor Shares and e.Shares, as
determined from time to time by Charles Schwab Investment Management, Inc.
("CSIM"). The minimum initial investment, subsequent investment, and Fund
balance requirements applicable to e.Shares and Investor Shares shall be the
same, as determined from time to time by CSIM.
<PAGE> 2
5. Shareholder Services and Transfer Agency Fees Specific to Each Class.
Regular assistance through non-electronic shareholder services (e.g. the
placement of purchase and redemption orders and exchange requests for Fund
Shares) shall be offered only with respect to the Investor Shares and the Select
Shares and not the e.Shares. Accordingly, the shareholder service fee charged to
Investor Shares shall be higher than that charged to e.Shares, as set forth on
Schedule A hereto and in the Shareholder Service Agreement and schedules, dated
July 21, 1993, as amended from time to time, between the Trust and Charles
Schwab & Co., Inc. (the "Shareholder Servicing Agent"). As a result of costs and
expenses attributable to servicing shareholders of Investor Shares and the
services rendered to Investor Shares, the shareholder service and transfer agent
fees charged to Investor Shares shall be higher than those charged to Select
Shares as set forth on Schedule A hereto and in the Shareholder Service
Agreement and schedules, dated May 1, 1993, as amended from time to time,
between the Trust and the Shareholder Servicing Agent.
6. Exchange Privilege. Each class of shares of each Fund shall be
exchangeable for shares of any Fund of the Trust or of Schwab Investments and
The Charles Schwab Family of Funds, including all classes of shares of such
Funds, provided that the minimum investment and any other requirements of the
Fund or class for which the shares are exchanged are satisfied.
7. Allocation of Expenses. Each class shall pay all of the expenses of its
distribution and shareholder services arrangement (such arrangements for
shareholder services or distribution, or both, shall be a different arrangement
from other classes). At the Board of Trustees' discretion, each class may pay a
different share of other expenses, not including advisory or custodial fees or
other expenses related to the management of the Fund's assets, if these expenses
are actually incurred in a different amount by that class, or if the class
receives services of a different kind or to a different degree than other
classes. All other expenses, including (i) advisory or custodial fees or other
expenses related to the management of the Fund's assets and (ii) costs of
implementing this plan, shall be allocated to each class on the basis of the
relative net asset value of that class in relation to the net asset value of the
Fund. If, in the future, new class(es) are added to a Fund, any costs of
implementing this plan for such new class(es) shall be allocated to those
classes of the Fund then in existence before the addition of the new class
structure and shall not be charged to the new class(es).
8. Voting Rights. Each Share held entitles the Shareholder of record to
one vote. Each Fund will vote separately on matters relating solely to that
Fund. Each class of a Fund shall have exclusive voting rights on any matter
submitted to Shareholders that relates solely to that class, and shall have
separate voting rights on any matter submitted to Shareholders in which the
interests of one class differ from the interests of any other class. However,
all Fund Shareholders will have equal voting rights on matters that affect all
Fund Shareholders equally.
9. Distributions. The amount of dividends payable on each class will be
calculated on the basis of net asset value per share. Dividends declared will be
paid annually in December, subject to the Trust's Board of Trustees' discretion.
Capital gains will be distributed to each class in accordance with Rule 18f-3.
<PAGE> 3
10. Termination and Amendment. This Plan may be terminated or materially
amended at any time by vote of a majority of the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Trust, as such
term is defined by the 1940 Act. Any non-material amendment of this Plan may be
made by CSIM.
11. The names "Schwab Capital Trust" and "Board of Trustees" 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, 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, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any series and/or class of
Shares of the Trust must look solely to the assets of the Trust belonging to
such series and/or class for the enforcement of any claims against the Trust.
SCHWAB CAPITAL TRUST
Signature: /s/ William J. Klipp
Name: William J. Klipp
Title: Executive Vice President and
Chief Operating Officer
Date: April 9, 1999
<PAGE> 4
EXHIBIT (o)(ii)
SCHEDULE A TO THE
MULTIPLE CLASS PLAN OF
SCHWAB CAPITAL TRUST
<TABLE>
<CAPTION>
Name of Fund and Class Shareholder Service Transfer Agency Fee (as
Fee (as a percentage a percentage of average
of average daily net daily net assets of the
assets of the Fund Fund Class)
Class)
<S> <C> <C>
A. Group I
Schwab S&P 500 Fund-Investor Shares 0.20% 0.05%
Schwab S&P 500 Fund-e.Shares 0.05% 0.05%
Schwab S&P 500 Fund-Select Shares 0.05% 0.05%
B. Group II
Schwab International Index 0.20% 0.05%
Fund-Investor Shares
Schwab International Index 0.05% 0.05%
Fund-Select Shares
Schwab Small-Cap Index Fund- 0.20% 0.05%
Investor Shares
Schwab Small-Cap Index Fund- 0.05% 0.05%
Select Shares
Schwab Total Stock Market Index 0.20% 0.05%
Fund-Investor Shares
Schwab Total Stock Market Index 0.05% 0.05%
Fund-Select Shares
</TABLE>
SCHWAB CAPITAL TRUST
Signature: /s/ William J. Klipp
Name: William J. Klipp
Title: Executive Vice President and
Chief Operating Officer
Date: April 9, 1999
