<PAGE> 1
File Nos. 33-62470 and 811-7704
As filed with the Securities and Exchange
Commission on September 13, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 34 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36 [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 Investment
1701 Market Street One Franklin Square Management, Inc.
Philadelphia, PA 19103 1301 Franklin, NW, Suite 101 Montgomery Street
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)
[ ] On (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On December 1, 1999 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
[LOGO]
INSTITUTIONAL SELECT(TM) Funds
[Prospectus - December 1, 1999]
INSTITUTIONAL
SELECT
S&P 500 Fund
INSTITUTIONAL
SELECT
Large-Cap Value Index Fund
INSTITUTIONAL
SELECT
Small-Cap Value Index Fund
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.
[LOGO]
<PAGE> 3
ABOUT
INSTITUTIONAL SELECT(TM) FUNDS
ABOUT THE FUNDS
INSTITUTIONAL SELECT S&P 500 FUND 4
INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND 8
INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND 12
FUND MANAGEMENT 16
INVESTING IN THE FUNDS
BUYING SHARES 18
SELLING/EXCHANGING SHARES 19
TRANSACTION POLICIES 20
DISTRIBUTIONS AND TAXES 21
<PAGE> 4
THE FUNDS
The funds in this prospectus use INDEXING STRATEGIES. Each fund seeks HIGH TOTAL
RETURN by tracking the performance of a different stock market index, as
described on the following pages.
Because the composition of an index tends to be comparatively stable, index
funds historically have shown LOW PORTFOLIO TURNOVER compared to actively
managed funds.
The funds are designed for clients that are investing through an INVESTMENT
MANAGER and require high initial minimum investments. All of the funds are
managed by the same investment adviser, Charles Schwab Investment Management,
Inc. (CSIM).
Like most stock investments, the funds are intended for LONGER-TERM TIME
HORIZONS. Their performance will fluctuate over time and, as with all
investments, future performance may differ from past performance.
<PAGE> 5
[LOGO]
INSTITUTIONAL SELECT(TM) S&P 500 FUND
TICKER SYMBOL: ISLCX
GOAL -- The fund seeks high total return by
tracking the performance of the S&P 500(R)
Index.
INDEX
THE S&P 500 INDEX includes the common stocks of 500 leading U.S. companies from
a broad range of industries. Standard & Poor's, the company that maintains the
index, uses a variety of measures to determine which stocks are listed in the
index. Each stock is represented in proportion to its total market value.
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. The fund generally gives the same weight to a given stock
as the index does. In seeking to enhance after-tax performance, the fund may
choose to realize certain capital losses and use them to offset capital gains.
This strategy may help the fund reduce its taxable distributions. All other
factors being equal, this can lower realized capital gains and lower operating
expenses.
Like many index funds, the fund may invest in futures contracts and lend
securities to minimize the gap in performance that naturally exists between any
index fund and its index. This gap occurs mainly because, unlike the index, the
fund incurs expenses and must keep a small portion of its assets in cash for
business operations. By using futures, the fund potentially can offset the
portion of the gap attributable to its cash holdings. Any income realized
through securities lending may help reduce the portion of the gap attributable
to expenses. Because some of the effect of expenses remains, however, the fund's
performance normally is below that of the index.
LARGE-CAP STOCKS -- Although the 500 companies in the index constitute only
about 7% of all the publicly traded companies in the United States, they
represent approximately 80% of the total value of the U.S. stock market. (All
figures are as of 6/30/99.) For this reason, the index is widely used as a
measure of overall U.S. stock market performance.
Because the index weights a stock according to its market capitalization (total
market value of all shares outstanding), larger stocks have more influence on
the performance of the index than do the index's smaller stocks.
4 S&P 500 FUND
<PAGE> 6
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 LARGE-CAP PORTION OF 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).
Although the S&P 500(R) Index encompasses stocks from many different sectors of
the economy, its performance primarily reflects that of large-cap stocks. As a
result, whenever these stocks perform less well than mid- or small-cap stocks,
the fund may underperform funds that have exposure to those segments of the U.S.
stock market. Likewise, whenever large-cap U.S. stocks fall behind other types
of investments -- bonds, for instance -- the fund's performance also will lag
those investments.
OTHER MAIN RISK FACTORS -- Although the fund's main risks are those associated
with its stock investments, its other investment strategies also may involve
risks. These risks could affect how well the fund tracks the performance of the
index.
For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, 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 -- Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's
500(R) and 500(R) are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use by the fund. The fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the fund. More complete information
may be found in the Statement of Additional Information (see back cover).
S&P 500 FUND 5
<PAGE> 7
PERFORMANCE
Because this is a new fund, no performance figures 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 fund's total return,
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES (% OF TRANSACTION AMOUNT)
x.xx
REDEMPTION FEE,
charged only on shares you sell within 180 days
of buying them, and paid directly to the fund 0.25
ANNUAL OPERATING EXPENSES
(% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses* 0.15
-----
Total annual operating expenses 0.15
EXPENSE REDUCTION (0.00)
NET OPERATING EXPENSES** 0.15
</TABLE>
* Based on estimated expenses for the current year.
** Guaranteed by Schwab and the investment adviser through 12/31/2005.
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.
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>
$000 $000
</TABLE>
6 S&P 500 FUND
<PAGE> 8
[LOGO]
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. Because
the fund is new, these figures are unaudited. Audited figures will appear in the
fund's first annual report (see back cover).
<TABLE>
<CAPTION>
2/1/1999 -
4/30/1999
----------
<S> <C>
PER-SHARE DATA ($)
Net asset value at beginning of period 00.00
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
NET ASSET VALUE AT END OF PERIOD 00.00
------
Total return (%) 00.00 1
RATIOS/SUPPLEMENTAL DATA (%)
Ratio of actual operating expenses to average net assets 00.00 2
Expense reductions reflected in above ratio 00.00 2
Ratio of net investment income to average net assets 00.00 2
Portfolio turnover rate 00.00
Net assets, end of period ($ x 1,000,000) 00.00
</TABLE>
1 Not annualized.
2 Annualized.
S&P 500 FUND 7
<PAGE> 9
[LOGO]
INSTITUTIONAL SELECT(TM) Large-Cap Value Index Fund
TICKER SYMBOL: ISLVX
GOAL -- The fund seeks high total return by
tracking the performance of the S&P 500/BARRA
Value Index.
INDEX
THE S&P 500/BARRA VALUE INDEX includes those stocks from the S&P 500(R) Index
that are identified as value stocks. Standard & Poor's and BARRA, Inc. determine
which stocks are listed in the index, generally choosing those with the highest
ratios of book value to market price. Each stock is represented in proportion to
its total market value.
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. The fund generally gives the same weight to a given stock
as the index does. In seeking to enhance after-tax performance, the fund may
choose to realize certain capital losses and use them to offset capital gains.
This strategy may help the fund reduce its taxable distributions. All other
factors being equal, this can lower realized capital gains and lower operating
expenses.
Like many index funds, the fund may invest in futures contracts and lend
securities to minimize the gap in performance that naturally exists between any
index fund and its index. This gap occurs mainly because, unlike the index, the
fund incurs expenses and must keep a small portion of its assets in cash for
business operations. By using futures, the fund potentially can offset the
portion of the gap attributable to its cash holdings. Any income realized
through securities lending may help reduce the portion of the gap attributable
to expenses. Because some of the effect of expenses remains, however, the fund's
performance normally is below that of the index.
LARGE-CAP VALUE STOCKS -- Value investing is based on the concept that over
time, investors will come to recognize the true worth of undervalued stocks, and
their prices will rise. In addition, value investing has the potential for lower
volatility, because value stocks in theory are already trading at low prices.
THE S&P 500/BARRA VALUE INDEX currently contains 375 stocks representing
approximately 48% of the total market value of the S&P 500. The index is
rebalanced at least twice a year, with some stocks that have decreased in value
being dropped from the index and others that have increased in value being
added. (All figures as of 6/30/99.)
8 LARGE-CAP VALUE INDEX FUND
<PAGE> 10
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 LARGE-CAP VALUE PORTION OF 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).
Although the S&P 500/BARRA Value Index encompasses stocks from many different
sectors of the economy, its performance primarily reflects that of large-cap
value stocks. As a result, whenever these stocks perform less well than
large-cap growth stocks, or mid- or small-cap stocks of any type, the fund may
underperform funds that have exposure to those segments of the U.S. stock
market. Likewise, whenever large-cap value stocks fall behind other types of
investments -- bonds, for instance -- the fund's performance also will lag those
investments.
OTHER MAIN RISK FACTORS -- Although the fund's main risks are those associated
with its stock investments, its other investment strategies also may involve
risks. These risks could affect how well the fund tracks the performance of the
index.
For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, 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 -- Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's
500(R), 500(R) and S&P 500/BARRA Value Index are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by the fund. The fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
fund. More complete information may be found in the Statement of Additional
Information (see back cover).
LARGE-CAP VALUE INDEX FUND 9
<PAGE> 11
PERFORMANCE
Because this is a new fund, no performance figures 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 fund's total return,
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES (% OF TRANSACTION AMOUNT)
x.xx
REDEMPTION FEE,
charged only on shares you sell within 180 days
of buying them, and paid directly to the fund 0.50
ANNUAL OPERATING EXPENSES
(% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses* 0.25
-----
Total annual operating expenses 0.25
EXPENSE REDUCTION (0.00)
NET OPERATING EXPENSES** 0.25
</TABLE>
* Based on estimated expenses for the current fiscal year.
** Guaranteed by Schwab and the investment adviser through 12/31/2005.
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.
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>
$000 $000
</TABLE>
10 LARGE-CAP VALUE INDEX FUND
<PAGE> 12
[LOGO]
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. Because
the fund is new, these figures are unaudited. Audited figures will appear in the
fund's first annual report (see back cover).
<TABLE>
<CAPTION>
2/1/1999 -
4/30/1999
----------
<S> <C>
PER-SHARE DATA ($)
NET ASSET VALUE AT BEGINNING OF PERIOD 00.00
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
NET ASSET VALUE AT END OF PERIOD 00.00
------
Total return (%) 00.00 1
RATIOS/SUPPLEMENTAL DATA (%)
Ratio of actual operating expenses to average net assets 00.00 2
Expense reductions reflected in above ratio 00.00 2
Ratio of net investment income to average net assets 00.00 2
Portfolio turnover rate 00.00
Net assets, end of period ($ x 1,000,000) 00.00
</TABLE>
1 Not annualized.
2 Annualized.
Large-Cap Value Index fund 11
<PAGE> 13
[LOGO]
Institutional Select(TM) SMALL-CAP VALUE INDEX FUND
TICKER SYMBOL: ISSVX
GOAL -- The fund seeks high total return by
tracking the performance of the S&P SmallCap
600/BARRA Value Index.
INDEX
THE S&P SMALLCAP 600/BARRA VALUE INDEX includes those stocks from the S&P
SmallCap 600(R) Index that are identified as value stocks. Standard & Poor's and
BARRA, Inc. determine which stocks are listed in the index, generally choosing
those with the highest ratios of book value to market price. Each stock is
represented in proportion to its total market value.
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. The fund generally gives the same weight to a given stock
as the index does. In seeking to enhance after-tax performance, the fund may
choose to realize certain capital losses and use them to offset capital gains.
This strategy may help the fund reduce its taxable distributions. All other
factors being equal, this can lower realized capital gains and lower operating
expenses.
Like many index funds, the fund may invest in futures contracts and lend
securities to minimize the gap in performance that naturally exists between any
index fund and its index. This gap occurs mainly because, unlike the index, the
fund incurs expenses and must keep a small portion of its assets in cash for
business operations. By using futures, the fund potentially can offset the
portion of the gap attributable to its cash holdings. Any income realized
through securities lending may help reduce the portion of the gap attributable
to expenses. Because some of the effect of expenses remains, however, the fund's
performance normally is below that of the index.
SMALL-CAP VALUE STOCKS -- Value investing is based on the concept that over
time, investors will come to recognize the true worth of undervalued stocks, and
their prices will rise. In addition, value investing has the potential for lower
volatility, because value stocks in theory are already trading at low prices.
THE S&P SMALLCAP 600/BARRA VALUE INDEX currently contains 383 stocks
representing approximately 50% of the total market value of the S&P SmallCap
600. The index is rebalanced at least twice a year, with some stocks that have
decreased in value being dropped from the index and others that have increased
in value being added. (All figures as of 6/30/99.)
12 SMALL-CAP VALUE INDEX FUND
<PAGE> 14
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 SMALL-CAP VALUE PORTION OF 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).
HISTORICALLY, SMALL-CAP STOCKS HAVE BEEN RISKIER THAN LARGE- AND MID-CAP STOCKS.
Small-cap stock prices may be based largely on future expectations rather than
current achievements, and may move sharply, especially during volatile markets.
Although the S&P SmallCap 600/BARRA Value Index encompasses stocks from many
different sectors of the economy, its performance primarily reflects that of
small-cap value stocks. As a result, whenever these stocks perform less well
than small-cap growth stocks, or mid- or large-cap stocks of any type, the fund
may underperform funds that have exposure to those segments of the U.S. stock
market. Likewise, whenever small-cap value stocks fall behind other types of
investments -- bonds, for instance -- the fund's performance also will lag those
investments.
OTHER MAIN RISK FACTORS -- Although the fund's main risks are those associated
with its stock investments, its other investment strategies also may involve
risks. These risks could affect how well the fund tracks the performance of the
index.
For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, 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 -- Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's
500(R), 500(R) and S&P SmallCap 600/BARRA Value Index are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by the fund. The fund
is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard
& Poor's makes no representation regarding the advisability of investing in the
fund. More complete information may be found in the Statement of Additional
Information (see back cover).
SMALL-CAP VALUE INDEX FUND 13
<PAGE> 15
PERFORMANCE
Because this is a new fund, no performance figures 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 fund's total return,
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES (% OF TRANSACTION AMOUNT)
x.xx
REDEMPTION FEE,
charged only on shares you sell within 180 days
of buying them, and paid directly to the fund 0.75
ANNUAL OPERATING EXPENSES
(% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses* 0.32
-----
Total annual operating expenses 0.32
EXPENSE REDUCTION (0.00)
NET OPERATING EXPENSES** 0.32
</TABLE>
* Based on estimated expenses for the current fiscal year.
** Guaranteed by Schwab and the investment adviser through 12/31/2005 -- Fee
has been waived through 9/30/99.
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.
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>
$000 $000
</TABLE>
14 SMALL-CAP VALUE INDEX FUND
<PAGE> 16
[LOGO]
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. Because
the fund is new, these figures are unaudited. Audited figures will appear in the
fund's first annual report (see back cover).
<TABLE>
<CAPTION>
2/1/1999 -
4/30/1999
----------
<S> <C>
PER-SHARE DATA ($)
Net asset value at beginning of period 00.00
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
NET ASSET VALUE AT END OF PERIOD 00.00
------
Total return (%) 00.00 1
RATIOS/SUPPLEMENTAL DATA (%)
Ratio of actual operating expenses to average net assets 00.00 2
Expense reductions reflected in above ratio 00.00 2
Ratio of net investment income to average net assets 00.00 2
Portfolio turnover rate 00.00
Net assets, end of period ($ x 1,000,000) 00.00
</TABLE>
1 Not annualized.
2 Annualized.
SMALL-CAP VALUE INDEX FUND 15
<PAGE> 17
FUND MANAGEMENT
THE INVESTMENT ADVISER for the Institutional Select(TM) Funds is Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104.
Founded in 1989, the firm today serves as investment adviser for 39 mutual
funds, including 8 equity index funds. The firm manages assets for more than 4
million shareholder accounts. (All figures on this page are as of 4/30/1999.)
As the investment adviser, the firm oversees the asset management and
administration of the Institutional Select Funds. As compensation for these
services, the firm receives a management fee from each fund. Each fund's fee is
calculated as follows:
MANAGEMENT FEE
(% of average daily net assets)
<TABLE>
<CAPTION>
S&P 500 FUND LARGE-CAP VALUE FUND SMALL-CAP VALUE FUND
<S> <C> <C> <C>
First $1 billion of assets 0.20% 0.20% 0.25%
Assets above $1 billion 0.18% 0.18% 0.23%
</TABLE>
GERI HOM, a vice president of the investment adviser, is responsible for the
day-to-day management of the S&P 500 fund. She joined the firm in 1995 and has
nearly 20 years of experience in equity index management.
LARRY MANO, a portfolio manager, is responsible for the day-to-day management of
the large-cap and small-cap funds. 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.
16 FUND MANAGEMENT
<PAGE> 18
INVESTING IN THE FUNDS
The following pages tell how to BUY, SELL AND EXCHANGE shares in these funds.
There's also information on INVESTMENT MINIMUMS, distribution options and taxes.
Your INVESTMENT MANAGER can help you make decisions about your investment and
can work with you to ANSWER QUESTIONS you may have about investing in the funds.
If you don't have an investment manager, call 1-800-435-4000.
<PAGE> 19
BUYING SHARES
Shares of the funds may be purchased through certain third-party investment
providers, such as investment managers, financial institutions and workplace
retirement plans. For a higher minimum investment, shares also may be purchased
through a Schwab brokerage account.
If you are investing through a third-party investment provider, some of the
instructions, minimums and policies described below may be different. Some
investment providers may charge transaction or other fees and require signature
guarantees. Contact your investment manager or other investment provider for
more information.
STEP 1
CHOOSE A FUND AND DECIDE HOW MUCH YOU WANT TO INVEST. The investment minimums
for these funds depend on whether the account is being held by an investment
manager or directly by another type of investor, such as an individual.
MINIMUM INITIAL INVESTMENT
Investment managers $100,000 for Large-Cap and Small-Cap Value Index Funds
$250,000 for S&P 500 Fund
$2,500 per client account
The minimums are waived until further notice for the
Large-Cap and Small-Cap Value Index Funds
Other investors $3,000,000 for all funds
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 dividend and capital gain distributions are
invested automatically in shares of your fund
Cash/reinvestment You receive payment for dividends, while any capital
gain distributions are invested in shares of your fund
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.
18 INVESTING IN THE FUNDS
<PAGE> 20
SELLING/EXCHANGING SHARES
When selling or exchanging shares, please be aware of the following policies:
- - A 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.
- - The funds reserve the right to honor redemptions in portfolio securities
instead of cash if they exceed 1% of a fund's assets or $250,000 in any
90 day period.
- - As indicated in the funds' fee tables, each 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, a
fund will first sell any shares in your account that aren't subject to
the fee (including shares acquired through reinvestment or exchange).
- - Exchange orders must meet the minimum investment and other requirements
for the fund into which you are exchanging.
- - You must obtain and read the prospectus for the fund into which you are
exchanging prior to placing your order.
METHODS FOR PLACING ORDERS
If you are investing through an investment manager, contact your manager for all
transactions. If you do not have an investment manager, call 1-800-435-4000 for
instructions. (1-800-345-2550 for TDD users.)
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 of the fund whose shares you want to buy or sell
- - The dollar amount or number of shares you would like to buy, sell or
exchange
- - For exchanges, the name 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 FUNDS 19
<PAGE> 21
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THE NEW YORK STOCK EXCHANGE (NYSE) IS
OPEN. Orders to buy, sell or exchange shares that are received in good order by
Schwab prior to the close of the NYSE (generally 4 p.m. Eastern time) on a
business day will be executed that day.
THE FUNDS CALCULATE THEIR SHARE PRICES EACH BUSINESS DAY, AFTER THE CLOSE OF THE
NYSE. A 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. Each
order to buy, exchange or sell shares is executed at the next share price
calculated after the order is accepted.
In valuing portfolio securities, the funds use market quotes if they are readily
available. In cases where quotes are not readily available, a fund may value
securities based on fair values developed using methods approved by the fund's
Board of Trustees.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the rights to:
- - automatically redeem your shares if your account is closed for any reason
- - modify or terminate the exchange privilege upon 60 days' written notice
to shareholders
- - refuse any purchase or exchange order, including those that appear to be
associated with "market timing" strategies
- - change or waive a fund's investment minimums
- - 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
- - withdraw or suspend any part of the offering made by this prospectus
DISTRIBUTIONS AND TAXES
ANY INVESTMENT IN THE FUNDS 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 with your
tax advisor about the tax implications of your investment in a fund. You can
also visit the 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. Every year, each fund distributes to its shareholders substantially
all of its net investment income and net capital gains, if any. These
distributions typically are paid 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. Each 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
20 INVESTING IN THE FUNDS
<PAGE> 22
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 considered a taxable sale of one
fund followed by a purchase of another fund.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DISTRIBUTIONS the fund paid during the previous
calendar year. Shareholders 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 WILL END UP RECEIVING A PORTION OF
YOUR INVESTMENT BACK AS A TAXABLE DISTRIBUTION. THIS IS BECAUSE WHEN A FUND
MAKES A DISTRIBUTION, THE AMOUNT OF THE DISTRIBUTION IS SUBTRACTED FROM THE
SHARE PRICE.
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 FUNDS 21
<PAGE> 23
NOTES
22 NOTES
<PAGE> 24
NOTES 23
<PAGE> 25
TO LEARN MORE
This prospectus contains important information on the funds 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 Institutional Select(TM)
Funds or the SEC. All materials from Institutional Select Funds are free; the
SEC charges a duplicating fee. You can also review these materials in person at
the SEC's Public Reference Room.
INSTITUTIONAL SELECT FUNDS
P.O. Box 7575
San Francisco, CA 94120-7575
800-435-4000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBERS
Institutional Select Funds 811-7704
[LOGO]
INSTITUTIONAL SELECT(TM) FUNDS
[Prospectus - December 1, 1999]
xxxxxxxxx [LOGO]
<PAGE> 26
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SELECT(TM) S&P 500 FUND
INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND
INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND
DECEMBER 1, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated December 1, 1999 (as
amended from time to time).
To obtain a copy of the prospectus, please contact Charles Schwab & Co., Inc.
(Schwab) at 1-800-435-4000, 24 hours a day, or 101 Montgomery Street, San
Francisco, California 94104. TDD users may contact Schwab at 1-800-345-2550, 24
hours a day.
The funds are series of Schwab Capital Trust (the trust).
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES, SECURITIES, RISKS AND LIMITATIONS.................... 2
MANAGEMENT OF THE FUNDS..................................................... 12
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................... 14
INVESTMENT ADVISORY AND OTHER SERVICES...................................... 14
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................... 16
DESCRIPTION OF THE TRUST.................................................... 17
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................. 18
TAXATION.................................................................... 19
CALCULATION OF PERFORMANCE DATA............................................. 20
</TABLE>
1
<PAGE> 27
INVESTMENT OBJECTIVES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
Each fund's investment objective may be changed only by vote of a majority of
its shareholders.
THE INSTITUTIONAL SELECT(TM) S&P 500 FUND seeks high total return. It intends to
achieve its objective by tracking the performance of the S&P 500(R) Index.
THE S&P 500 is representative of the performance of the U.S. stock market. The
index consists of 500 stocks chosen for market size, liquidity and industry
group representation. It is a market value weighted index (stock price times
number of shares outstanding), with each stock's weight in the index
proportionate to its market value. The S&P 500 does not contain the 500 largest
stocks, as measured by market capitalization. Although many of the stocks in the
index are among the largest, it also includes some relatively small companies.
Those companies, however, generally are established companies within their
industry group. Standard & Poor's (S&P) identifies important industry groups
within the U.S. economy and then allocates a representative sample of stocks
within each group to the S&P 500. There are four major industry sectors within
the index: industrials, utilities, financial and transportation. The fund may
purchase securities of companies with which it is affiliated to the extent these
companies are represented in its index.
THE INSTITUTIONAL SELECT LARGE-CAP VALUE INDEX FUND seeks high total return. It
intends to achieve its objective by tracking the performance of the S&P
500/BARRA Value Index.
THE S&P 500/BARRA VALUE INDEX is a widely recognized index comprised of 375
large-cap value common stocks selected by BARRA, Inc. and Standard & Poor's, as
of June 30, 1999. The total value of the index (as measured by the combined
market capitalization of the companies included in the index) is approximately
one-half of the total value of the S&P 500 Index. The securities of the
companies with the highest book-to-price ratios may be included in the index.
BARRA, Inc. and Standard & Poor's rebalance the index at least semiannually. The
fund may purchase securities of companies with which it is affiliated to the
extent these companies are represented in its index.
THE INSTITUTIONAL SELECT SMALL-CAP VALUE INDEX FUND seeks high total return. It
intends to achieve its objective by tracking the performance of the S&P Small
Cap 600/BARRA Value Index.
THE S&P SMALL CAP 600/BARRA VALUE INDEX is a widely recognized index comprised
of 383 small-cap value common stocks selected by BARRA, Inc. and Standard &
Poor's, as of June 30, 1999. The total value of the index (as measured by the
combined market capitalization of the companies included in the index) is
approximately one-half of the total value of the S&P Small Cap 600 Index. The
securities of companies with the highest book-to-price ratios may be included in
the Index. BARRA, Inc. and Standard & Poor's rebalance the index at least
semiannually. The fund may purchase securities of companies with which it is
affiliated to the extent these companies are represented in its index.
The funds are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the shareholders of the funds
or any member of the public regarding the advisability of investing in
securities generally or in the funds particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to the
funds is the licensing of certain trademarks and trade names of S&P and of the
S&P 500 Index, which is determined, composed and calculated by S&P without
regard to the Institutional Select
2
<PAGE> 28
S&P 500 Fund. S&P has no obligation to take the needs of the Institutional
Select S&P 500 Fund or its shareholders into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amounts of the funds'
shares or in the determination or calculation of the equation by which the
funds' shares are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the funds'
shares.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein, and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the funds, their shareholders or any
other person or entity from the use of the S&P 500 Index or any data therein.
S&P makes no express or implied warranties and expressly disclaims all
warranties or merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect or consequential damages (including lost profits), even if
notified of the possibility of such damages.
The following investment securities, 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 a
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 a fund's
investment policies and limitations. Not all investment securities or techniques
discussed below are eligible investments for each fund. A fund will invest in
securities or engage in techniques that are intended to help achieve its
investment objective.
INVESTMENT SECURITIES AND RISKS
BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A 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. Each fund may borrow money
from banks and make other investments or engage in other transactions
permissible under the Investment Company Act of 1940 (the "1940 Act") which may
be considered a borrowing (such as mortgage dollar rolls and reverse repurchase
agreements). However, each fund may not purchase securities when bank borrowings
exceed 5% of a fund's total assets.
Each fund may establish lines-of-credit (lines) with certain banks by which it
may borrow funds for temporary or emergency purposes. A borrowing is presumed to
be for temporary or emergency purposes if it is repaid by a fund within 60 days
and is not extended or renewed. Each fund intends to use the lines to meet large
or unexpected redemptions that would otherwise force a fund to liquidate
securities under circumstances which are unfavorable to the fund's remaining
shareholders. Each fund will pay a fee to the bank for using the lines.
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,
3
<PAGE> 29
which may adversely affect the sale of automobiles and, as a result, the value
of the industry's securities. Each 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 a fund until the security is
delivered. A fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When the fund sells a security on a
delayed-delivery basis, a 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, a fund could suffer
losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. The funds are series of an
open-end investment management company. Each fund is a diversified mutual fund.
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
4
<PAGE> 30
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.
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 specified
price for a specific period of time. The prices of warrants do not necessarily
move parallel to 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. A fund may purchase and sell futures
contracts based on securities, securities indices and foreign currencies or any
other futures contracts traded on U.S. exchanges or boards of trade that the
Commodities Future Trading Commission (the "CFTC") licenses and regulates on
foreign exchanges.
A fund must maintain a small portion of its assets in cash to process
shareholder transactions and to pay its expenses. In order to reduce the effect
this otherwise uninvested cash would have on its performance, a fund may
purchase futures contracts. Such transactions allow a fund's cash balance to
produce a return similar to that of the underlying security or index on which
the futures contract is based. A fund may enter into futures contracts for these
or other reasons.
When buying or selling futures contracts, a 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" may be made daily, if
necessary, 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. A fund's aggregate initial and variation margin payments required
to establish its futures positions may not exceed 5% of its net assets. Because
margin requirements are normally only a fraction of the amount of the futures
contracts in a given transaction, futures trading can involve a great deal of
leverage. In order to avoid this, a fund will segregate assets in a separate
account in an amount equal to the notional value of its outstanding futures
contracts.
5
<PAGE> 31
While a fund intends to purchase and sell futures contracts in order to simulate
full investment, there are risks associated with these transactions. Adverse
market movements could cause a fund to experience substantial losses when buying
and selling futures contracts. Of course, barring significant market
distortions, similar results would have been expected if a 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, a fund incurs transaction costs (i.e. brokerage fees) when
engaging in futures trading.
When interest rates are rising or securities prices are falling, a fund may
seek, through the sale of futures contracts, to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising, a
fund, through the purchase of futures contracts, may attempt to secure better
rates or prices than might later be available in the market when they effect
anticipated purchases.
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 a fund
seeks to close out a futures position. If a fund is unable to close out its
position and prices move adversely, a fund would have to continue to make daily
cash payments to maintain its margin requirements. If a 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, a fund
may be required to make or take delivery and incur extra transaction costs
buying or selling the underlying securities. The funds seek 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 a fund has valued the instruments. The liquidity of a 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. Each fund normally will invest at least 80% of its total assets in
the securities of its index. Moreover, each fund will invest so that its
portfolio performs similarly to that of its index. Each fund tries to generally
match its holdings in a particular security to its weight in the index. Each
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 funds incur
operating and trading expenses unlike their indices. A fund may rebalance its
holdings in order to track its index more closely. In the event its intended
correlation is not achieved, the board of trustees will consider alternative
arrangements for a fund.
LENDING of portfolio securities is a common practice in the securities industry.
A fund may engage in security lending arrangements with the primary objective of
increasing its income. For example, a 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.
6
<PAGE> 32
A 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) a fund may
at any time call the loan and obtain the return of the securities loaned; (3) a
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 a fund including collateral received from the
loan (at market value computed at the time of the loan).
Although voting rights with respect to loaned securities pass to the borrower,
the lender retains the right to recall a security (or terminate a loan) for the
purpose of exercising the security's voting rights. Efforts to recall such
securities promptly may be unsuccessful, especially for foreign securities or
thinly traded securities such as small-cap stocks. In addition, because
recalling a security may involve expenses to a fund, it is expected that a fund
will do so only where the items being voted upon are, in the judgment of the
investment adviser, either material to the economic value of the security or
threaten to materially impact the issuer's corporate governance policies or
structure.
REPURCHASE AGREEMENTS. Repurchase agreements involve a fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed. Under
certain circumstances, repurchase agreements that are fully collateralized by
U.S. government securities may be deemed to be investments in U.S.
government 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, a fund, under the direction and supervision of the board of
trustees, will take into account the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers willing to
purchase or sell the security and the number of potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) 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 a fund invests in restricted securities that are deemed liquid, the
general level of illiquidity in a 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 a fund,
including those issued by foreign investment companies. Mutual funds are
registered investment companies, which may issue and redeem their shares on a
continuous basis (open-end mutual funds) or may offer a fixed number of shares
usually listed on an exchange (closed-end mutual funds). Mutual funds generally
offer investors the advantages of diversification and professional investment
management, by combining shareholders' money and investing it in various types
of securities, such as stocks, bonds and money market securities. Mutual funds
also make various investments and use certain techniques in order to enhance
their performance. These may include entering into delayed-delivery and
when-issued securities transactions or swap agreements; buying and selling
futures contracts, illiquid and restricted securities and repurchase agreements
and borrowing or lending money and/or portfolio securities. The risks of
investing in mutual funds generally reflect the risks of the securities in which
the mutual funds invest and the investment techniques they may employ. Also,
mutual funds charge fees and incur operating expenses.
7
<PAGE> 33
Each fund intends to purchase shares of mutual funds in compliance with the
requirements of federal law or any applicable exemptive relief received from the
SEC. Mutual fund investments for a fund are currently restricted under federal
regulations, and therefore, the extent to which a fund may invest in another
mutual fund may be limited. In addition, each fund intends to vote any proxies
of underlying mutual funds in accordance with the instructions received, or in
the same proportion as the vote of all other shareholders of the underlying
mutual fund.
Funds in which a fund also may invest include unregistered or privately-placed
funds, such as hedge funds and off-shore funds, and unit investment trusts.
Hedge funds and off-shore funds are not registered with the SEC, and therefore
are largely exempt from the regulatory requirements that apply to registered
investment companies (mutual funds). As a result, these funds may have greater
ability to make investments or use investment techniques that offer a higher
degree of investment return, such as leveraging, which also may subject fund
assets to substantial risk to the investment principal. These funds, while not
regulated by the SEC like mutual funds, may be indirectly supervised by the
sources of their assets, which tend to be commercial and investment banks and
other financial institutions. Investments in these funds also may be more
difficult to sell, which could cause losses to a fund. For example, hedge funds
typically require investors to keep their investment in a hedge fund for some
period of time, such as one month. This means investors would not be able to
sell their shares of a hedge fund until such time had past.
SMALL-CAP STOCKS are common stocks issued by U.S. operating companies with
market capitalizations that are typically small in comparison to the S&P 500.
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, and
the Small-Cap Value Index Fund's position in securities of such companies may be
substantial in relation to the market for such securities. Accordingly, it may
be difficult for the Small-Cap Value Index 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 a 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 (like the Small-Cap Value Index Fund) may change sharply
during the short term and long term.
STOCK SUBSTITUTION STRATEGY is a strategy, whereby each fund may, in
extraordinary circumstances, substitute a similar stock for a security in its
index.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or 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. Securities issued by
8
<PAGE> 34
government agencies or instrumentalities include obligations of the following:
The Farm Credit System, Small Business Administration, and the Government
National Mortgage Association (GNMA or Ginnie Mae), including GNMA certificates
and mortgage-backed securities, whose securities are supported by the full faith
and credit of the United States; the Federal Home Loan Banks and the Tennessee
Valley Authority, whose securities are supported by the right to borrow from the
U.S. Treasury; Freddie Mac (formerly known as the Federal Home Loan Mortgage
Association or FHLMC) and Fannie Mae (formerly known as the Federal National
Mortgage Association or FNMA), or the Student Loan Marketing Association (Sallie
Mae or SLMA), whose securities are supported by the discretionary authority of
the U.S. government to purchase certain obligations of the agency or
instrumentality.
There can be no assurance that the U.S. government will provide full financial
support to U.S. government-sponsored agencies or instrumentalities if the U.S.
government is not obligated to do so under law. While U.S. government
securities, including U.S. Treasury securities, are among the safest securities,
like other fixed-income securities, they are sensitive to interest rate changes,
which will cause their yield and value of such securities to fluctuate.
YEAR 2000 presents uncertainties and possible risks to the smooth operations of
a 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 funds' and its service providers' dependence on computer technology
to operate, the nature and impact of Year 2000 processing failures on a fund
could be material. The funds' investment adviser is taking steps to minimize the
risks of Year 2000 for the funds, including seeking assurances from the funds'
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
funds, however, minimizing Year 2000 risk for the funds is a priority of the
investment adviser.
Because each fund intends to track an index rather than focus on the
fundamentals of the underlying issuers, 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 a find's portfolio. It is possible that
a fund's portfolio and performance may be materially affected by an issuer's
year 2000 related problems.
INVESTMENT LIMITATIONS
Except as otherwise noted, the restrictions below are fundamental and cannot be
changed without approval of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act).
EACH FUND MAY NOT:
1) purchase securities of any issuer, except as consistent with the
maintenance of its status as a diversified company under 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
contracts or real estate, (ii) lend or borrow money, (iii) issue senior
securities, (iv) underwrite securities or (v) pledge,
9
<PAGE> 35
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 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 a fund.
Concentration. The 1940 Act currently defines concentration as investing 25% or
more of a fund's total assets in an industry or group of industries, with
certain exceptions.
Borrowing. The 1940 Act presently allows a fund to borrow from any bank
(including pledging, mortgaging or hypothecating assets) in an amount up to
33 1/3% of its total assets. The 1940 Act presently excludes temporary
borrowings not in excess of 5% of a fund's total assets from this limitation on
borrowings.
Lending. Under the 1940 Act, a 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.
EACH FUND MAY NOT:
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 for temporary or emergency purposes except that a fund may
(i) borrow money from banks and (ii) engage in reverse repurchase
agreements with any party; provided
10
<PAGE> 36
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).
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 a fund's
investment policies and limitations.
MANAGEMENT OF THE FUNDS
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:
<TABLE>
<CAPTION>
NAME/DATE POSITION(S) WITH
OF BIRTH THE TRUST PRINCIPAL OCCUPATIONS & AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Co-Chief Executive Officer and
July 29, 1937 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).
</TABLE>
11
<PAGE> 37
<TABLE>
<CAPTION>
NAME/DATE POSITION(S) WITH
OF BIRTH THE TRUST PRINCIPAL OCCUPATIONS & AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STEVEN L. SCHEID* President and Trustee Executive Vice President and Chief Financial
June 28, 1953 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 Managing Director,
September 23, 1931 Grey Advertising. From 1990 to 1996, Mr.
Dorward was President and Chief Executive
Officer, Dorward & Associates (advertising
and marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director,
May 15, 1931 Semloh Financial, Inc. (international financial
services and investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Company
June 28, 1938 (investments) and Chairman and Chief Executive
Officer of North American Trust (real
estate investment trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air
transportation, real estate investment,
management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and Controller,
March 7, 1951 Financial Officer Charles Schwab Investment Management, Inc. From
1994 to 1996, Ms. Tung was Controller for
Robertson Stephens Investment Management,
Inc. From 1993 to 1994, she was Vice
President of Fund Accounting, Capital
Research and Management Co.
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R), Charles
December 9, 1955 President, Chief Schwab & Co., Inc.; President and Chief
Operating Officer and Operating Officer, Charles Schwab Investment
Trustee Management, Inc.
</TABLE>
* This trustee is an "interested person" of the trust.
* This trustee is an "interested person" of the trust.
12
<PAGE> 38
<TABLE>
<CAPTION>
NAME/DATE POSITION(S) WITH
OF BIRTH THE TRUST PRINCIPAL OCCUPATIONS & AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief Counsel and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab
Investment Management, Inc.
</TABLE>
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.
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Name of Trustee ($) Pension or ($)
Aggregate Compensation Retirement Total
from the Benefits Accrued Compensation from
as Part of Fund the Fund Complex (2)
Expenses
-------------------------------------
S&P 500 Large-Cap Small-Cap
Fund Value Index Value
Fund Index Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles R. Schwab
William J. Klipp
Donald F. Dorward
Robert G. Holmes
Donald R. Stephens
Michael W. Wilsey
</TABLE>
(1) Figures are for the funds' fiscal year ended October 31, 1999.
(2) Unless otherwise stated, information is for the fund complex, which includes
[xx] funds as of October 31, 1999.
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
13
<PAGE> 39
the shares of SchwabFunds(R) 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 October 31, 1999, the officers and trustees of the funds, as a group owned
of record or beneficially less than 1% of the outstanding voting securities of
each fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
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 funds' investment advisor 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 Institutional Select(TM) S&P
500 Fund, Large-Cap Value Index Fund and Small-Cap Value Index Fund, the
investment advisor is entitled to receive an annual fee, accrued daily and paid
monthly, of 0.20%, 0.20% and 0.25% respectively of each fund's average daily net
assets not in excess of $1 billion, and 0.18%, 0.18% and 0.23% respectively of
such net assets over $1 billion.
The investment adviser and Schwab have voluntarily guaranteed that, through at
least December 31, 2005, the total operating expenses (excluding interest, taxes
and extraordinary expenses) of the Institutional Select S&P 500 Fund, Large
Cap-Value Index Fund and Small-Cap Value Index Fund will not exceed 0.15%, 0.25%
and 0.32%, respectively, of each fund's average daily net assets.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal underwriter for
shares of the funds and is the trust's agent for the purpose of the continuous
offering of the funds' shares. The funds pay 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.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and other informational literature about
the fund. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets
14
<PAGE> 40
SchwabFunds(R) and provides other services. At its own expense, Schwab may
engage third party entities, as appropriate, to perform some or all of these
services.
For the services performed as transfer agent under the contract with the funds,
Schwab is entitled to receive an annual fee, payable monthly from the funds, in
the amount of 0.05% of each funds' average daily net assets. For the services
performed as shareholder services agent under its contract with the funds,
Schwab is entitled to receive an annual fee, payable monthly from the funds, in
the amount of 0.05% of the average daily net assets.
CUSTODIAN AND FUND ACCOUNTANT
PFPC Trust Company, Airport Business Center, 200 Stevens Drive, Suite 440,
Lester Pennsylvania, 19113, serves as custodian for the funds. SEI Fund
Resources, One Freedom Valley Drive, Oaks, Pennsylvania 19456, serves as fund
accountant.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the funds. The accountant maintains all books and records
related to the funds' transactions.
INDEPENDENT ACCOUNTANT
The funds' independent accountant, , audit and report
on the annual financial statements of each series of the trust and review
certain regulatory reports and the funds' federal income tax return. They also
perform other professional accounting, auditing, tax and advisory services when
the trust engages them to do so. Their address is
. The funds' audited financial statements for the
fiscal year ending October 31, 1999, will be included in the funds' annual
report that is supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
For reporting purposes, each fund's turnover rate is calculated by dividing the
value of purchases or sales of portfolio securities for the fiscal year,
whichever is less, by the monthly average value of portfolio securities each
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. A fund may experience a high portfolio
turnover rate in its first year of operation.
Each funds' portfolio turnover rates will be set forth in the financial
highlight tables in the prospectus in the future. Each 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 funds, the investment adviser seeks
to obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will
15
<PAGE> 41
generally select brokers and dealers for the funds primarily on the basis of the
quality and reliability of brokerage services, including execution capability
and financial responsibility.
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.
Each fund expects that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters will include a commission or concession paid by be the issuer
to the underwriter, and purchases from dealers serving as market makers will
include the spread between the bid and asked prices
The investment decisions for the funds are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as the funds.
When two or more accounts managed by the investment adviser have funds available
for investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment manager outweigh any disadvantages that may arise from
exposure to simultaneous transactions.
In an attempt to obtain best execution for a 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 a fund to trade directly with other institutional
holders on a net basis. At times, this may allow a fund to trade larger blocks
than would be possible trading through a single market maker.
DESCRIPTION OF THE TRUST
Each 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 Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund.
Each fund's initial and subsequent minimum investment and balance requirements
are set forth in the prospectus. These minimums may be waived for certain
investors, including trustees, officers and employees of Schwab, or changed
without prior notice.
The funds may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a
16
<PAGE> 42
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 a 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 FUNDS
As long as the funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording all telephone orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing each
fund's performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you do not want
to receive consolidated mailings, you may write to your fund and request that
your mailings not be consolidated.
Each fund reserves the right to waive the early redemption fee for certain
tax-advantaged retirement plans.
17
<PAGE> 43
The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. 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.
Each fund is designed for long-term investing. Because short-term trading
activities can disrupt the smooth management of a fund and increase its
expenses, each 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 securities under
these circumstances and also when no prices from approved pricing services are
available.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUNDS
It is each 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, each 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%
18
<PAGE> 44
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.
A fund's transactions in futures contracts, forward contracts, options and
certain other investment and hedging activities may be restricted by the Code
and are subject to special tax rules. In a given case, these rules may
accelerate income to a fund, defer its losses, cause adjustments in the holding
periods of the fund's assets, convert short-term capital losses into long-term
capital losses or otherwise affect the character of the fund's income. These
rules could therefore affect the amount, timing and character of distributions
to shareholders. The funds will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best interest
of the funds and their shareholders.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.
Any dividends declared by a 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 funds, dividend distributions the funds
designate to be from dividends received from qualifying domestic corporations
will be eligible for the 70% corporate dividends-received deduction to the
extent they would qualify if the funds were regular corporations. Distributions
by a fund also may be subject to state, local and foreign taxes, and its
treatment under applicable tax laws may differ from the federal income tax
treatment.
A fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." 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 either (1) meets the Code's
definition of "resident alien" or (2) who is physically present in the US for
183 days or more. Different tax consequences may result if the
19
<PAGE> 45
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 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.
<TABLE>
<CAPTION>
Name of Fund (Commencement of Operations) From Commencement of Operations to October 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Institutional Select(TM) S&P 500 Fund (2/1/99)
Large-Cap Value Index Fund (2/1/99)
Small-Cap Value Index Fund (2/1/99)
</TABLE>
An after-tax total return for each fund may be calculated by taking that fund's
total return and subtracting applicable federal taxes from the portions of each
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.
Each fund also may report 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.
A fund also may advertise its cumulative total return. 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 fiscal year
ended October 31, 1999.
<TABLE>
<CAPTION>
Name of Fund (Commencement of Operations) Cumulative Total Return
- -----------------------------------------------------------------------------------
<S> <C>
Institutional Select S&P 500 Fund (2/1/99)
Large-Cap Value Index Fund (2/1/99)
Small-Cap Value Index Fund (2/1/99)
</TABLE>
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for which reliable data is available. An
index's performance data assumes the reinvestment of
20
<PAGE> 46
dividends but does not reflect deductions for administrative, management and
trading expenses. The funds 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 funds' 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 funds employs specific investment policies designed to
minimize capital gain distributions while achieving each fund's investment
objective. These policies include selling the highest tax cost securities first,
not re-balancing the portfolios 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 each 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 a fund's ability to track or
match the performance of its index. They may affect the composition of a 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 a 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.
Each fund may refer to recent studies that analyze certain techniques and
strategies the funds may use to promote the advantages of investing in a fund
that is part of a large, diverse mutual fund complex. From time to time, the
funds may include discussions in advertisements of the income tax savings
shareholders may experience as a result of their policy of limiting portfolio
trading in order to reduce capital gains. This information may be supplemented
by presentations of statistical data illustrating the extent of such income tax
savings and the impact of such savings on the yield and/or total return of the
funds. In addition, such advertisements may include comparisons of the funds'
performance against that of investment products that do not employ the funds'
policy of seeking to limit capital gains.
21
<PAGE> 47
PART C
OTHER INFORMATION
SCHWAB CAPITAL TRUST
Item 23. Exhibits.
(a) Articles of Agreement and Declaration of Trust, dated
Incorporation 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 (i) Article III, Section 5, Article V, Article
Defining rights VI, Article VIII, Section 4 and Article IX,
of Security Sections 1, 5 and 7 of the Agreement and
Holders 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 (i) Investment Advisory and Administration
Advisory Agreement between Registrant and Charles
Contracts 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 incorporated herein by reference to
Exhibit (d)(iii) of Post Effective Amendment
No. 33 to Registrant's Registration
Statement on Form N-1A electronically filed
on April 15, 1999.
Part C
<PAGE> 48
(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 Registrant
Contracts 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
incorporated herein by reference to Exhibit
(e)(iii) of Post Effective Amendment No. 33
to Registrant's Registration Statement on
Form N-1A electronically filed on April 15,
1999.
(f) Bonus or Profit Inapplicable
Sharing Contracts
(g) Custodian (i) Custodian Agreement between Registrant and
Agreements 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.
Part C
<PAGE> 49
(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.
(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) 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) 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(viii)
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.
Part C
<PAGE> 50
(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.
(xiv) Amended Schedules A and C to the Transfer
Agency Agreement between Registrant and
Schwab referenced at Exhibit (g)(xii) above,
are incorporated herein by reference to
Exhibit (g)(xiv) of Post Effective Amendment
No. 33 to Registrant's Registration
Statement on Form N-1A electronically filed
on April 15, 1999.
(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(xv) above, is
incorporated herein by reference to Exhibit
(g)(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 incorporated herein by reference to
Exhibit (g)(xvii) of Post Effective
Amendment No. 33 to Registrant's
Registration Statement on Form N-1A
electronically filed on April 15, 1999.
(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 Capital
Contracts 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.
Part C
<PAGE> 51
(i) Legal Opinion To be filed by subsequent amendment.
(j) Other Opinions Inapplicable.
(k) Omitted Financial Inapplicable.
Statements
(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.
Part C
<PAGE> 52
(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.
(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 incorporated herein by
reference to Exhibit (l)(xi) of Post
Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A
electronically filed on April 15, 1999.
(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 are incorporated herein
by reference to Exhibit (o)(ii) of Post
Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A
electronically filed on April 15, 1999.
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
Part C
<PAGE> 53
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 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:
Part C
<PAGE> 54
<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
Schwab Holdings, Inc. Chairman, Chief Executive
Officer and Director
Charles Schwab Investment Management, Inc. Chairman and Director
The Charles Schwab Trust Company Chairman and Director
Charles Schwab Limited Chief Executive Officer
Schwab (SIS) Holdings, Inc. Chief Executive Officer
Schwab International Holdings, Inc. Chief Executive Officer
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 Holdings, Inc. Director
Charles Schwab Investment Management, Inc. Director
Schwab (SIS) Holdings, Inc. President, Chief Operating
Officer
Schwab International Holdings, Inc. President, Chief Operating
Officer
</TABLE>
Part C
<PAGE> 55
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Steven L. Scheid, Charles Schwab & Co., Inc. Enterprise President - Financial
President and Trustee Products and Services and Chief
Financial Officer
The Charles Schwab Corporation Executive Vice President and
Chief Financial Officer
Schwab Holdings, Inc. Executive Vice President, Chief
Financial Officer and Director
Charles Schwab Investment Management, Inc. Chief Executive Officer, Chief
Financial Officer and Director
Charles Schwab Limited Finance Officer
Schwab (SIS) Holdings, Inc. Chief Financial Officer
Schwab International Holdings, Inc. Chief Financial Officer
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
</TABLE>
Part C
<PAGE> 56
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
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
Willie C. Bogan The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Management, Inc. Corporate Secretary
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
</TABLE>
Part C
<PAGE> 57
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
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
</TABLE>
Part C
<PAGE> 58
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Credit Corporation Managing Director until February
1994
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.
(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
</TABLE>
Part C
<PAGE> 59
<TABLE>
<CAPTION>
Name Name of Company Capacity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Praveen K. Gottipalli Symphony Asset Management, Inc. Director of Investments
BARRA, Inc. Director of Active Strategies 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 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> 60
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
has duly caused this Post Effective Amendment No. 34 to be signed on its behalf
by the undersigned, duly authorized, in the City of Philadelphia, Commonwealth
of Pennsylvania, on this 13th day of September, 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. 34 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 13th day
of September, 1999.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Charles R. Schwab* Chairman and Trustee
- -----------------------------------
Charles R. Schwab
Steven L. Scheid* President and Trustee
- -----------------------------------
Steven L. Scheid
William J. Klipp* Executive Vice President, Trustee and
- ----------------------------------- Chief Operating Officer
William J. Klipp
Donald F. Dorward* Trustee
- -----------------------------------
Donald F. Dorward
Robert G. Holmes* Trustee
- -----------------------------------
Robert G. Holmes
Donald R. Stephens* Trustee
- -----------------------------------
Donald R. Stephens
Michael W. Wilsey* Trustee
- -----------------------------------
Michael W. Wilsey
Tai-Chin Tung* Treasurer and Principal Financial Officer
- -----------------------------------
Tai-Chin Tung
</TABLE>
* By: /s/ John H. Grady, Jr.
------------------------------------------------
John H. Grady, Jr., Attorney-In-Fact
pursuant to Powers of Attorney filed previously
<PAGE> 61
EXHIBIT INDEX
EXH. NO. DOCUMENT
(g)(vi) Amended Schedule A to the Accounting Services Agreement
(g)(ix) Schedule I to the Custodian Services Agreement
Part C
<PAGE> 1
EXHIBIT (G)(VI)
SCHEDULE A
ACCOUNTING SERVICES AGREEMENT
BETWEEN
SCHWAB INVESTMENTS,
SCHWAB CAPITAL TRUST,
SCHWAB ANNUITY PORTFOLIOS AND
SEI FUND RESOURCES
LIST OF FUNDS
<TABLE>
<CAPTION>
Name of Fund Date
- ------------ ----
<S> <C>
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
</TABLE>
<PAGE> 2
SCHWAB INVESTMENTS
SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS
By /s/ William J. Klipp
--------------------
Name: William J. Klipp
Title: Executive Vice President and Chief
Operating Officer
SEI FUND RESOURCES
By /s/ Todd Cipperman
------------------
Name: Todd Cipperman
Title: Vice President
<PAGE> 1
EXHIBIT (G)(IX)
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: /s/ Joseph Gramlich
-------------------
Joseph Gramlich
Title: Vice President
SCHWAB CAPITAL TRUST
By: /s/ Tai-Chin Tung
-----------------
Tai-Chin Tung
Title: Treasurer and Principal Financial Officer