SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Schwab Capital Trust
------------------------------------------------
(Name of Registrant as Specified in its Charter)
---------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement., if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_________________________________________________
2) Form, Schedule or Registration Statement No.:___________________________
3) Filing Party:___________________________________________________________
4) Date Filed:_____________________________________________________________
Schwab
MarketManager Portfolios(R)
Shareholder Proxy
March 25, 2002
-----------------------------------------------------------------------
o Plain English Summary
o Proxy Statement
Your vote is important!
Please read and respond today.
-----------------------------------------------------------------------
Schwabfunds (R)
Schwab
MarketManager Portfolios(R)
Shareholder Proxy
March 25, 2002
- --------------------------------------------------------------------------------
4 Plain English summary
An overview of the four proposals that shareholders are voting on and how
the portfolios would be affected.
12 Proxy statement
A more detailed discussion of all proposals and additional information.
12 Notice of special meeting
The official notice of the shareholder meeting associated with this proxy.
23 Proposal 1
To authorize Charles Schwab Investment Management, Inc. (CSIM), subject to
board approval, to hire, terminate or replace sub-advisers without
shareholder approval.
26 Proposal 2
To approve an amendment to the investment advisory and administration
agreement with CSIM.
34 Proposal 3
To approve sub-advisory agreements.
58 Proposal 4
To amend fundamental investment policies.
61 Additional information
Information about the trust and investment adviser.
64 Exhibits
Proposed amendment and sub-adviser agreements.
- --------------------------------------------------------------------------------
Shareholder reports
On request, each portfolio will furnish, without charge, a copy of its most
recent Annual Report and, if available, Semi-Annual Report, to any shareholder.
Shareholders should direct all written requests for such reports to the trust at
P.O. Box 7575, San Francisco, CA 94120-7575, or call Schwab at
1-800-435-4000.
- --------------------------------------------------------------------------------
Shareholder message
A special meeting of shareholders of all MarketManager Portfolios(R) will take
place on May 28, 2002.
You don't need to attend the meeting to participate. It's important that you
take a few minutes to read the enclosed material and vote your shares. You can
vote by internet, by phone or by mailing the enclosed proxy voting card(s) in
the postage-paid envelope.
Every MarketManager Portfolio has at least one proposal up for a vote.
Shareholders of all portfolios are being asked to vote for proposals that would
change the way the portfolios operate. These proposals are intended to enable us
to manage the portfolios more efficiently. The trustees, including myself,
believe these proposals are in the best interests of the shareholders, and we
recommend a vote FOR each of them.
No matter how many shares you own, your vote is important. A proxy solicitor,
D.F. King & Co., has been retained to make follow-up phone calls as may be
necessary on behalf of the portfolios. Your prompt response will help reduce
proxy costs--which the portfolios and their shareholders pay for--and will also
mean that you can avoid receiving follow-up phone calls or mailings. Voting by
internet or phone lowers proxy costs even further.
All of us thank you for your attention to this important matter, and we promise
to continue to work hard to help you achieve your financial goals.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab, Chairman
SchwabFunds(R)
3
Plain English summary
The purpose of this proxy is to seek shareholder approval for some proposed
changes in the way the Schwab MarketManager Portfolios(R) are managed. The
changes are summarized in the following tables.
All four portfolios are affected by the first set of changes. Two portfolios are
also affected by additional, portfolio-specific changes.
How will these changes affect you? The portfolios' trustees believe they'll be
beneficial to shareholders. The specific benefits, such as potentially lower
costs, are summarized on the next few pages.
The proposed changes at a glance
Portfolio Current structure
- --------------------------------------------------------------------------------
All portfolios o "Multi-fund" approach Each portfolio invests in various
mutual funds, which in turn invest in securities.
o Charles Schwab investment Management, Inc. (CSIM)
chooses the funds CSIM manages each portfolio, choosing
the funds and deciding how much money to invest in each
one.
o Shareholders incur two layers of annual expenses
Shareholders incur the operating expense ratio (OER) of
their MarketManager Portfolio, plus the OERs of the
underlying funds held in the portfolio. An OER includes
fees for management and operating expenses, and is not
charged directly but is reflected in performance.
- --------------------------------------------------------------------------------
MarketManager o Asset allocation strategy The portfolio's target
Growth Portfolio allocation calls for it to invest mainly in stock
funds, but also to a limited extent in bond and money
market funds.
Model allocation
15% Bond Funds
5% Money Market Funds
80% Stock Funds
- --------------------------------------------------------------------------------
MarketManager o Investment goal includes reference to Growth Portfolio
Balanced Portfolio The portfolio's goal is "to seek capital growth and
income with less volatility than the Growth Portfolio.
4
The trustees believe the proposed changes are in the best interest of
shareholders--but shareholder approval is needed to make them happen.
Please take a moment to understand the proposed changes and vote your shares.
- --------------------------------------------------------------------------------
The information on these pages is only a summary. Before you vote, please read
the proxy statement, which starts on page 12.
- --------------------------------------------------------------------------------
Proposed structure
o "Multi-manager" approach Each portfolio is managed by
CSIM and various sub-advisers, who invest portfolio
assets directly in securities.
o CSIM chooses the sub-advisers CSIM manages each
portfolio, using stringent quantitative and qualitative
criteria to select and oversee each sub-adviser. CSIM
would also have the option of managing portfolio assets
directly.
o Annual expenses are expected to be lower Shareholders
incur only the OER of their portfolio. As the table on
page 9 shows, the proposed OER of each portfolio is
lower than the overall estimated amount shareholders
historically have incurred.
- --------------------------------------------------------------------------------
o All-equity strategy The portfolio seeks to invest
substantially in U.S. equity securities, with CSIM
determining how much money to allocate to each
sub-adviser.
Model allocation
100% Equities
- --------------------------------------------------------------------------------
o Reference to Growth Portfolio deleted; rest of goal
unchanged The portfolio's goal is "to seek capital
growth and income.
5
Q&A: What do these changes mean to you?
Generally speaking, what are the changes about?
The major change is to shift each MarketManager portfolio from a
"multi-fund" investment strategy to a "multi-manager" investment strategy
(Proposals 1, 2 and 3). In addition, there's a proposal to change the
Growth Portfolio from an asset allocation portfolio to a U.S. equity
portfolio (Proposal 4A), and a proposal to amend the investment objective
of the Balanced Portfolio (Proposal 4B). These changes are summarized in
the table on pages 4 and 5 and described in the proxy statement beginning
on page 12.
The trustees support all of the proposals and ask you to vote in favor of
all of them. Although the changes involve several different proposals, all
proposals function as a single package, in the sense that together they
implement the conversion to a multi-manager strategy.
Who's proposing these changes, and why?
The changes were suggested by the portfolios' investment adviser, Charles
Schwab Investment Management, Inc., as a way to enhance the efficiency and
flexibility of the portfolios. The portfolios' trustees, whose duty is to
look after shareholders' interests, agree with CSIM that the changes are in
the best interest of shareholders.
- --------------------------------------------------------------------------------
How to vote your shares
Voting your shares is easy and doesn't take long. Use any of the following
options-- and remember that voting by internet or phone will help lower
fund expenses. For internet and touch tone phone voting, you'll need the
12-digit number(s) on your enclosed proxy voting card(s).
o By internet: go to www.proxyvote.com and follow the instructions
o By touch tone phone: call the toll-free number on your proxy card and
follow the recorded instructions
o By mail: mark your votes on the enclosed proxy card(s), sign and date,
and mail using the postage-paid envelope provided
Remember: if you vote by internet or phone, do not mail your proxy card(s).
Please make sure you vote all the enclosed proxy cards. Questions on any part of
this document? Call our proxy solicitor, D.F. King and Co., Inc. at
1-800-628-8528.
6 Plain English summary
How could these changes benefit me as a shareholder?
If shareholders approve the changes, there are several potential benefits
that could result:
o Customized approach Under the proposed changes, CSIM would not only be
able to choose the sub-advisers and how much they manage, it would also
be able to give each sub-adviser specific instructions on certain
issues.
For instance, CSIM would have the ability to coordinate all the
sub-advisers for a portfolio, managing them directly so that their
investment strategies complement each other. This would make it easier
for CSIM to avoid any unintentional over- or under-emphasis on a given
industry or stock. In addition, CSIM would have greater flexibility to
manage some of the effects on the portfolios of taxes.
o Lower expected annual costs to shareholders The net cost of hiring
sub-advisers to manage portions of each portfolio is expected to be
lower than the estimated historical costs associated with the
multi-fund structure. Other factors being equal, lower costs can
translate into higher returns.
o Access to a broader range of money managers The sub-advisers would be
chosen from among the ranks of highly qualified money managers,
including managers who don't manage mutual funds or whose funds are
closed and whose expertise, therefore, is generally not available to
the MarketManager Portfolios.
o More complete information for shareholders Right now, the shareholder
reports for the MarketManager Portfolios tell you how much of your
portfolio is invested in each of the underlying funds, but for a
variety of reasons, the reports don't list the holdings of the
underlying funds. With the multi-manager strategy, shareholder reports
will disclose exact portfolio holdings and each portfolio will
regularly be able to update you on what its top securities are, so
you'll have a better picture of where your money is actually invested.
7
If the portfolios change to a multi-manager structure, how will CSIM choose the
sub-advisers?
The portfolio management team at CSIM plans to use a disciplined and
rigorous approach when evaluating sub-advisers for the portfolios,
considering quantitative as well as qualitative criteria (see below for
details). CSIM has identified the sub-advisers it would like to start
with if the multi-manager structure is approved; information about them
appears in the full proxy statement.
As it does currently, CSIM will still have overall responsibility for
managing the portfolios. Under the multi-manager structure, this means
that CSIM will decide--subject to trustee approval--which sub-advisers
to hire and fire, and will pay the sub-advisers out of the management
fee it receives from the portfolios. CSIM also will actively monitor
and adjust the percentage of portfolio assets that each sub-adviser
manages, and may manage some assets directly.
- --------------------------------------------------------------------------------
The "Four P's": how sub-advisers would be chosen
Performance CSIM measures each sub-adviser against peers as well as benchmarks.
CSIM looks for factors such as strong long-term performance in different market
environments and strong returns for the amount of risk taken.
Philosophy Different managers use different approaches. In general, CSIM looks
for sub-advisers with outstanding performance in specific categories: value,
growth or blend style, and large-, mid- or small-cap stocks. CSIM also looks for
sub-advisers that combine modern investment technologies with the wisdom of
classic investment concepts.
People CSIM looks for seasoned industry professionals, and considers how long a
person has managed investments as well as how much he or she has contributed to
a firm's past performance record. CSIM also looks for people with whom it can
maintain excellent working relationships and who share CSIM's commitment to
customer service.
Process CSIM looks for sub-advisers who demonstrate discipline in their
decision-making, including those with a history of maintaining buy and sell
disciplines through various market conditions. The ability to work compatibly
with CSIM technology and systems is also important.
8 Plain English summary
How much cost savings should shareholders expect?
Right now, an investor in a MarketManager portfolio incurs the
portfolio's annual operating expense ratio (OER) of 0.50%, plus the
OERs of the portfolio's underlying funds. You don't see OERs of the
underlying funds as a direct expense of the portfolio, but they're
reflected in the underlying funds' performance. Under the multi-manager
strategy, there will be just one OER, and, although it will be higher
than the current OER, it is expected to be lower than the portfolios'
estimated historical average overall operating expenses when you
include the expenses of the underlying funds (see table below).
- --------------------------------------------------------------------------------
Cost comparison: current structure vs. proposed structure
This table shows the estimated historical average overall operating expenses of
each MarketManager portfolio under the current structure, and compares this to
the operating expense ratio that would be in effect under the proposed new
structure. The estimated historical expenses under the current structure are
represented by the portfolio's 0.50% OER, plus an estimated historical average
cost of investing in the underlying funds, from each portfolio's inception
through 10/31/01. For more detail, see the tables on pages 20 and 31-33.
Growth Balanced Small Cap International
Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Estimated historical 1.53 1.41 1.70 1.84
average overall operating
expenses (%)
Total OER if proposed 1.25 1.10 1.55 1.65
changes are approved (%)
----------------------------------------------------
Potential cost savings (%) 0.28 0.31 0.15 0.19
The Board of Trustees recommends that shareholders vote FOR each proposal.
9
With the Growth Portfolio, what's the reason for proposing to make it a U.S.
stock fund?
The MarketManager Growth Portfolio was originally created as an asset
allocation fund (meaning that it invests in a mix of stock, bond and
money market investments).
However, the trustees believe that the portfolio would be able to seek
growth more effectively if it were to switch to an all-equity strategy.
With this change (Proposal 4A), the portfolio is expected to be able to
compete on a more equal basis with funds in its peer group, most of
which are stock funds, not asset allocation funds.
For shareholders who still prefer the "one-stop diversified portfolio"
feature of an asset allocation fund, the MarketManager Balanced
Portfolio will continue to be an option.
With the Balanced Portfolio, what's the reason for proposing to change the
wording of the investment objective?
Right now, this portfolio partly defines its investment objective in terms of
another portfolio, the Growth Portfolio. "De-linking" the objectives of the
Balanced and Growth portfolios will give each portfolio more flexibility in
pursuing its own goal (Proposal 4B). The new wording leaves the main elements of
the Balanced Portfolio's goal unchanged.
Voting promptly helps lower shareholder expenses!
The more responses we receive, the less your portfolio will have to pay for
follow-up mailings and phone calls to shareholders who didn't respond the first
time.
10 Plain English summary
Why does the change to multi-manager strategy involve three separate proposals?
The reason is that setting up a workable multi-manager strategy
involves three main operational issues.
Currently, the portfolios are required to get approval from the
trustees and from shareholders every time they want to engage a new
sub-adviser (dismissing a sub-adviser requires approval of the trustees
only). This would severely limit CSIM's ability to manage the
portfolios under a multi-manager structure.
Proposal 1 would allow CSIM to hire and fire sub-advisers with the
advance approval of the trustees but without shareholder approval.
Also, CSIM would need to tell shareholders about any new sub-advisers
within 90 days of their being hired. The changes in Proposal 1 also
require an exemption from the SEC, which the trust and CSIM have
applied for but have not yet received.
CSIM has chosen the sub-advisers it would like to hire should the
change to a multi-manager structure be approved. However, because the
current requirements are still in effect, shareholders must approve the
hiring of these initial sub-advisers (Proposal 3). The trustees have
unanimously approved all sub-advisers.
Lastly, because CSIM will be responsible for paying the sub-advisers,
its advisory fees need to be increased in order to cover this expense
(Proposal 2). As discussed earlier, even though this fee is increasing,
the overall expenses you incur as a shareholder will be less than the
estimated average expenses incurred historically.
11
Proxy statement
Notice of special meeting
To shareholders of all Schwab MarketManager Portfolios(R): Notice is hereby
given that a special meeting of shareholders of all MarketManager Portfolios
will be held at Schwab University Auditorium, 101 Montgomery Street, 2nd Floor,
San Francisco, California 94104 on May 28, 2002, beginning at 9:00 a.m. Pacific
Time for the following purposes:
1. To authorize Charles Schwab Investment Management, Inc. ("CSIM"), subject
to the supervision and approval of the Board of Trustees, to hire,
terminate or replace investment sub-advisers for each of the MarketManager
Portfolios without shareholder approval.
2. To approve an amendment to the Investment Advisory and Administration
Agreement with CSIM.
3. To approve new investment sub-advisory agreements between CSIM and certain
sub-advisers with respect to each portfolio.
4. To amend the fundamental investment objectives with respect to the Growth
Portfolio and Balanced Portfolio.
5. To transact such other business as may properly come before the meeting or
any adjournments thereof.
The close of business on February 28, 2002 has been fixed as the record date for
determining which shareholders are entitled to notice of the meeting and any
adjournments thereof and are entitled to vote.
By order of the Board of Trustees,
Koji Felton
Secretary
March 25, 2002
- --------------------------------------------------------------------------------
Schwab Capital Trust
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
12 Proxy statement
List of proposals and portfolios affected
Proposal Portfolio(s)
- --------------------------------------------------------------------------------
1 To authorize CSIM, subject to Board approval, to All portfolios,
hire, terminate or replace sub-advisers without voting separately
shareholder approval.
- --------------------------------------------------------------------------------
2 To approve an amendment to the Investment All portfolios,
Advisory and Administration Agreement with CSIM. voting separately
- --------------------------------------------------------------------------------
3 3A To approve new sub-advisory agreements between Growth Portfolio
CSIM and the following sub-advisers:
1 Eagle Asset Management, Inc.
2 Harris Associates LP
3 TCW Investment Management Company
4 Thornburg Investment Management, Inc.
----------------------------------------------------------------------------
3B To approve new sub-advisory agreements between Balanced Portfolio
CSIM and the following sub-advisers:
1 Aronson+Partners
2 Berger Financial Group LLC
3 Perkins, Wolf, McDonnell & Co.
4 Eagle Asset Management, Inc.
5 PIMCO
----------------------------------------------------------------------------
3C To approve new sub-advisory agreements between Small Cap Portfolio
CSIM and the following sub-advisers:
1 Royce & Associates, Inc.
2 TCW Investment Management Company
3 Tocqueville Asset Management LP
4 Veredus Asset Management LLC
----------------------------------------------------------------------------
3D To approve new sub-advisory agreements between International
CSIM and the following sub-advisers: Portfolio
1 American Century Investment Management, Inc.
2 Artisan Partners Limited Partnership
3 Harris Associates LP
4 William Blair & Company, LLC
- --------------------------------------------------------------------------------
4 4A To amend the fundamental investment objective. Growth Portfolio
----------------------------------------------------------------------------
4B To amend the fundamental investment objective. Balanced Portfolio>
13
Introduction
Purpose of this document
This proxy statement is being furnished to shareholders of each MarketManager
Portfolio in connection with the solicitation of proxies by and on behalf of the
Board of Trustees for use at each portfolio's meeting. The meeting will be held
at Schwab University Auditorium, 101 Montgomery Street, 2nd Floor, San
Francisco, California 94104 on May 28, 2002, beginning at 9:00 a.m. Pacific
Time. The proxy statement is first being mailed to shareholders on or about
March 25, 2002.
Who may vote
The Board of Trustees has fixed the record date as the close of business on
February 28, 2002. Only holders of shares of the portfolios at the close of
business on the record date are entitled to notice of, and to vote at, the
meeting. The chart on page 15 shows the number of issued and outstanding shares
of each portfolio entitled to vote.
The holder of each full share of a portfolio outstanding as of the close of
business on the record date is entitled to one vote upon each matter properly
submitted to the meeting, and a proportionate fractional vote for each
fractional share held.
How to vote
Shareholders are requested to vote by internet, phone or by returning the
enclosed proxy card. Voting by internet helps keep costs low compared to voting
by telephone or mail. Depending on the number of portfolios for which you are a
shareholder and the number of accounts you have, you may receive more than one
proxy card.
If you vote by mail, complete, date, sign and promptly return the
enclosed proxy cards in the accompanying envelope. If you properly execute and
return your proxy cards prior to the meeting, your shares will be voted in
accordance with the instructions marked on the proxy cards. If no instructions
are marked on the proxy cards, the proxies will be voted FOR the proposals
described in this proxy statement and in the discretion of the persons named as
proxies in connection with any other matter that may properly come before the
meeting.
You may revoke your proxy at any time prior to its exercise by voting in person
at the meeting or by submitting, before the meeting, written notice of
revocation or a later-dated proxy.
14 Proxy statement
Quorum and voting requirements
In order to take action on any proposal (or element of a proposal), a "quorum"
or a majority of the shares entitled to vote on that proposal (or element of the
proposal), must be present in person or by proxy.
Approval of each proposal, and each applicable element of a proposal, requires
the favorable vote of a majority of outstanding voting shares of a portfolio as
defined by the 1940 Act. A majority of outstanding shares of a portfolio is the
lesser of (i) 67% or more of the shares represented at the meeting, if more than
50% of the outstanding voting shares of the portfolio are represented at the
meeting, or (ii) more than 50% of the outstanding voting shares of the
portfolio.
Other voting-related issues
If a quorum is not present at the meeting, or if sufficient votes to approve a
proposal are not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. Any
adjournment(s) of the meeting will require the affirmative vote of a majority of
those shares of the portfolios present at the meeting in person or by proxy and
entitled to vote on the proposal.
A shareholder vote may be taken on any other matter to come properly before the
meeting prior to such adjournment(s) if sufficient votes to approve such matters
have been received and such vote is otherwise appropriate. The Board of Trustees
does not presently know of any matter to be considered at the meeting other than
the matters described in the Notice of Special Meeting accompanying this proxy
statement.
Abstentions and broker "non-votes" (i.e., proxies received from brokers or
nominees indicating that they have not received instructions from the beneficial
owner or other person entitled to vote shares) will be
- --------------------------------------------------------------------------------
Number of shares outstanding on the record date
MarketManager Portfolio Net Assets Shares Outstanding
- --------------------------------------------------------------------------------
Growth Portfolio $182,490,615 18,938,643
Balanced Portfolio $112,333,187 10,879,499
Small Cap Portfolio $118,926,258 12,385,013
International Portfolio $229,793,427 21,527,181
15
counted as shares that are present for purposes of determining the presence of a
quorum, but will not be counted as votes FOR a proposal. Accordingly,
abstentions and broker non-votes will have the effect of a vote AGAINST a
proposal.
Shareholders of each portfolio will vote independently with regard to the
proposals. Because Proposals 1 and 2 are necessary to the conversion of a
MarketManager Portfolio to a multi-manager structure, a portfolio will not
implement any of the proposals unless shareholders approve both Proposals 1 and
2. The Board of Trustees will consider what action, if any, to take in the event
that shareholders of a portfolio approve Proposals 1 and 2, but do not approve
one or more applicable sub-advisory agreements under Proposal 3 or fail to
approve an applicable element of Proposal 4.
Solicitation of proxies
Each portfolio has retained D.F. King & Co., Inc., a proxy solicitation firm, at
an estimated total cost of $100,000, to assist in the solicitation of proxies.
However, the exact cost will depend upon the amount and types of services
rendered. Each portfolio will bear its pro rata share of expenses incurred in
connection with preparing this proxy statement, including legal costs and the
cost of retaining the proxy solicitation firm. Each portfolio also will
reimburse certain parties for their expenses in forwarding proxy materials to
beneficial owners of portfolio shares.
As described in the MarketManager Portfolios' prospectus, the investment adviser
and/or Schwab have guaranteed that the total operating expenses of the
portfolios will not exceed a certain percentage of a portfolio's average daily
net assets through a specified period of time. For purposes of the guarantee,
total operating expenses do not include interest, taxes, and certain non-routine
expenses. Expenses related to this proxy solicitation are non-routine expenses
and will be excluded from the calculation of each portfolio's total operating
expenses for purposes of the investment adviser's and Schwab's guarantee.
In addition to the solicitation of proxies by mail, officers of the trusts,
officers and employees of the investment adviser and Schwab, the portfolios'
distributor, transfer agent and shareholder servicing agent, also may solicit
proxies electronically, by telephone, fax, in person or by other means.
16 Proxy statement
- --------------------------------------------------------------------------------
Definitions of some terms used in this proxy
adviser The investment adviser or a sub-adviser.
application The application filed with the Securities and Exchange Commission by
the trusts and CSIM seeking permission to hire and terminate sub-advisers
without shareholder vote and other relief necessary to operate as a
multi-manager fund.
Board, Board of Trustees The Board of Trustees for the Schwab Capital Trust, a
Massachusetts business trust.
CSIM Charles Schwab Investment Management, Inc.
independent trustees Those trustees who, under the 1940 Act, are not considered
"interested persons" of the trust.
investment adviser Charles Schwab Investment Management, Inc.
meeting The trust's Special Meeting of Shareholders of the MarketManager
Portfolios and any adjournment(s) thereof.
multi-fund A fund that invests primarily in other funds.
multi-manager fund A fund that follows an investment strategy (a multi-manager
strategy) in which multiple sub-advisers are allocated portions of a fund's
assets to manage.
1940 Act The Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
operating expense ratio (OER) The annual operating expenses of a fund or
portfolio, reflected as a percentage of the fund or portfolio's average net
assets.
policies The investment objectives, policies and restrictions described in a
portfolio's prospectus and statement of additional information.
portfolio One of the four MarketManager Portfolios.
portfolios All four of the MarketManager Portfolios.
proposal One of the four proposals described in the proxy statement.
proposals The four proposals described in the proxy statement.
proxy statement The proxy statement itself, not including supplemental material.
record date The date for determining which portfolio shareholders are entitled
to notice of, and to vote at, the meeting and any adjournment(s) thereof.
Schwab Charles Schwab & Co., Inc.
SEC The Securities and Exchange Commission.
sub-adviser A registered investment adviser that manages the portion of the
assets of a portfolio that is allocated to it by the investment adviser.
trust Schwab Capital Trust.
trusts The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab
Investments, and Schwab Annuity Portfolios.
trustee A member of the Board of Trustees.
underlying fund A fund whose shares are owned by a portfolio.
17
About the Proposals
The Board of Trustees has proposed that the MarketManager Portfolios convert
from using a "multi-fund" or "fund of funds" strategy to using a "multi-manager"
or "manager of managers" strategy. Under the current "multi-fund" strategy, the
MarketManager Portfolios invest primarily in a combination of other actively
managed funds. CSIM, as each portfolio's investment adviser, chooses the mix of
underlying funds for each portfolio based on that portfolio's investment
objective and CSIM's analysis of economic conditions, among other factors.
Shareholders of a MarketManager Portfolio are thus able to access the investment
advice of the many money managers that manage the underlying funds through their
single investment in the portfolio. Shareholders also obtain CSIM's expertise in
evaluating and selecting the money managers and their funds.
If shareholders approve the proposals, CSIM would continue to serve as
investment adviser to the multi-manager funds. Instead of selecting underlying
funds for investment by a portfolio, however, CSIM would select and hire
sub-advisers, subject to Board approval, who would then directly manage a
portion of the multi-manager fund's assets. Thus, under the multi-manager
strategy, shareholders would continue to have access to CSIM's expertise in
evaluating and selecting money managers but, instead of buying the funds that
are managed by those money managers, CSIM would hire the money managers to
directly manage the multi-manager fund's assets. The Board would rely on CSIM to
monitor the sub-advisers' performance and their compliance with each portfolio's
investment objective and policies, and to recommend the hiring or termination of
sub-advisers. Each multi-manager fund would pay CSIM an advisory fee and CSIM
would pay the sub-advisers their fees out of its advisory fee. CSIM also may
directly manage a portion of a multi-manager fund's assets.
The Board believes that it would be advantageous to the shareholders if the
portfolios convert to a multi-manager strategy, because the change offers
greater opportunities for:
o a customized investment approach;
o lower expected annual costs to shareholders;
o access to a broader range of money managers; and
o more complete information for shareholders.
18 Proxy statement
Customized investment approach. The multi-manager strategy offers greater
opportunity for CSIM to provide a customized investment approach for the
portfolios. Under the multi-manager strategy, CSIM would have the ability to
coordinate all the sub-advisers for a portfolio, managing them directly so that
their investment strategies complement each other. This would make it easier for
CSIM to avoid any unintentional over- or under-emphasis on a given industry or
stock.
In addition, the change to the multi-manager strategy would give CSIM added
flexibility to manage certain tax effects on a portfolio in ways that it could
not manage a multi-fund. Under the current multi-fund strategy, CSIM's ability
to avoid or reduce the amount of capital gain distributions each year is limited
by the fact that CSIM cannot predict if an underlying fund will make a capital
gain distribution, nor can it control the amount of capital gain being
distributed. In addition, any capital losses within a particular underlying fund
are not allowed to flow through to the portfolios to offset other capital gains
of the portfolio. Instead, these capital losses are retained by the underlying
fund to offset future capital gains within that particular underlying fund. With
the multi-manager strategy, on the other hand, all gains and losses would be
realized at the portfolio level because securities would be owned directly,
rather than through underlying funds. Because the portfolio (operating as a
multi-manager fund) would own securities directly, CSIM and the sub-advisers
have the ability to control when gains are realized and could harvest losses
from its securities holdings to minimize the tax impact of those gains. While
CSIM does not intend to manage any of the multi-manager funds for tax
efficiency, the ability to better control the timing of gains and losses, and
the ability to manage taxes across managers in a multi-manager fund, offer added
flexibility to reduce capital gain distributions that does not exist under the
current multi-fund structure.
Potential cost savings. The cost structure of the multi-manager funds would be
different and likely less costly to shareholders than the current cost structure
of the MarketManager Portfolios. Mutual funds pay certain fees (e.g., for
advisory or management services) and operating expenses (e.g., for shareholder
reports and custody of securities). These fees and expenses are included in a
mutual fund's OER and directly affect fund performance. As a result,
shareholders indirectly incur these costs.
19
Because the MarketManager Portfolios currently invest in other mutual funds,
shareholders indirectly incur the OER of both the portfolio and the underlying
funds. If the MarketManager Portfolios are converted to the multi-manager
strategy, shareholders would incur the OER of the portfolio only. Under the
multi-manager strategy, the investment adviser, on behalf of a portfolio, would
hire sub-advisers to directly manage a portion of the multi-manager fund's
assets, rather than purchase shares of an underlying fund. Although the
multi-manager structure would cause
- --------------------------------------------------------------------------------
Cost comparison: current structure vs. proposed structure
Growth Balanced Small Cap International
Portfolio Portfolio Portfolio Portfolio
inception: inception: inception: inception:
11/18/96 11/18/96 9/16/97 10/16/96
- --------------------------------------------------------------------------------
MarketManager Portfolios(1)(%) 0.50 0.50 0.50 0.50
Underlying funds(2)(%) 1.03 0.91 1.20 1.34
- --------------------------------------------------------------------------------
Estimated historical 1.53 1.41 1.70 1.84
average overall operating
expenses(%)
- --------------------------------------------------------------------------------
Total OER if proposed 1.25 1.10 1.55 1.65
changes are approved(3)(%)
- --------------------------------------------------------------------------------
Potential cost savings(%) 0.28 0.31 0.15 0.19
(1) CSIM and Schwab have guaranteed the 0.50% expense ratio for each
MarketManager Portfolio since its inception through 2/28/03 (excluding
interest, taxes and certain non-routine expenses.) This guarantee does not
apply to the new multi-manager funds, however. Thus, if shareholders
approve the proposals, new expense ratios would apply to the new
multi-manager funds, and the guarantee of CSIM and Schwab to limit the
expense ratio to 0.50% would not be applicable.
(2) The estimate of combined expense ratios is calculated by multiplying each
underlying fund's average annualized expense ratio by the percentage of the
portfolio that the underlying fund represented at each month end, and then
calculating the average combined expense ratios since inception through
10/31/01. The actual combined expense ratios for the underlying funds could
vary considerably from day to day due to both market fluctuations and the
numbers of shares of each underlying fund held by a MarketManager Portfolio
on a given day.
(3) If shareholders approve the proposals, these expense ratios are guaranteed
by Schwab and CSIM through 2/29/04 (excluding interest, taxes and certain
non-routine expenses). See also the tables on pages 31-33 for a more
complete description of the fees and expenses that would apply under the
proposed structure.
20 Proxy statement
an increase in certain direct expenses (such as management fees to pay for
sub-advisers and custody expenses because the multi-manager fund would hold its
own investments directly), the proposed OERs for the multi-manager funds are
less than the historical estimated average overall operating expenses of the
MarketManager Portfolios.
The table on the facing page illustrates the differences between the current
cost structure of the MarketManager Portfolios and the proposed cost structure
of the multi-manager funds. Each MarketManager Portfolio's OER has been 0.50%
since the portfolio's inception. This OER does not reflect the OERs of the
underlying funds, however. The combined OERs for the underlying funds vary from
day to day based on the mix of underlying funds held by a portfolio and each
underlying fund's expense ratio. The table provides an estimate of the average
combined OERs for the underlying funds for each portfolio since the portfolio's
inception through October 31, 2001. Together with each MarketManager Portfolio's
OER, they provide an estimate of the overall costs to shareholders of each
MarketManager Portfolio. If shareholders approve the proposals and the
MarketManager Portfolios are converted to multi-manager funds, Schwab and CSIM
have guaranteed new OERs through February 29, 2004. Because the proposed new
OERs for the multi-manager funds are lower than the historical estimated overall
costs of the MarketManager Portfolios, the Board expects that the multi-manager
strategy will be less costly to shareholders.
Access to broader range of money managers. A multi-manager structure provides
more direct access to a broader range of money managers than does a multi-fund
structure. In order to access the expertise of a money manager, a multi-manager
fund can hire the manager to directly manage a portion of its assets, while the
multi-fund generally is limited to buying shares of a fund that is managed by
that money manager. In addition, a multi-manager fund can hire a money manager
that only manages accounts for institutional or private clients or whose funds
are closed to new investors, while a multi-fund generally is limited to the
money managers who manage funds that are currently available for public
purchase.
21
More complete information for shareholders. In addition, funds disclose their
portfolio holdings in annual and semi-annual reports, and some, including the
MarketManager Portfolios, disclose their top ten holdings on a periodic basis.
Currently, a MarketManager Portfolio's holdings consist of underlying funds, so
that a shareholder would need to look to the securities holdings of the
underlying fund to find out the stocks and other securities in which the
investor is ultimately invested. Because a multi-manager fund would hold
securities directly, its annual and semi-annual reports will provide
shareholders with easier access to this information by including the list of
companies whose securities are held by the multi-manager fund.
If shareholders approve the proposals, and the MarketManager Portfolios convert
from the multi-fund strategy to the multi-manager strategy, the portfolios will
sell their shares of the underlying funds and purchase securities consistent
with their investment objectives. If shareholders approve these changes, CSIM
intends to complete the sale of the underlying funds and the reinvestment of
these assets for each portfolio within three months of the shareholder meeting.
During that period, the portfolios may continue to hold shares of underlying
funds and may not be fully invested in securities consistent with the new
multi-manager fund structure. We do not anticipate that the sale of the
underlying funds and reinvestment of the assets in securities will result in
material increased overall trading costs on an ongoing basis. In addition, as of
the date of this proxy statement, the sale of the underlying funds should not
result in a realized net capital gain. Market conditions may change, however,
and the conversion could result in increased trading costs and/or a net realized
capital gain that would have to be distributed to shareholders.
To implement the conversion to multi-manager funds, the Board is asking
shareholders to approve each of the following proposals. The shareholders of all
of the portfolios are being asked to approve Proposals 1 and 2 and all
applicable elements of Proposal 3, and the shareholders of the Growth Portfolio
and the Balanced Portfolio are being asked to approve all applicable elements of
Proposal 4.
22 Proxy statement
The Board of Trustees recommends that you vote FOR each of the proposals and all
of their applicable elements.
Proposal 1
To authorize CSIM, subject to Board approval, to hire, terminate or replace
sub-advisers without shareholder approval
Portfolios affected
All portfolios
Background
The Board has proposed that the portfolios be operated so that CSIM may, subject
to Board approval, replace or appoint investment sub-advisers without obtaining
approval of the portfolio's shareholders. This proposal is being submitted to
the shareholders of each portfolio for approval as required by the terms of an
exemptive application filed with the SEC and will not become effective with
respect to any particular portfolio unless and until (1) the SEC has granted the
relief requested in the exemptive application, and (2) this proposal has been
approved by a majority vote of such portfolio's shareholders.
The trust's Investment Advisory and Administration Agreement with CSIM
authorizes CSIM to select and contract with sub-advisers to exercise day-to-day
investment discretion over all or a portion of the assets of the portfolios. The
1940 Act requires that shareholders of the portfolios approve all advisory
contracts. Thus, currently, all sub-advisory agreements and material amendments
to those agreements must be approved by the Board and by shareholders. In
addition, the 1940 Act generally requires that all advisory agreements provide
that they will terminate automatically in the event of their "assignment,"
which, as a matter of law, is deemed to occur in connection with transactions
that result in a change of control in an investment adviser, including certain
mergers involving the adviser's parent. As a result, the trust must seek
shareholder approval when these corporate transactions involving a sub-adviser
occur.
At a meeting of the Board of Trustees of the trusts held on November 13, 2001,
the Board approved the implementation of the multi-manager strategy for the
MarketManager Portfolios and authorized the trusts and CSIM to file with the SEC
the application seeking an order exempting funds that operate as multi-manager
funds from the shareholder vote requirements of the 1940 Act and certain fee
disclosure obligations. The application was filed on November 14, 2001. If the
SEC grants the exemptive order, and shareholders approve Proposal 1, CSIM would
be permitted, with the approval of the Board, to enter
23
into, modify, or terminate sub-advisory agreements with respect to multi-manager
funds without shareholder approval. The trust will continue to obtain
shareholder approval of a sub-advisory agreement when the sub-adviser is an
"affiliated person" (as that term is defined in the 1940 Act) of the trust or
CSIM, other than by reason of serving as a sub-adviser to the fund. In addition,
any material amendment of the Investment Advisory and Administration Agreement
with CSIM will require shareholder approval. There can be no assurance that the
SEC will grant the relief requested by the application.
This proposal is intended to facilitate the efficient supervision and management
of the sub-advisers by CSIM and the Board. CSIM will continuously monitor the
performance of the sub-advisers and may from time to time recommend that the
Board terminate a sub-adviser or appoint an additional sub-adviser. If the SEC
grants the exemptive relief and shareholders approve Proposal 1, a multi-manager
fund would no longer be required to obtain shareholder approval each time a new
sub-adviser is appointed or a sub-advisory agreement is amended.
In approving the filing of the application, the Board considered that
shareholder meetings entail substantial costs and delays that could diminish the
benefits of the current sub-advisory arrangements or delay the implementation of
desirable changes in these arrangements. These costs must be weighed against the
benefits of shareholder scrutiny of proposed contracts with additional or
replacement sub-advisers. The Board considered that, even in the absence of
shareholder approval, a proposal to add or replace sub-advisers or amend a
sub-advisory agreement would still receive careful review. First, CSIM would
continuously assess the multi-manager fund's needs. If it believed that an
additional or replacement sub-adviser would benefit a multi-manager fund, it
would search for available sub-advisers. Second, any recommendation made by CSIM
would have to be approved by a majority of the trustees, including a majority of
the independent trustees. In approving any new sub-adviser, the Board currently
is, and will continue to be, required to determine that the new sub-advisory
agreement is in the best interests of the multi-manager fund and its
shareholders, and the fees provided for under the agreement are fair and
reasonable in light of charges customarily made to others for services of the
same nature or quality. The Board also will consider how any change affects the
profitability of CSIM.
24 Proxy statement
The SEC has previously granted to other investment companies exemptive relief
from the shareholder voting requirements applicable to new and amended
sub-advisory agreements, subject to certain conditions. Based on
previously-granted exemptive orders, it is anticipated that one of the SEC's
conditions for granting exemptive relief will be the approval by shareholders of
the multi-manager structure under which the selection of sub-advisers and
material amendments to the sub-advisory agreements will not be subject to
shareholder approval. In anticipation of that condition, the Board is taking
this opportunity to seek approval of shareholders to operate the multi-manager
fund in reliance on the anticipated exemptive relief. If the shareholders
approve the proposal and the SEC grants the exemptive relief, it is anticipated
that the multi-manager funds and CSIM will be required to comply with certain
additional conditions, including that CSIM will furnish shareholders with
information about any new sub-adviser that it hires within a specified time
period. If the SEC changes these conditions, or any of the other anticipated
conditions, for granting the relief as requested by the trusts and CSIM, or the
order is granted with materially different conditions, the trust will take
appropriate action, which could include soliciting shareholders for reapproval
of this proposal in light of the new conditions.
In the application, the trusts and CSIM also requested exemptive relief from
certain requirements under the 1940 Act and other securities laws that require
disclosure of the fees paid to investment sub-advisers. If the SEC grants the
order, a multi-manager fund will disclose in its prospectus and other disclosure
documents the fees that CSIM is entitled to receive as the investment adviser,
but not the fees that each sub-adviser is entitled to receive for its services.
Because CSIM would pay the sub-advisers' fees out of its advisory fee, CSIM's
advisory fee would reflect the total advisory fees payable by shareholders.
25
The Board of Trustees recommends that you vote FOR each of the proposals and all
of their applicable elements.
Proposal 2
To approve an amendment to the investment advisory and administration
agreement with CSIM
Portfolios affected
All portfolios
Background
At a meeting of the Board of Trustees held on February 19, 2002, the Board,
including the independent trustees, approved an amendment to Schedule B of the
Investment Advisory and Administration Agreement between the trust and CSIM
("advisory agreement"). Schedule B is the fee schedule for the advisory
agreement, and the proposed amendment to Schedule B (the "amendment") increases
the fees payable to CSIM for the services it provides to each of the portfolios
under the advisory agreement. The amendment is attached as Exhibit A to the
proxy statement, and the description of the amendment in this proxy statement is
qualified by reference to Exhibit A. The Board also recommended that the
amendment be submitted to the shareholders of each portfolio for approval.
CSIM currently serves as investment adviser to each of the portfolios under the
advisory agreement. Under the multi-manager structure, CSIM, as investment
adviser to each multi-manager fund, would pay the sub-advisers out of the
advisory fee that CSIM receives from the multi-manager fund. The proposed new
fees reflect, among other things, the additional responsibilities that CSIM will
assume in acting as the "manager of managers" and the fees that CSIM will pay to
sub-advisers to obtain quality investment management services.
Summary of advisory agreement
The proposed amendment only amends the fee schedule to the advisory agreement.
All of the other terms of the advisory agreement would remain in effect. The
following is a summary of the terms of the advisory agreement.
The advisory agreement was approved by the sole shareholder of each portfolio
and became effective on the following dates: for the Growth and Balanced
Portfolios, as of October 13, 1996; for the Small Cap Portfolio, as of August 5,
1997; and for the International Portfolio, as of August 30, 1996. The advisory
agreement was last amended with respect to the MarketManager Portfolios as of
February 28, 1999 to lower the advisory fee rates, and was last approved by the
Board of Trustees on April 24, 2001.
26 Proxy statement
Duties under the Investment Advisory and Administration Agreement.
The advisory agreement provides that CSIM will, subject to the direction and
control of the Board of Trustees, supervise or perform for each portfolio all
aspects of the operations of the portfolio except for those performed by the
custodian, shareholder service agent and transfer agent for the portfolio. The
advisory agreement provides that CSIM will provide general economic and
financial analysis and advice to the portfolios and provide a continuous
investment program for the portfolios, including investment research and
management as to all securities and investments and cash equivalents in the
portfolios. The agreement also provides that CSIM may select and contract with
sub-advisers to furnish continuously an investment program as to those assets
allocated to the sub-adviser by CSIM, adhere to such guidelines as may be
established by CSIM from time to time to insure compliance with the portfolios'
investment objectives, policies and restrictions, and place all orders for the
purchase and sale of investments. The advisory agreement provides that CSIM may
delegate or subcontract some or all of its other duties under the agreement and
is responsible for payment of all compensation to sub-advisers.
The advisory agreement provides that CSIM will not be liable for any error of
judgment or mistake of law or any loss suffered by the trust in connection with
the performance of the advisory agreement, except a loss resulting from breach
of fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of CSIM in the performance of its duties or from reckless disregard by it
of its obligations and duties under the advisory agreement.
Portfolio transactions. The provisions relating to execution of portfolio
transactions in the advisory agreement authorize CSIM to select brokers and
dealers to execute portfolio transactions, subject to its overall obligation to
seek best execution for the portfolio. In selecting a broker or dealer, CSIM may
consider brokerage and research services provided to it.
Duration and termination. The advisory agreement may be terminated at any time,
without payment of any penalty, on 60 days written notice by the trust (by vote
of the trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the portfolio) or by CSIM. The agreement will immediately
terminate in the event of its assignment.
27
Compensation. Under the current advisory agreement, each portfolio pays CSIM a
fee for its services, which is calculated daily and paid monthly, as follows:
0.54% of the portfolio's average daily net assets not in excess of $500 million,
and 0.49% of such net assets over $500 million. The proposed amendment would
amend the fees to be as follows: 1.00% of average daily net assets of the Growth
Portfolio; 0.85% of the average daily net assets of the Balanced Portfolio;
1.30% of the average daily net assets of the Small Cap Portfolio; and 1.40% of
the average daily net assets of the International Portfolio.
The differences in fees for each of the portfolios reflect the market rates that
CSIM must pay to sub-advisers to manage certain types of funds and CSIM's
additional responsibilities for managing the portfolios. In particular, managers
of equity securities generally charge more for their research and advice than
managers of fixed income securities. Thus, the combined fees that CSIM will pay
sub-advisers to manage the Growth Portfolio (which will be an all-equity
portfolio, if shareholders of that portfolio approve Proposal 4A) likely will be
more than the combined fees that CSIM will pay sub-advisers to manage the
Balanced Portfolio, which will have a fixed income component. Similarly, the
market rates for managers of small cap funds and international funds are
generally higher than for domestic large cap funds, because researching and
analyzing the small cap and international markets is generally more costly.
Thus, the fees that CSIM will pay to the sub-advisers of the Small Cap and
International Portfolios will generally be higher than the fees that it will pay
to the sub-advisers of the Growth and Balanced Portfolios.
Trustees' considerations The trustees, including the independent trustees,
approved the amendment at a meeting held on February 19, 2002. The trustees
received written and oral information from CSIM regarding CSIM's key personnel
and its experience in evaluating and selecting investment managers. The trustees
reviewed CSIM's qualifications to act as investment adviser to the portfolios,
placing particular emphasis on its proposed role in recommending, monitoring and
terminating sub-advisers subject to Board oversight. In evaluating the
amendment, the Board considered that the terms of the advisory agreement would
remain the same and that the only change is the increase in the fee payable to
CSIM. The trustees also noted
28 Proxy statement
that CSIM would pay sub-advisers out of the fee that it receives from the
portfolios and that its current annual fee of 0.54% is insufficient to hire
quality sub-advisers to manage portions of the portfolios under a multi-manager
structure.
In recommending that shareholders approve the amendment, the trustees carefully
evaluated the experience of CSIM's key personnel in institutional investing and
the quality of services CSIM is expected to provide to each portfolio,
including, but not limited to: (1) the fee and expense ratios of comparable
mutual funds; (2) the performance of the portfolios since commencement of
operations; (3) the nature and quality of services expected to be rendered to
each portfolio by CSIM; (4) the distinct investment objectives and policies of
the portfolio; (5) the history, reputation, qualification and background of CSIM
as well as the qualifications of its personnel and its financial condition; (6)
its performance record; (7) the benefits expected to be realized as a result of
the multi-manager structure, including that, in selecting a broker or dealer,
subject to its overall obligation to seek best execution for the portfolio, CSIM
may consider research services provided to it; and (8) other factors deemed
relevant. The trustees also reviewed the fees to be paid CSIM under the
amendment in comparison to those being charged in the relevant segment of the
mutual fund business.
29
- --------------------------------------------------------------------------------
About Charles Schwab Investment Management, Inc. (CSIM)
A wholly owned subsidiary of The Charles Schwab Corporation, CSIM is the
portfolios' investment adviser and administrator. The Charles Schwab
Corporation, CSIM and Schwab, the portfolios' principal underwriter, are all
located at 101 Montgomery Street, San Francisco, CA 94104.
As of December 31, 2001, CSIM managed 44 mutual funds and over $148 billion in
assets. Information about those funds with investment objectives similar to
those of the portfolios may be found on page 63.
Listed below are the directors and the principal executive officer of CSIM. The
principal business address of each director and the principal executive officer,
as it relates to their duties at CSIM, is the same as above.
Name Position(s) at CSIM
- --------------------------------------------------------------------------------
John Philip Coghlan Director and Chief Executive Officer
Charles R. Schwab Chairman
Stephen B. Ward Director, Senior Vice President and Chief
Investment Officer
30 Proxy statement
- --------------------------------------------------------------------------------
Advisory fees: structure
The following table shows the differences between the current advisory fees
under the multi-fund structure and the proposed advisory fees under the
multi-manager structure.
Growth Balanced Small Cap International
Current Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
% of first $500 million 0.54 0.54 0.54 0.54
% of net assets over $500 million 0.49 0.49 0.49 0.49
Growth Balanced Small Cap International
Proposed(1) Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
% of all assets 1.00 0.85 1.30 1.40
- --------------------------------------------------------------------------------
Advisory fees: actual All dollar amounts x 1,000
The following table compares the fees paid to CSIM under the current advisory
fee rate for the fiscal year ended October 31, 2001 and the fee CSIM would have
received if the new advisory fee rate had been in effect for the same period.
Growth Balanced Small Cap International
Current Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------
Actual fees paid to CSIM $850 $535 $511 $1,032
(net of waivers)
Fees (net of waivers) that $1,515 $836 $1,269 $2,733
would have been paid to
CSIM if the proposed advisory
fee had been in effect(1)
- --------------------------------------------------------------------------------
Percentage increase in 78% 56% 148% 165%
advisory fees
(1) Note that these numbers reflect the total fees that would be paid to CSIM
under the multi-manager strategy and that CSIM would pay the sub-advisers
their fees out of these amounts.
31
Current and proposed fees and expenses
The following tables provide information about the current and proposed fees and
expenses. "Shareholder fees" are charged directly to you by the portfolio.
"Annual operating expenses" are paid out of portfolio assets, so their effect is
included in total return. Current expenses for the portfolios do not reflect the
expenses of the underlying funds. For that information, see page 20.
- --------------------------------------------------------------------------------
Fee table (%)
Growth Portfolio
Shareholder fees Current Proposed
- --------------------------------------------------------------------------------
Redemption fee None None
Annual operating expenses (% of average net assets)
- --------------------------------------------------------------------------------
Management fees 0.54 1.00
Distribution (12b-1) fees None None
Other expenses 0.35 0.41
- --------------------------------------------------------------------------------
Total annual operating expenses 0.89 1.41
Expense reduction (0.39) (0.16)
- --------------------------------------------------------------------------------
Net operating expenses 0.50(1) 1.25(2)
(1) Guaranteed by Schwab and CSIM through 2/28/03 (excluding interest, taxes
and certain non-routine expenses). The expenses incurred by underlying
funds in which the portfolio invests are not included in these expenses.
The income received by the portfolio from underlying funds is reduced by
those expenses. This guarantee would no longer apply if shareholders
approve the proposals.
- --------------------------------------------------------------------------------
Expenses on a $10,000 investment
This example is designed to help you compare expenses with other mutual funds.
The example assumes that you invest $10,000 for the time periods shown and that
your investment has a 5% return each year. The current expenses do not reflect
the expenses of the underlying funds. One-year figures are based on net
operating expenses. The expenses would be the same whether you stayed in the
portfolio or sold your shares at the end of each period. Your actual costs may
be higher or lower.
32 Proxy statement
- --------------------------------------------------------------------------------
Balanced Portfolio Small Cap Portfolio International Portfolio
Current Proposed Current Proposed Current Proposed
- -------------------------------------------------------------------------------
None None None None 1.50(3) 1.50(3)
- -------------------------------------------------------------------------------
0.54 0.85 0.54 1.30 0.54 1.40
None None None None None None
0.35 0.45 0.37 0.46 0.34 0.43
- -------------------------------------------------------------------------------
0.89 1.30 0.91 1.76 0.88 1.83
(0.39) (0.20) (0.41) (0.21) (0.38) (0.18)
- -------------------------------------------------------------------------------
0.50(1) 1.10(2) 0.50(1) 1.55(2) 0.50(1) 1.65(2)
(2) Guaranteed by Schwab and CSIM through 2/29/04 (excluding interest, taxes
and certain non-routine expenses) if shareholders approve the proposals.
(3) Charged only on shares you sell 180 days or less after buying them and paid
directly to the portfolio.
- --------------------------------------------------------------------------------
Fees and Expenses 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Portfolio
Current $ 51 $ 245 $ 455 $1,060
Proposed $ 127 $ 414 $ 739 $1,660
Balanced Portfolio
Current $ 51 $ 245 $ 455 $1,060
Proposed $ 112 $ 371 $ 673 $1,529
Small-Cap Portfolio
Current $ 51 $ 249 $ 464 $1,082
Proposed $ 158 $ 512 $ 912 $2,034
International Portfolio
Current $ 51 $ 243 $ 450 $1,049
Proposed $ 168 $ 539 $ 955 $2,114
33
The Board of Trustees recommends that you vote FOR each of the proposals and all
of their applicable elements.
Proposal 3
To approve sub-advisory agreements
Portfolios affected
All portfolios
Background
At a meeting of the Board of Trustees held on February 19, 2002, based on the
recommendation of CSIM, the trustees, including the independent trustees,
unanimously approved the proposed sub-advisory agreements between CSIM and each
sub-adviser and the appointment of the following sub-advisers to manage a
portion of the assets of the following portfolios. The Board also recommended
that the proposed sub-advisory agreements be submitted to shareholders of each
portfolio for approval. Information about each proposed sub-adviser is provided
below. The sub-advisers are listed alphabetically.
- --------------------------------------------------------------------------------
Proposed sub-advisers for each MarketManager portfolio
Sub-Advisers Investment Style
- --------------------------------------------------------------------------------
Growth Portfolio
Eagle Asset Management, Inc. Large-Cap Growth
Harris Associates, L.P. Large-Cap Value
TCW Investment Management Co. Small/Mid-Cap
Thornburg Investment Management, Inc. Large-Cap Blend
Balanced Portfolio
Aronson + Partners Large-Cap Value
Berger Financial Group LLC Mid-Cap Value
Perkins, Wolf, McDonnell & Co. Mid-Cap Value
Eagle Asset Management, Inc. Large-Cap Growth
Pacific Investment Management Company Fixed Income
Small-Cap Portfolio
Royce & Associates, Inc. Small-Cap Value
TCW Investment Management Co. Small/Mid-Cap
Tocqueville Asset Management L.P. Small-Cap Blend
Veredus Asset Management LLC Small-Cap Growth
International Portfolio
American Century Investment Management, Inc. International Small Company
Artisan Partners Limited Partnership International Growth
Harris Associates, L.P. International Value
William Blair & Company, LLC International Growth
34 Proxy statement
- --------------------------------------------------------------------------------
Profiles of each proposed sub-adviser
These pages describe the firms that CSIM has identified as those it would like
to engage as sub-advisers to the funds. In cases where a sub-adviser would be
managing assets for more than one fund, CSIM will compensate the sub-adviser for
managing each portfolio, but the managed assets of both portfolios will be
aggregated for purpose of calculating the sub-adviser's fees.
American Century Investment Management, Inc.
American Century Investment Management, Inc. ("American Century") will serve as
a sub-adviser to the International Portfolio. It was organized as a Delaware
corporation in 1958 and is a wholly owned subsidiary of American Century
Companies, Inc. ("ACC"). J.P. Morgan Chase owns approximately 45% of ACC. As of
December 31, 2001, American Century had approximately $88.9 billion under
management. American Century's and ACC's principal offices are located at 4500
Main Street, Kansas City, Missouri 64111.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Randy W. Merk President and Chief Executive Officer
William M. Lyons Executive Vice President and Director
Robert C. Puff Chairman of the Board
James E. Stowers, Jr. Director
Robert T. Jackson Chief Financial Officer and Executive Vice President
David C. Tucker Chief Legal Officer and Senior Vice President
James E. Stowers, III Director
David H. Reinmiller Chief Compliance Officer
American Century serves as the investment adviser to the following funds that
have an investment objective similar to the portion of the International
Portfolio that will be managed by American Century:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
American Century $6.8 million 2.00%
International
Opportunities Fund
American Century $1.2 billion 1.75% on the first $500 million;
International 1.40% on the next $500 million;
Discovery Fund 1.20% on amounts over $1 billion
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.85% on the first $50 million; 0.80% on amounts over $50 million.
35
Aronson + Partners
Aronson + Partners ("A+P") will serve as a sub-adviser to the Balanced
Portfolio. It was established as a Pennsylvania general partnership in 1984. As
of December 31, 2001, A+P had approximately $5.8 billion under management.
A+P's principal office is located at 230 South Broad Street, Twentieth Floor,
Philadelphia, Pennsylvania 19102.
Principal executive officers and partners:
Name Position(s)
- --------------------------------------------------------------------------------
Theodore R. Aronson Managing Partner
Kevin M. Johnson Research Partner
Martha E. Ortiz Implementation Partner
Stefani Cranston Accounting Partner
Paul Dodge Operations Partner
Gina Marie N. Moore Research Partner
Gregory J. Rogers Trading Partner
A+P serves as a sub-adviser to the following funds that have an investment
objective similar to the portion of the Balanced Portfolio that will be managed
by A+P:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
The Investment Fund for $37 million Performance-based fee
Foundations - U.S. Equity 0.10% - 0.80%
Fund
The Investment Fund for $26 million Performance-based fee
Foundations - Multi-Asset 0.10% - 0.80%
Fund
Quaker Small-Cap Value $24 million Performance-based fee
Fund 0.30% - 1.50%
Annuity Board of the $67 million 0.90% (reduced to 0.85% on first
Southern Baptist $25 million, 0.80% thereafter)
Convention - AB Funds
Trust - Small-Cap Equity
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
If at any time the amount of assets is less than $100 million: 0.70% on the
first $10 million; 0.50% on the next $40 million; 0.35% on amounts over $50
million but less than $100 million.
If at any time the amount of assets is equal to or greater than $100 million:
0.30% on the first $250 million; 0.20% on the next $250 million; 0.15% on
amounts over $500 million.
36 Proxy statement
Artisan Partners Limited Partnership
Artisan Partners Limited Partnership ("Artisan Partners") will serve as a
sub-adviser to the International Portfolio. It was established as a Delaware
limited partnership in 1994. Artisan Investment Corporation is the general
partner of Artisan Partners. As of December 31, 2001, Artisan Partners had
approximately $15.5 billion under management. Artisan Partners' and Artisan
Investment Corporation's principal offices are located at 1000 N. Water Street,
Suite 1770, Milwaukee, Wisconsin 53202.
Principal executive officers and partners:
Name Position(s)
- --------------------------------------------------------------------------------
Artisan Investment General Partner
Corporation
Andrew A. Ziegler President and Director of the General Partner
Carlene M. Ziegler Vice President and Director of the General Partner
Lawrence A. Totsky Chief Financial Officer of the General Partner
Artisan Partners serves as the investment adviser or sub-adviser to the
following funds that have an investment objective similar to the portion of the
International Portfolio that will be managed by Artisan Partners:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Artisan International Fund $5.7 billion 1.00% on first $500 million;
0.975% on next $250 million;
0.95% on next $250 million;
0.925% on amounts over
$1 billion
Hirtle Callaghan Trust - $208 million(1) Performance-based fee
International Equity Portfolio(1)
(1) Firm manages only the portion of assets shown.
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.75% on the first $100 million; 0.70% on the amounts over $100 million.
Berger Financial Group LLC
Berger Financial Group LLC ("Berger") will serve as a sub-adviser to the
Balanced Portfolio. It is organized as a Nevada limited liability company and
was founded in 1974. Stilwell Management, Inc. owns approximately 89.5% of
Berger. Stilwell Financial owns 100% of Stilwell Management, Inc. As of December
31, 2001, Berger had approximately $8.7 billion under management. Berger's and
Stilwell Management, Inc.'s principal office is located at 210 University Blvd.,
Suite 800, Denver, CO 80206. Stilwell Financial's principal offices are located
at 920 Main Street, 21st Floor, Kansas City, MO 64104.
37
Principal executive officers and member manager:
Name Position(s)
- --------------------------------------------------------------------------------
Jack R. Thompson President and Chief Executive Officer
Jay W. Tracey III Executive Vice President and Chief Investment Officer
David G. Mertens Senior Vice President
Brian S. Ferrie Vice President, Treasurer and Chief Financial Officer
Janice M. Teague Vice President - Administration and Secretary
Anthony R. Bosch Vice President and Chief Legal Officer
Andrew J. Iseman Vice President and Chief Operating Officer
Stilwell Management, Inc. Member Manager
Berger serves as the investment adviser to the following funds that have an
investment objective similar to the portion of the Balanced Portfolio that will
be managed by Berger:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Berger Mid-Cap $264.8 million 0.75% on first $500 million; 0.70%
Value Fund on the next $500 million; 0.65% on
amounts over $1 billion; provided
Berger waives its fee to the extent
the Fund's operating expenses
exceed 2.00%
Berger IPT Mid-Cap $250,000 0.75% on first $500 million; 0.70%
Value Funds on the next $500 million; 0.65% on
amounts over $1 billion; provided
Berger waives its fee to the extent
the Fund's operating expenses
exceed 1.2%
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.50% on all assets; Berger may delegate certain of its investment
responsibilities to Perkins, Wolf, McDonnell and Co. (described below) and will
pay 50% of the compensation it receives from CSIM to Perkins, Wolf.
Eagle Asset Management, Inc.
Eagle Asset Management, Inc. ("Eagle") will serve as a sub-adviser to the Growth
Portfolio and Balanced Portfolio. It was organized as a Florida corporation in
1976. Eagle is a wholly-owned subsidiary of Raymond James Financial, Inc. As of
December 31, 2001, Eagle had approximately $5.8 billion under management.
Eagle's and Raymond James Financial, Inc.'s principal offices are located at 880
Carillon Parkway, P.O. Box 10520, St. Petersburg, Florida 33733-0520.
38 Proxy statement
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Thomas A. James Chairman of the Board
Richard K. Riess Chief Executive Officer and Director
Stephen G. Hill President and Chief Operating Officer and Director
Kenneth K. Koster Senior Vice President and Chief Compliance Officer
Richard Rossi Executive Vice President
Eagle serves as a sub-adviser to the following funds that have an investment
objective similar to the portions of the Growth Portfolio and Balanced Portfolio
that will be managed by Eagle:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Heritage Growth Equity $250 million 0.375%
A Fund
Mainstay VP Series Fund $180 million 0.40%
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.50% on the first $100 million; 0.45% on the next $50 million; 0.40% on amounts
above $150 million.
Harris Associates, L.P.
Harris Associates, L.P. ("Harris") will serve as a sub-adviser to the Growth
Portfolio and the International Portfolio. It was established as a Delaware
limited partnership in 1976 and is a wholly owned subsidiary of CDC IXIS Asset
Management North America, L.P. As of December 31, 2001, Harris had approximately
$20.8 billion under management. The principal office of Harris is located at Two
North LaSalle, Suite 500, Chicago, Illinois 60602-3790. CDC IXIS Asset
Management North America, L.P.'s principal office is located at 399 Boylston
Street, Boston, MA 02116.
Principal executive officers and general partners:
Name Position(s)
- --------------------------------------------------------------------------------
Harris Associates, Inc. General Partner
CDC IXIS Asset Manage- General Partner
ment North America, L.P.
David Herro Vice President, Alternative and International
Investment Group
Robert M. Levy President, Chairman, Chief Executive Office
and Chief Investment Officer
Roxanne M. Martino Vice President, Alternative and International
Investment Group
Anita M. Nagler Managing Director, Alternative and International
Investment Group
Janet Reali Vice President, General Counsel and Secretary
39
Name Position(s)
- --------------------------------------------------------------------------------
Floyd J. Bellman Vice President
Kristi L. Rowsell Treasurer and Chief Financial Officer
John R. Raitt Chief Operating Officer and Director of Domestic
Research
Harris serves as the investment adviser or sub-adviser to the following funds
that have an investment objective similar to the portions of the Growth
Portfolio and International Portfolio that will be managed by Harris:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Commonfund Value $262.8 million 0.64%
Opportunities Fund(1,2)
Hillview Alpha Fund(2) $95 million 1.43% (includes waiver of 0.32%)
Hillview Alpha International $30 million 1.68% (includes waiver of 0.48%)
Fund(2)
Mass Mutual International $23 million
Overseas Fund(2) 0.6746% (includes waiver of 0.05%)
Masters Select International $278.8 million
Fund(2) 0.9025% (includes waiver of 0.1975%)
Masters Select Value Fund(2) $160.5 million 1.08% (includes waiver of 0.02%)
Nvest Star Value Fund2 $194.1 million 0.75% (no waivers)
Nvest Star Worldwide $171.1 million 1.05% (no waivers)
(International) Fund(2)
Oakmark International Fund $964.2 million 1.30% (no waivers)
Oakmark Select Fund $4.6 billion 1.08% (no waivers)
SunAmerica Series Focused $17.6 million 1.45% (includes waiver of 0.70%)
Growth and Income Fund(2)
SunAmerica Style Select $36.3 million 1.95% (includes waiver of 0.87%)
Focused International Fund(2)
(1) The fund does not combine fees of its managers and reports an estimated,
unaudited management fee with no waivers.
(2) The net assets and sub-advisory fees are for the entire fund and not only
the portion managed by Harris.
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.60% on the first $125 million; 0.575% on the next $125 million; 0.55% on
amounts over $250 million.
Pacific Investment Management Company
Pacific Investment Management Company ("PIMCO") will serve as sub-adviser to the
Balanced Portfolio. It is a Delaware limited liability company, and was founded
in 1971. It is a subsidiary of Allianz Dresdner Asset Management of America LP,
formerly PIMCO Advisors L.P. ("ADAM LP"). Allianz AG, a European-based,
multi-national insurance and financial services holding company is the indirect
majority owner of ADAM LP
40 Proxy statement
and Pacific Life Insurance Company holds an indirect minority interest in ADAM
LP. As of December 31, 2001, PIMCO had approximately $241 billion under
management. PIMCO's principal office is located at 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660. ADAM LP's principal office is
located at 888 San Clemente Drive, Suite 100, Newport Beach, CA 92660. Allianz
AG's principal office is located at Koniginstrasse, 28 D-80802, Munich, Germany.
Pacific Life Insurance Company's principal office is located at 700 Newport
Center Drive, Newport Beach, CA 92660.
PIMCO operates as a separate and autonomous subsidiary that is managed and
operated by the following managing directors:
Name Position(s)
- --------------------------------------------------------------------------------
William Benz Managing Director, Account Manager/Client Services
Wesley Burns Managing Director, Executive Manager
Chris Dialynas Managing Director, Portfolio Manager
Mohammed El-Erian Managing Director, Portfolio Manager
William Gross Managing Director, Portfolio Manager
John Hague Managing Director, Portfolio Manager
Pasi Hamalainen Managing Director, Portfolio Manager
Brent Harris Managing Director, Account Manager/Marketing
Brent Holden Managing Director, Account Manager/Client Service
Margaret Isberg Managing Director, Marketing
John Loftus Managing Director, Account Manager/Marketing
Paul McCulley Managing Director, Portfolio Manager
Dean Meiling Managing Director, Account Manager/Client Service
James Muzzy Managing Director, Account Manager/Client Service
William Podlich Managing Director, Executive Manager
William Powers Managing Director, Portfolio Manager
Ernest Schmider Managing Director, Executive Manager
Lee Thomas, III Managing Director, Portfolio Manager
William Thompson Managing Director, Chief Executive Officer
Benjamin Trosky Managing Director, Portfolio Manager
PIMCO serves as the investment adviser or sub-adviser to the following funds
that have an investment objective similar to the portion of the Balanced
Portfolio that will be managed by PIMCO:
PIMCO FUNDS:
Pacific Investment Net Assets
Management Series (12/31/01) Management Fee
- --------------------------------------------------------------------------------
PIMCO TR $49 billion 0.25%
PIMCO-T2 $1.85 billion 0.25%
PIMCO T3 $861 million 0.25%
PIMCO Funds: Global Net Assets
Investors Series PLC (12/31/01) Management Fee
- --------------------------------------------------------------------------------
PAFPLCTR $298 million 0.30%
41
Net Assets
PIMCO Sub-Advised Funds (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Pacific Select Fund $2.3 billion 0.25%
Managed Bond Portfolio
Harbor Bond Fund $1 billion 0.50% on first $25 million;
0.375% on the next $25
million; 0.25% on amounts
over $50 million
Frank Russell Investment $181.8 million 0.25%
Company Fixed Income
I Fund
Frank Russell Investment $110.1 million 0.25%
Company Diversified Bond
Fund
JNL Series Trust PIMCO $54.8 million 0.25%
Total Return Bond Series
Frank Russell Investment $134.1 million 0.25%
Management Company
Fixed Income III Fund
Frank Russell Investment $221.7 million 0.25%
Management Company
Multi-Strategy Bond Fund
Frank Russell Investment $54.9 million 0.25%
Management Company
Core Bond Fund
ASMT PIMCO Total Return $456.2 million 0.25%
Bond Portfolio
PACE Strategic Fixed $272.3 million 0.25%
Income Investments
Mitchell Hutchins Series $2.8 million 0.25%
Trust Strategic Fixed
Income Portfolio
Target Total Return Bond $106.3 million 0.25%
Portfolio
AST PIMCO Total Return $1.6 billion 0.25%
Bond Portfolio
Fremont Bond Fund $794.4 million 0.25%
Strategic Partners $37 million 0.25%
Conservative Growth Fund
Manufacturers Investment $739.5 million 0.30% on the first $150
Trust Total Return Trust million; 0.25% on amounts
over $150 million
Strategic Partners $76 million 0.25%
Conservative Growth
Portfolio
The GCG Trust Core $120.6 million 0.25%
Bond Series
The Enterprise Group of $17.7 million 0.25%
Funds, Inc. Trust Total Return
Met Investors Series Trust $101.4 million 0.25%
PIMCO Total Return Portfolio
42 Proxy statement
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.25% on all assets.
Perkins, Wolf, McDonnell & Co.
Perkins, Wolf, McDonnell & Co. ("Perkins") will serve as a sub-adviser to the
Balanced Portfolio. It was organized as a Delaware Corporation in 1980. As of
December 31, 2001, Perkins had approximately $4.6 billion under management. As
discussed above, Berger may delegate certain of its investment management
responsibilities to Perkins. Perkins' principal office is located at 310 S.
Michigan Avenue, #2600, Chicago, IL 60604.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Robert H. Perkins President and Director
Gregory E. Wolf Treasurer, Director and Chief Operating Officer
Perkins serves as a sub-adviser to the following funds that have an investment
objective similar to the portion of the Balanced Portfolio that will be managed
by Perkins:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Berger Mid-Cap $264.8 million One-half of the following: 0.75% on
Value Fund first $500 million; 0.70% on the next
$500 million; 0.65% on amounts over
$1 billion; provided Berger waives its
fee to the extent the Fund's operating
expenses exceed 2.00%
Berger IPT Mid-Cap $250,000 One-half of the following: 0.75% on
Value Funds first $500 million; 0.70% on the next
$500 million; 0.65% on amounts over
$1 billion; provided Berger waives its
fee to the extent the Fund's operating
expenses exceed 1.2%
Proposed sub-advisory fee (paid by Berger out of sub-advisory fees that it
receives from CSIM and based on average daily net assets under management):
50% of the compensation that is paid by CSIM to Berger. As discussed above, CSIM
will pay Berger 0.50%.
43
Royce & Associates, Inc.
Royce & Associates, Inc. ("Royce") will serve as a sub-adviser to the Small-Cap
Portfolio. It was organized as a New York corporation in 1967 and is a
wholly-owned subsidiary of Royce Holdings, LLC. Legg Mason, Inc. owns 100% of
the interests in Royce Holdings, LLC. As of December 31, 2001, Royce had
approximately $6 billion under management. Royce's principal office is located
at 1414 Avenue of the Americas, New York, NY 10019. Legg Mason, Inc.'s and Royce
Holdings, LLC's principal offices are located at 100 Light Street, Baltimore, MD
21202.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Charles M. Royce President, Secretary, Treasurer and Director
Jack E. Fockler, Jr. Vice President
W. Whitney George Vice President
Daniel A. O'Byrne Vice President
John D. Diederich Chief Operating Officer and Director
Mark R. Fetting Director
Raymond A. Mason Director
Timothy C. Scheve Director
Royce serves as an investment adviser or sub-adviser to the following funds that
have an investment objective similar to the portion of the Small-Cap Portfolio
that will be managed by Royce:
Net Assets
The Royce Fund (12/31/01) Management Fee (expense cap)
- --------------------------------------------------------------------------------
Pennsylvania Mutual Fund - I $444.9 million 1.00% on first $50 million; 0.875%
on next $50 million; 0.75% on
amounts over $100 million
Pennsylvania Mutual $137 million 1.00% on first $50 million; 0.875%
Fund - C on next $50 million; 0.75% on
amounts over $100 million (capped
at 1.97%)
Royce Low-Priced Stock $1 billion 1.50% (capped at 1.49%)
Fund - I
Royce Micro-Cap Fund - I $202.4 million 1.50% (capped at 1.49%)
Royce Micro-Cap Fund - C $6.2 million 1.50% (capped at 2.49%)
Royce Opportunity Fund - I $576.2 million 1.00%
Royce Opportunity $5.1 million 1.00% (capped at 1.04%)
Fund -INST
Royce Opportunity $13.3 million 1.00% (capped at 1.29%)
Fund -FIC
Royce Premier Fund - I $798.9 million 1.00%
Royce Select Fund - I $18.4 million Performance-based fee
Royce Special Equity $6 million 1.00% (capped at 1.49%)
Fund - I
Royce Total Return Fund - I $507.8 million 1.00% (capped at 1.25%)
44 Proxy statement
Net Assets
(12/31/01) Management Fee
- --------------------------------------------------------------------------------
Royce Total Return Fund - C $3.1 million 1.00% (capped at 2.20%)
Royce Trust & GiftShares $26.1 million 1.00% (capped at 1.49%)
Fund - I
Royce Trust & GiftShares $7,671 1.00% (capped at 2.49%)
Fund - C
Royce Trust & GiftShares $6.8 million 1.00% (capped at 2.49%)
Fund - CBC
Royce Value Fund - I $1.4 million 1.00% (capped at 1.49%)
Royce Value Plus Fund - I $2.2 million 1.00% (capped at 1.49%)
Royce Technology Value -- 1.50% (capped at 1.99%)
Fund - I(1)
I = Investment Class, C = Consultant Class, INST = Institutional Class,
FIC = Financial Intermediary Class, CBC = Consultant B Class
(1) The fund commenced operations on 12/31/01, and Royce is one of two
sub-advisors of the fund.
Net Assets
Royce Capital Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Small Cap Portfolio $3.6 million 1.00% (capped at 1.35%)
Micro-Cap Portfolio $106.4 million 1.25% (capped at 1.35%)
Net Assets
Royce Closed End Funds (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Royce Value Trust, Inc. $849.1 million Performance-based fee: 0.50% -
1.50% (cap based on
performance)(1)
Royce Micro-Cap Trust, Inc. $240.4 million Same as above
Royce Focus Trust, Inc. $86.6 million 1.00% (cap based on
performance)(1)
(1) Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to an issue of the fund's Preferred Stock for any
month in which the fund's average annual NAV total return since issuance of
the Preferred Stock fails to exceed the applicable Preferred Stock dividend
rate.
Net Assets
Sub-Advised Funds (12/31/01) Management Fee
- --------------------------------------------------------------------------------
AXP Partners Small Cap $121 million 0.80% on first $50 million; 0.75%
Value Fund(1) on next $50 million; 0.70% on next
$50 million; 0.65% on next $50
million; 0.50% on amounts over
$200 million
AXP Variable Portfolio- $8.3 million Same as above
Penn Series Small Cap $84.5 million 0.70% on first $25 million; 0.65%
Value Fund on next $75 million; 0.60% on
amounts over $100 million
(1) Royce is one of two sub-advisors of the fund.
45
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.80% on the first $50 million; 0.75% on next $50 million; 0.70% on next $50
million; 0.65% on next $50 million; 0.60% on amounts over $200 million.
TCW Investment Management Company
TCW Investment Management Company ("TIMCO") will serve as a sub-adviser to the
Growth Portfolio and Small-Cap Portfolio. It was organized as a California
corporation in 1971. TIMCO is a wholly owned subsidiary of The TCW Group, Inc.
Societe Generale Asset Management, S.A. ("SGAM") owns 51% of The TCW Group, Inc.
Societe Generale, S.A., a publicly held financial services firm headquartered in
Paris, France, owns 100% of SGAM. As of December 31, 2001, TIMCO had
approximately $17.39 billion under management. TIMCO's and The TCW Group, Inc.'s
principal offices are located at 865 South Figueroa Street, Suite 1800, Los
Angeles, CA 90017. SGAM's principal office is located at 2, Place de la Coupole
92078 Paris, France - La Defense Cedex.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Robert Alvin Albe Director, President and Chief Executive Officer
Thomas Ernest Larkin Director and Vice Chairman
Marc Irwin Stern Director and Chairman
William Charles Sonneborn Executive Vice President and Chief Operating Officer
TIMCO serves as the investment adviser or sub-adviser to the following funds
that have an investment objective similar to the portions of the Growth
Portfolio and Small-Cap Portfolio that will be managed by TIMCO:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
TCW Galileo Value $659 million 0.80% on all assets
Opportunities Fund
AXA Premier Funds Trust - $2 million(1) 0.55% on the first $100 million;
Premier Small/Mid-Cap 0.50% on the next $200 million;
Value 0.45% on amounts over $300 million
AXA Premier Funds Trust - $2 million(1) Same as above
Premier VIP Small/Mid-Cap
Value
Touchstone Investment Trust $73 million 0.50%
Emerging Growth Fund
Touchstone Variable Series $6 million 0.50%
Trust Emerging Growth Fund
(1) Commenced operations in January, 2002.
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.65% on the first $75 million; 0.60% on amounts over $75 million.
46 Proxy statement
Thornburg Investment Management, Inc.
Thornburg Investment Management, Inc. ("Thornburg") will serve as a sub-adviser
to the Growth Portfolio. It was organized as a Delaware Corporation in 1982. As
of December 31, 2001, Thornburg had approximately $4.9 billion under management.
Thornburg's principal office is located at 119 E. Marcy St., Suite 202, Santa
Fe, New Mexico 87501.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
Garrett Thornburg Chief Executive Officer
Brian McMahon Managing Director, Chief Investment Officer
Dawn Fischer Managing Director, Corporate Secretary
Beckie Hantulla Managing Director, Controller
Thornburg serves as investment adviser or sub-adviser to the following funds
that have an investment objective similar to the portion of the Growth Portfolio
that will be managed by Thornburg:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
SunAmerica Large-Cap $28 million 0.45% on the first $200 million;
0.40% on amounts over $200 million
Thornburg Value Fund $2.16 billion 0.88%
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.45% on the first $200 million; 0.40% on amounts over $200 million.
Tocqueville Asset Management L.P.
Tocqueville Asset Management L.P. ("Tocqueville") will serve as a sub-adviser to
the Small-Cap Portfolio. It was established as a Delaware limited partnership in
1985. Tocqueville Management Corporation is the general partner of Tocqueville.
As of December 31, 2001, Tocqueville had approximately $1.2 billion under
management. Tocqueville's principal office is located at 1675 Broadway, 16th
Floor, New York, New York 10019.
Principal executive officers and general partners:
Name Position(s)
- --------------------------------------------------------------------------------
Tocqueville Management General Partner
Corporation
P. Drew Rankin Managing Director
Jean-Pierre Conreur Managing Director
Robert W. Kleinschmidt President and Chief Investment Officer
John C. Hathaway Managing Director
James E. Hunt Managing Director
Francois Sicart Chairman
Roger Cotta Chief Operating Officer
47
Tocqueville serves as investment adviser to the following fund that has an
investment objective similar to the portion of the Small-Cap Portfolio that will
be managed by Tocqueville:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
Tocqueville Small-Cap $45.4 million 0.75%
Value Fund
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.60% on all assets.
Veredus Asset Management LLC
Veredus Asset Management LLC ("Veredus") will serve as a sub-adviser to the
Small-Cap Portfolio. It was organized as a Kentucky limited liability company in
1998. ABN AMRO North America Holding Company owns 40% of Veredus. ABN AMRO North
America Holding Company is a wholly-owned subsidiary of ABN AMRO Bank NV, a
European financial services company headquartered in the Netherlands. As of
December 31, 2001, Veredus had approximately $1.1 billion under management.
Veredus' principal place of business is 6060 Dutchmans Lane, Suite 320,
Louisville, Kentucky 40205.
Principal executive officers and directors:
Name Position(s)
- --------------------------------------------------------------------------------
B. Anthony Weber President, Chief Executive Officer and Director
Charles P. McCurdy, Jr. Executive Vice President and Director
James R. Jenkins Vice President, Chief Operating Officer and Director
John S. Poole Vice President
Charles F. Mercer, Jr. Vice President
Stuart D. Bilton Director
Ken Anderson Director
Veredus serves as investment adviser or sub-adviser to the following funds that
have an investment objective similar to the portion of the Small-Cap Portfolio
that will be managed by Veredus:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
ABN AMRO/Veredus $348.9 million 1.00%
Aggressive Growth Fund
("N" Class Shares)
ABN AMRO/Veredus $10.7 million 1.00%
Aggressive Growth Fund
("I" Class Shares)
48 Proxy statement
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
If the assets are equal to or less than $25 million: 1.00% on all assets. If the
assets are equal to or less than $50 million but greater than $25 million: 0.85%
on all assets. If the assets are equal to or less than $100 million but greater
than $50 million: 0.75% on all assets. If the assets are greater than $100
million: 0.75% on the first $100 million in assets; 0.65% on assets over $100
million.
William Blair & Company, LLC
William Blair & Company, LLC ("William Blair") will serve as a sub-adviser to
the International Portfolio. It is a Delaware limited liability company that was
established in 1935. As of December 31, 2001, William Blair had approximately
$12.7 billion under management. William Blair's principal office is located at
222 West Adams St., Chicago, Illinois 60606.
Principal executive officers and members:
Name Position(s)
- --------------------------------------------------------------------------------
Edgar D. Jannotta Chairman
David D. Coolidge Chief Executive Officer and President
John R. Ettleson Chief Financial Officer
Wiiliam Blair serves as investment adviser or sub-adviser to the following funds
that have an investment objective similar to the portion of the International
Portfolio that will be managed by Wiiliam Blair:
Net Assets
Fund (12/31/01) Management Fee
- --------------------------------------------------------------------------------
William Blair International $454 million 1.10%
Growth Fund
Proposed sub-advisory fee (to be paid by CSIM out of its advisory fee and based
on average daily net assets under management):
0.60% on all assets.
49
Summary of the proposed sub-advisory agreements
The provisions of the proposed Sub-Advisory Agreements are summarized below.
Following the discussion of the provisions of the model Sub-Advisory Agreement
between CSIM and each Sub-Adviser (the "Model Agreement") is a discussion of
certain differences between the actual sub-advisory agreements proposed for
shareholder approval and the Model Agreement that could be deemed to be
material. The Model Agreement is attached as Exhibit B, and the description of
the Sub-Advisory Agreements in this proxy statement is qualified by reference to
Exhibit B.
Agreement. Under the proposed sub-advisory agreements, CSIM will have general
oversight responsibility for the investment advisory services provided to each
multi-manager fund, including formulating investment policies and analyzing
economic trends affecting each multi-manager fund. In accordance with each
multi-manager fund's investment objective and policies, and under the
supervision of CSIM and the fund's Board of Trustees, each sub-adviser will
manage a discrete portion of the assets of the multi-manager fund that is
allocated to it by CSIM. Each sub-adviser will be authorized to make investment
decisions for the fund and place orders on behalf of the fund to effect the
investment decisions made. The proposed sub-advisory agreements provide that a
sub-adviser will not be liable for any claims, liabilities, damages, costs or
losses (collectively, "claims") arising out of the sub-advisory agreement,
except to the extent such claims arise out of: (i) a sub-adviser's negligence,
bad faith or willful misfeasance, or (ii) a sub-adviser's breach of the
sub-advisory agreement; provided that, the provision will not be deemed a waiver
or limitation of any obligation or duty that may not by law be waived or
limited.
The provisions relating to execution of portfolio transactions of the proposed
sub-advisory agreements authorize the sub-adviser to select brokers and dealers
to execute portfolio transactions, subject to the brokerage policies set forth
in the multi-manager fund's prospectus and statement of additional information
and the sub-adviser's overall obligation to seek the best overall terms
available for the multi-manager fund. In selecting a broker or dealer, a
sub-adviser may consider research services provided to it, subject to the
multi-manager fund's policies and in compliance with the multi-manager fund's
prospectus and statement of additional information.
Unless terminated earlier, the proposed sub-advisory agreements shall continue
in effect for two years from
50 Proxy statement
its date of execution and, thereafter, for periods of one year for so long as
such continuance is specifically approved at least annually by (i) a majority of
the independent trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) the trustees, or by the vote of a majority of
the outstanding voting securities of the multi-manager fund.
The proposed sub-advisory agreements may be terminated, without cause, at any
time without payment of penalty, by vote of a majority of the trustees or by
vote of a majority of the outstanding voting securities of the multi-manager
fund on not more than 60 days written notice to the sub-adviser, or by CSIM upon
90 days written notice to the sub-adviser. The proposed sub-advisory agreement
may be immediately terminated, with cause, at any time upon written notice to
the sub-adviser, without payment of any penalty, by vote of a majority of the
trustees or by CSIM. The proposed sub-advisory agreement may be terminated at
any time, without payment of penalty, by the sub-adviser upon 90 days written
notice to CSIM. The sub-advisory agreement will automatically and immediately
terminate in the event of its assignment or in the event of the termination of
the Investment Advisory and Administration Agreement between the trust and CSIM.
CSIM will pay each sub-adviser out of the fee it receives from the multi-manager
fund. Under the proposed sub-advisory agreements, CSIM will pay each sub-adviser
a fee based on the average daily net assets of the portions of the multi-manager
funds allocated to them. The fees payable to each sub-adviser are shown in the
summary of information about each sub-adviser.
The following is a summary of the differences between the provisions of the
Model Agreement discussed above and the provisions of the actual sub-advisory
agreements between CSIM and certain sub-advisers.
American Century. The proposed sub-advisory agreement with American Century is
different from the Model Agreement as follows: (i) American Century will not be
responsible for determining the fair value of securities for which market
quotations are not readily available, but will provide assistance to CSIM in
these matters; (ii) American Century will not be responsible for obtaining
market prices for securities for which a multi-manager fund's pricing agent does
not obtain prices, but will provide assistance to CSIM in this situation; and
(iii) American Century may terminate the sub-advisory agreement with CSIM for
cause at any time.
51
Artisan. The proposed sub-advisory agreement with Artisan is different from the
Model Agreement as follows: (i) Artisan will not be responsible for determining
the fair value of securities for which market quotations are not available, but
will provide assistance to CSIM in these matters; (ii) Artisan will not be
responsible for obtaining market prices for securities for which a multi-manager
fund's pricing agent does not obtain prices, but will provide assistance to CSIM
in this situation; and (iii) CSIM may terminate the sub-advisory agreement
immediately "with cause" in the event of a federal or state regulatory violation
by Artisan only if, in the reasonable judgment of CSIM, it impairs Artisan's
ability to perform under the sub-advisory agreement.
Berger. The proposed sub-advisory agreement with Berger is different from the
Model Agreement as follows: (i) Berger is authorized to delegate any or all of
its investment management responsibilities to Perkins, Wolf. McDonnell & Co.
("Agent"), provided that Berger will continue to be fully responsible for
performance of the sub-advisory agreement, as if Berger performed such Services
itself; (ii) Berger is not responsible for the fair value pricing of securities
when a multi-manager fund's pricing agent or CSIM has not provided reasonable
notice that market quotations are not available, or in the event of operational
or other market difficulties; (iii) Berger is required only to use its best
efforts to arrange for the provision of market values from at least two parties
independent of Berger with respect to any securities for which a multi-manager
fund's pricing agent does not obtain prices in the ordinary course of business
from an automated pricing service; and (iv) Berger may terminate the
sub-advisory agreement with CSIM for cause at any time.
Harris. The proposed sub-advisory agreement with Harris is different from the
Model Agreement as follows: (i) Harris may terminate the sub-advisory agreement
with CSIM for cause at any time.
PIMCO. The proposed sub-advisory agreement with PIMCO is different from the
Model Agreement as follows: (i) PIMCO will not be responsible for determining
the fair value of securities for which market quotations are not readily
available, but will provide assistance to CSIM in these matters; and (ii) PIMCO
will not be responsible for arranging for the provision of market values from at
least two parties independent of PIMCO with respect to any securities for which
a multi-manager fund's pricing agent does not obtain prices in the ordinary
course of business from an automated pricing service.
52 Proxy statement
Perkins. As summarized above Berger is authorized to delegate any or all of its
investment management responsibilities to Perkins under its sub-advisory
agreement with CSIM, provided that Berger will continue to be responsible for
the Services delegated to Perkins as if Berger performed them itself. In
accordance with the sub-advisory agreement, Berger has entered into an
additional sub-advisory agreement with Perkins ("Perkins Agreement") to provide
investment advisory services with respect to the Balanced Portfolio. The trust
is expressly acknowledged as an intended third-party beneficiary under the
Perkins Agreement and is granted full right to sue upon and enforce the Perkins
Agreement. The Perkins Agreement provides that it shall be construed under the
laws of Colorado. The other provisions in the Perkins Agreement should not have
a material effect on the shareholders of the Balanced Portfolio because CSIM may
hold Berger fully responsible under the sub-advisory agreement between CSIM and
Berger for all Services rendered to the Balanced Portfolio whether provided by
Berger or Perkins. The Perkins Agreement is attached as Exhibit C to the proxy
statement, and the description of the Perkins Agreement in this proxy statement
is qualified by reference to Exhibit C.
Royce. The proposed sub-advisory agreement with Royce is different from the
Model Agreement as follows: (i) CSIM may terminate the sub-advisory agreement
immediately "with cause" in the event of a federal or state regulatory violation
by Royce only if, in the reasonable judgment of CSIM, it impairs Royce's ability
to perform under the sub-advisory agreement; and (ii) Royce may terminate the
sub-advisory agreement with CSIM for cause at any time.
Trustees' considerations
The trustees, including the independent trustees, approved the proposed
sub-advisory agreements at a meeting held on February 19, 2002. The trustees
received written information from each sub-adviser and written and oral
information from CSIM. CSIM recommended the approval of the proposed
sub-advisory agreements and selection of each of the sub-advisers and reviewed
the considerations underlying its recommendations. In this regard, CSIM reviewed
and summarized information about key personnel, investment philosophy and
process and performance track record of each of the sub-advisers, among other
factors. The trustees also considered the quality of services each sub-adviser
can be expected to provide to the applicable multi-
53
manager fund in light of its history, reputation, qualification and background,
as well as the qualifications of its personnel and its financial condition. The
trustees also considered the fees to be paid to each sub-adviser. The trustees
also considered the benefits expected to be realized by the sub-advisers,
including that, in selecting a broker or dealer, a sub-adviser may consider
research services provided to it, subject to the multi-manager fund's policies
and in compliance with the multi-manager fund's prospectus and statement of
additional information.
Proposal 3A
- --------------------------------------------------------------------------------
To approve sub-advisory agreements for MarketManager Growth Portfolio
Portfolio affected
MarketManager Growth Portfolio
The Board is recommending that the shareholders of the Growth Portfolio approve
each of the following sub-advisers. For more information about each sub-adviser,
please refer to the profiles beginning on page 35.
Sub-Adviser Investment Style Management Fee
- --------------------------------------------------------------------------------
Proposal 3A-1
Eagle Asset Large-Cap Growth 0.50% on the first $100 million;
Management, Inc. 0.45% on the next $50 million; and
0.40% on amounts above $150
million
Proposal 3A-2
Harris Associates, L.P. Large-Cap Value 0.60% on the first $125 million;
0.575% on the next $125 million;
and 0.55% on amounts over $250
million
Proposal 3A-3
TCW Investment Small/Mid-Cap 0.65% on the first $75 million;
Management Company and 0.60% on amounts over $75
million
Proposal 3A-4
Thornburg Investment Large-Cap Blend 0.45% on the first $200 million;
Management, Inc. and 0.40% on amounts over $200
million
54 Proxy statement
Proposal 3B
- --------------------------------------------------------------------------------
To approve sub-advisory agreements for the MarketManager Balanced Portfolio
Portfolio affected
MarketManager Balanced Portfolio
The Board is recommending that the shareholders of the Balanced Portfolio
approve each of the following sub-advisers. For more information about each
sub-adviser, please refer to the profiles beginning on page 35.
Sub-Adviser Investment Style Management Fee
- --------------------------------------------------------------------------------
Proposal 3B-1
Aronson + Partners Large-Cap Value If at anytime the amount of assets
is less than $100 million: 0.70%
on the first $10 million; 0.50% on
the next $40 million; and 0.35% on
amounts over $50 million, but less
than $100 million. If at anytime
the amount of assets is equal to
or greater than $100 million:
0.30% on the first $250 million;
0.20% on the next $250 million;
and 0.15% on amounts over $500
million.
Proposal 3B-2
Berger Financial Mid-Cap Value 0.50% on all assets
Group LLC (may delegate certain
responsibilities to Perkins and
pay Perkins 50% of the
compensation it receives from
CSIM)
Proposal 3B-3
Perkins, Wolf, Mid-Cap Value 0.50% of compensation that is paid
McDonnell & Co. by CSIM to Berger (see above)
Proposal 3B-4
Eagle Asset Large-Cap Growth 0.50% on the first $100 million;
Management, Inc. 0.45% on the next $50 million; and
0.40% on amounts above $150
million
Proposal 3B-5
Pacific Investment Fixed Income 0.25% on all assets
Management Company
55
Proposal 3C
- --------------------------------------------------------------------------------
To approve sub-advisory agreements for the MarketManager Small Cap Portfolio
Portfolio affected
MarketManager Small Cap Portfolio
The Board is recommending that the shareholders of the Small-Cap Portfolio
approve each of the following sub-advisers. For more information about each
sub-adviser, please refer to the profiles beginning on page 35.
Sub-Adviser Investment Style Management Fee
- --------------------------------------------------------------------------------
Proposal 3C-1
Royce & Associates, Inc. Small Cap Value 0.80% on the first $50 million;
0.75% on the next $50 million;
0.70% on the next $50 million;
0.65% on the next $50 million; and
0.60% on amounts over $200 million
Proposal 3C-2
TCW Investment Small/Mid-Cap 0.65% on the first $75 million;
Management Company and 0.60% on amounts over $75
million
Proposal 3C-3
Tocqueville Asset Small-Cap Blend 0.60% on all assets
Management L.P.
Proposal 3C-4
Veredus Asset Small-Cap Growth If the assets are equal to or less
Management LLC than $25 million: 1.00%. If the
assets are equal to or less than
$50 million but greater than $25
million: 0.85%. If the assets are
equal to or less than $100 million
but greater than $50 million:
0.75%. If the assets are greater
than $100 million: 0.75% on the
first $100 million in assets; and
0.65% on the assets over $100
million.
56 Proxy statement
Proposal 3D
To approve sub-advisory agreements for the MarketManager International Portfolio
Portfolio affected
MarketManager International Portfolio
The Board is recommending that the shareholders of the International Portfolio
approve each of the following sub-advisers. For more information about each
sub-adviser, please refer to the profiles beginning on page 35.
Sub-Adviser Investment Style Management Fee
- --------------------------------------------------------------------------------
Proposal 3D-1
American Century International 0.85% on the first $50 million;
Investment Small Company and 0.80% on amounts over $50
Management, Inc. million
Proposal 3D-2
Artisan Partners International Growth 0.75% on the first $100
Limited Partnership million; and 0.70% on amounts
over $100 million
Proposal 3D-3
Harris Associates, L.P. International Value 0.60% on the first $125
million; 0.575% on the next
$125 million; and 0.55% on
amounts over $250 million
Proposal 3D-4
William Blair & International Growth 0.60% on all assets
Company, LLC
- --------------------------------------------------------------------------------
Banks, broker/dealers and voting trustees and their nominees
Please advise the trust in writing whether other persons are the beneficial
owners of the shares for which proxies are being solicited, and if so, the
number of copies of the proxy statements, other soliciting material, and Annual
Reports (or Semi-Annual Reports) you wish to receive in order to supply copies
to the beneficial owners of shares. Write in care of the trust, 101 Montgomery
Street, San Francisco, CA 94104, Attention: Koji Felton, Secretary.
Shareholders who do not expect to attend the meeting in person are urged to vote
their shares promptly by internet, phone or mail.
57
The Board of Trustees recommends that you vote FOR each of the proposals and all
of their applicable elements.
Proposal 4
To amend fundamental investment policies
Portfolios affected
Growth Portfolio
Balanced Portfolio
Background
Each portfolio operates in accordance with the investment objective described in
its prospectus and statement of additional information.
The portfolios generally classify their policies as either "fundamental" or
"non-fundamental." A fundamental policy may be changed only by shareholder vote,
while non-fundamental policies may be changed by vote of the portfolio's Board
of Trustees. The 1940 Act requires the portfolios to classify only certain
policies as fundamental. Each portfolio has classified its investment objective
as a "fundamental" policy that may be changed only by shareholder vote.
Recently, CSIM reviewed the portfolios' fundamental investment objectives in
connection with the proposal to convert the MarketManager Portfolios to
multi-manager funds. Based on the recommendations of CSIM, the Board of Trustees
has approved revised investment objectives that will permit the Growth Portfolio
to invest primarily in domestic equity securities and "de-link" the Balanced
Portfolio's investment objective from the Growth Portfolio's investment
objective.
Proposal 4A
- --------------------------------------------------------------------------------
To amend the fundamental investment objective of the Growth Portfolio
Portfolio affected
Growth Portfolio
The current fundamental investment objective is: Growth Portfolio "seeks capital
growth with less volatility than a portfolio comprised entirely of stock funds."
The new fundamental investment objective would be: Growth Portfolio "seeks
capital growth."
The Board of Trustees believes that the more flexible fundamental investment
objective for the Growth Portfolio is in the best interests of the Growth
Portfolio and its shareholders because it will allow the Growth Portfolio to
invest all of its assets in equity securities. Currently, the manager allocates
the Growth Portfolio's assets among stock funds, bond funds, and money market
funds, with model allocations of 80%, 15%, and 5%, respectively. The manager
also has model allocations for the stock funds of 35% large-cap, 20%
58 Proxy statement
small-cap, and 25% international. The Board believes that the Growth Portfolio
would have greater flexibility in seeking to achieve its primary objective of
capital growth if the portfolio were no longer managed using an asset allocation
strategy and if it could invest entirely in equity securities. In general, the
fund would invest in U.S. equity securities. Equity securities generally provide
greater opportunity for growth while bond and money market instruments provide
greater opportunities for income. An all-equity portfolio would be less
diversified than the current Growth Portfolio, and, thus, the risks of an
investment in an all-equity portfolio would be concentrated primarily on the
risks of investing in equity securities, rather than diversified among
investments in equity securities and bond and money market instruments.
Although, historically, equity securities have offered higher long-term returns
than bond or money market instruments, their performance can rise and fall
rapidly and their value may fluctuate more than that of bond or money market
instruments. The Board believes that investors would be better served by
providing them with a product that seeks only the one investment objective of
"growth," particularly when the Balanced Portfolio is available for those
investors seeking a blend of growth and income investments.
Proposal 4B
- --------------------------------------------------------------------------------
To amend the fundamental investment objective of the Balanced Portfolio
Portfolio affected
Balanced Portfolio
The current fundamental investment objective is: Balanced Portfolio "seeks
capital growth and income with less volatility than the Growth Portfolio."
The new fundamental investment objective would be: Balanced Portfolio "seeks
capital growth and income."
The Board of Trustees believes that the new fundamental investment objective for
the Balanced Portfolio is in the best interest of the Balanced Portfolio and its
shareholders because the amended investment objective would not be linked to the
investment objective of the Growth Portfolio. The Board believes that the
reference to the Growth Portfolio in the current investment objective is not
essential to the primary investment objective of the Balanced Portfolio, which
is to seek "capital growth and income." CSIM, as investment adviser for the
Balanced Portfolio, conducts an independent portfolio analysis with a principal
focus on the portfolio's policies and current portfolio composition. CSIM
believes that it could perform its function more efficiently if it were able to
do so only on the
59
basis of its analysis of the fund's portfolio, and without reference to the risk
characteristics of another MarketManager Portfolio. The substance of the new
fundamental investment objective is the same; the only difference is that it is
no longer linked to the investment objective of the Growth Portfolio.
As part of the change to the multi-manager strategy, the fund will no longer
allocate assets to money market investments and its stock allocation will
primarily be invested in large- and mid-cap U.S. securities. These changes in
the asset allocation strategy do not require shareholder approval.
- --------------------------------------------------------------------------------
Submission of shareholder proposals
The trust is not required to hold annual shareholders' meetings, and does not
intend to do so. The trust may hold special meetings as required or as deemed
desirable by its Board of Trustees for other purposes, such as changing
fundamental investment objectives or approving or amending an investment
advisory agreement.
A trustee may be removed by shareholders of the funds of the trust at a special
meeting that is called upon the written request of shareholders owning, in the
aggregate, at least 10% of the outstanding shares of such trust.
Shareholders wishing to submit proposals for inclusion in a proxy statement for
a future shareholder meeting should send their written submissions to the trust
at 101 Montgomery Street, San Francisco, CA 94104. Proposals must be received a
reasonable time in advance of a proxy solicitation to be included. Submission of
a proposal does not guarantee inclusion in a proxy statement, because the
proposal must comply with certain federal securities regulations.
60 Proxy statement
Additional information
About the trust
To the knowledge of the trust, as of January 31, 2002:
o The officers and trustees together owned less than 1% of the outstanding
voting securities of each portfolio, with the exception of the
MarketManager International Portfolio, of which they owned 2.06%.
o The following persons had beneficial ownership of more than 5% of the
shares of the Balanced Portfolio. The trust has no knowledge as to whether
the beneficial owner has the right to acquire beneficial ownership of
shares of a portfolio.
Orange County Community Foundation, 2081 Business
Center Drive, Suite 110, Irvine, CA 92715: 843,564 shares owned (7.16%).
- --------------------------------------------------------------------------------
Trustees and executive officers of the trust
This table shows the number of shares of a portfolio beneficially owned by each
trustee and certain executive officers of the trust as of December 31, 2001. The
trust has no knowledge as to whether any trustee has the right to acquire
beneficial ownership of shares of the portfolio. In cases where the amount owned
of a portfolio is more than 1% of the portfolio's assets, the percentage owned
is noted. Unless otherwise noted, each trustee owns less than 1% of the
outstanding shares of the portfolio.
Name Position with Trust Portfolio, Shares Owned
- ---------------------------------------------------------------------------------------
Mariann Byerwalter Trustee None
Jeremiah H. Chafkin(1) Executive Vice President, Chief Small-Cap Portfolio: 8,829
Operating Officer and Trustee International Portfolio: 6,764
John Philip Coghlan(1) President, Chief Executive None
Officer and Trustee
Donald F. Dorward Trustee None
William A. Hasler Trustee None
Robert G. Holmes Trustee None
Charles R. Schwab(1) Chairman and Trustee Small-Cap Portfolio: 9,709
International Portfolio:
281,354 (1.32%)
Gerald B. Smith Trustee None
Donald R. Stephens Trustee None
Michael W. Wilsey Trustee None
(1) Denotes an "interested person" of the trust as defined by the 1940 Act. In
addition to their positions with the investment adviser and distributor,
Messrs. Chafkin, Coghlan and Schwab and certain relatives also own stock of
The Charles Schwab Corporation, a publicly traded company that is the
parent of the investment adviser and distributor.
- --------------------------------------------------------------------------------
Additional Information 61
- --------------------------------------------------------------------------------
Trustees and executive officers of the trust
The following trustees and officers of the trust are officers of CSIM. Each of
them also owns stock of The Charles Schwab Corporation, a publicly traded
company that is the parent of CSIM.
Name Position with Trust Position with CSIM
- --------------------------------------------------------------------------------
John Philip Coghlan President, Chief Executive Chief Executive Officer
Officer and Trustee and Director
Koji E. Felton Secretary Senior Vice President, Chief
Counsel and Assistant
Corporate Secretary
Charles R. Schwab Chairman and Trustee Chairman and Director
Tai-Chin Tung Treasurer and Principal Senior Vice President and
Financial Officer Chief Financial Officer
Stephen B. Ward Senior Vice President and Senior Vice President, Chief
Chief Investment Officer Investment Officer and Director
About the investment adviser
Schwab provides shareholder services and transfer agent services under contracts
with each portfolio. For the services performed as shareholder services agent,
Schwab is entitled to receive an annual fee, payable monthly from the portfolio,
in the amount of 0.20% of each portfolio's average daily assets. For services
performed as transfer agent, Schwab is entitled to receive an annual fee,
payable monthly from each portfolio, in the amount of 0.05% of each portfolio's
average daily net assets. Schwab had waived its transfer agent and shareholder
services fee under the multi-fund structure but will discontinue its waiver of
the entire transfer agent and shareholder services fee if shareholders approve
these proposals and the portfolios are converted to the multi-manager strategy.
62 Additional Information
- --------------------------------------------------------------------------------
Similar funds managed by CSIM
CSIM is the investment adviser for the following funds that have investment
objectives similar to the Growth, Small Cap and International Portfolios.
Net assets Contractual rate Effective rate of
as of 10/31/01 of compensation compensation(1)
Fund ($ x 1,000) % %
- ------------------------------------------------------------------------------------------------
Analytics Fund 209,785 0.54 0.41
Communications Focus Fund 15,841 0.54 0.15
Financial Services Focus Fund 21,331 0.54 0.21
Health Care Focus Fund 32,009 0.54 0.27
Technology Focus Fund 38,820 0.54 0.27
MarketTrack All-Equity Portfolio 405,447 0.44 0.17
MarketTrack Growth Portfolio 511,179 0.44 0.20
MarketTrack Growth
Portfolio II (Annuity)(2) 22,296 0.44 0.12
(1) These figures, which are expressed as a percentage of each fund's average
daily net assets, represent the actual amounts paid as a result of waivers
by CSIM for the 12 months ended 10/31/01, except for the MarketTrack Growth
Portfolio II, which is for the 12 months ended 12/31/01.
(2) Data for this fund are as of 12/31/01.
CSIM is the investment adviser for the following funds that have investment
objectives similar to the Balanced Portfolio.
Net assets Contractual rate Effective rate of
as of 10/31/01 of compensation compensation(1)
Fund ($ x 1,000) % %
- -----------------------------------------------------------------------------------------------------
MarketTrack Balanced Portfolio 496,945 0.44 0.20
MarketTrack Conservative Portfolio 211,256 0.44 0.17
(1) These figures, which are expressed as a percentage of each fund's average
daily net assets, represent the actual amounts paid as a result of waivers
by CSIM for the 12 months ended 10/31/01.
63
Exhibits
Exhibit A
- --------------------------------------------------------------------------------
Amendment to Schedule B to the Investment Advisory and Administration Agreement
for Schwab Capital Trust
Fund Fee
- ----------------------------------------------------------------------------------------------
Schwab MarketManager Growth Portfolio One percent (1.00%) of the fund's
(formerly known as Schwab OneSource average daily net assets.
Portfolios-Growth Allocation)
Schwab MarketManager Balanced Portfolio Eighty-five one-hundredths of one percent
(formerly known as Schwab OneSource (0.85%) of the fund's average daily
Portfolios--Balanced Allocation) net assets.
Schwab MarketManager Small Cap One hundred thirty one-hundredths of
Portfolio (formerly known as Schwab one percent (1.30%) of the fund's
OneSource Portfolios--Small Company) average daily net assets.
Schwab MarketManager International One hundred forty one-hundredths of
Portfolio (formerly known as Schwab one percent (1.40%) of the fund's
OneSource Portfolios--International) average daily net assets.
Schwab Capital Trust
By:
Name:
Title
Charles Schwab Investment Management, Inc.
By:
Name:
Title
64 Exhibits
Exhibit B
- --------------------------------------------------------------------------------
Investment Sub-advisory Agreement
AGREEMENT made this __ day of _____, 200_, by and between, Charles Schwab
Investment Management, Inc. ("CSIM"), and ________ ______ ("Sub-Adviser").
WHEREAS, Schwab Capital Trust, a Massachusetts business trust ("Company"), is an
open-end, management investment company registered under the Investment Company
Act of 1940 ("1940 Act"), consisting of several series, each having its own
investment objective and policies; and
WHEREAS, Company has entered into an Investment Advisory and Administration
Agreement with CSIM pursuant to which CSIM acts as investment manager to Company
("Management Agreement"); and
WHEREAS, CSIM, acting with the approval of Company, wishes to retain Sub-Adviser
to provide discretionary investment advisory services ("Services") with respect
to a portion of each series identified on Schedule A hereto, as may be amended
from time to time, (each a "Fund") that may be allocated by CSIM for management
by the Sub-Adviser from time to time, together with all income earned on those
assets and all realized and unrealized capital appreciation related to those
assets (for each Fund, the "Managed Assets"), and Sub-Adviser is willing to
render the Services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties agree as follows:
1. Appointment
CSIM appoints Sub-Adviser to provide the Services for the period and term
set forth in this Investment Sub-Advisory Agreement ("Agreement").
Sub-Adviser accepts such appointment and agrees to render the Services as
provided herein.
2. Duties of sub-adviser
(a) Subject to supervision by the Company, its Board of Trustees ("Trustees")
and CSIM (collectively "Fund Parties"), Sub-Adviser will manage the
investment and reinvestment of the Managed Assets and determine in its
discretion, the securities and other property to be purchased or sold and
the portion of the Managed Assets to be retained in cash. Sub-Adviser will
use the same skill and care in providing the Services to each Fund as it
utilizes in providing investment advisory services to other fiduciary
accounts for which it has investment responsibilities. Sub-Adviser will
provide Fund Parties with records concerning Sub-Adviser's activities that
Fund Parties are required to maintain, and regular reports concerning
Sub-Adviser's performance of the Services.
(b) Unless CSIM provides written instructions to the contrary, Sub-Adviser will
review all proxy solicitation materials and will exercise any voting rights
associated with securities comprising the Managed Assets in the best
interests of each Fund and its shareholders.
(c) Sub-Adviser will provide assistance to Company, Charles Schwab & Co, Inc.
("Distributor") and CSIM (collectively "Schwab Parties"), as may be
reasonably requested by such parties, in connection with the offering, sale
and marketing of Fund shares. Such assistance will include, without
limitation: (i) review of offering, marketing and sales materials; (ii)
attendance and participation at internal and
65
external conferences (including in-person, telephonic and video),
conventions, road shows and other sales or educational meetings; and (iii)
provision of discussion, analysis and commentary and market and performance
data for filings with the Securities and Exchange Commission ("SEC") and
web and other medium based marketing and advertising. Schwab parties may
use the names, trade names, trademarks, service marks, artwork, designs, or
other copyrighted materials of Sub-Adviser in connection with the offering,
sale and marketing of Fund shares, subject to the written approval of
Sub-Adviser, which will not be unreasonably withheld.
(d) Unless CSIM provides written instructions to the contrary, Sub-Adviser will
be responsible for determining, in good faith, the fair value of any
securities of the Managed Assets for which market quotations are not
readily available in accordance with guidelines and procedures adopted by
the Trustees. In addition, Sub-Adviser will arrange for the provision of
market values from at least two parties independent of Sub-Adviser with
respect to any securities of the Managed Assets for which the Company's
pricing agent does not obtain prices in the ordinary course of business
from an automated pricing service.
(e) Sub-Adviser will discharge the foregoing responsibilities subject to the
supervision of Fund Parties, and in compliance with the following: (i) such
policies as Fund Parties may from time to time establish; (ii) Company's
Prospectus and Statement of Additional Information ("Prospectus and SAI");
(iii) Company's Declaration of Trust and By-Laws; (iv) 1940 Act; (v) the
Investment Advisers Act of 1940 ("Advisers Act"); (vi) any exemptive or
other relief granted by the SEC; (vii) the Internal Revenue Code of 1986
("Code"); (viii) the Commodities and Exchange Act ("CEA"); and (ix) any
other applicable laws. If a conflict in policies referenced herein occurs,
the Prospectus and SAI will control.
(f) Sub-Adviser agrees to perform such duties at its own expense and to provide
the office space, furnishings and equipment and the personnel required by
it to perform the Services on the terms and for the compensation provided
herein. Sub-Adviser will not, however, pay for the cost of securities,
commodities, and other investments (including brokerage commissions and
other transaction charges, if any) purchased or sold for a Fund.
3. Duties of CSIM
CSIM will continue to have responsibility for all services to be provided
to a Fund pursuant to the Management Agreement and will oversee and review
Sub-Adviser's performance of the Services. CSIM will furnish to Sub-Adviser
current and complete copies of the Declaration of Trust and By-laws of
Company, and the current Prospectus and SAI as those documents may be
amended from time to time.
4. Custody
Company will designate one or more custodians to hold the Managed Assets
("Custodian") in the name of each Fund. Each custodian will be responsible
for the custody, receipt and delivery of securities and other assets of a
Fund including the Managed Assets, and Sub-Adviser will have no authority,
responsibility or obligation with respect to the custody, receipt or
delivery of securities or other assets of a Fund. In the event that any
cash or securities of a Fund are delivered to Sub-Adviser, Sub-Adviser will
promptly deliver the same to the Custodian for the benefit of and in the
name of Fund. Sub-Adviser will provide to the Custodian and Fund Accountant
on each business day, information relating to all transactions in the
Managed Assets and will provide such information to Fund Parties
66 Exhibits
upon request. Sub-Adviser will make all reasonable efforts to notify
Custodian and Fund Accountant of all orders to brokers for the Managed
Assets by 9:00 am EST on the day following the trade date and will affirm
the trade to the Custodian and Fund Accountant before the close of business
one business day after the trade date.
5. Portfolio transactions
(a) Sub-Adviser is authorized to select brokers or dealers that will execute
the purchases and sales of portfolio securities and other property for a
Fund in a manner that implements the policy with respect to brokerage set
forth in the Prospectus and SAI, or as Fund Parties may direct from time to
time, and in conformity with the federal securities laws.
(b) In effecting transactions for a Fund and selecting brokers or dealers,
Sub-Adviser will use its best efforts to seek on behalf of the Fund the
best overall terms available. In assessing the best overall terms for any
transaction, Sub-Adviser will consider any factors that it deems relevant,
including price paid for the security, commission paid for the transaction,
clearance, settlement, reputation, financial strength and stability,
efficiency of execution and error resolution, block trading and block
positioning capabilities, willingness to execute related or unrelated
difficult transactions and order of call.
(c) Consistent with any policies established by Fund Parties and in compliance
with the Prospectus and SAI and 1940 Act, Sub-Adviser is authorized, in its
discretion, to utilize the services of a broker or dealer that provides
brokerage or research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934).
(d) In no instance will Sub-Adviser cause Managed Assets to be purchased from
or sold to Distributor, CSIM, Sub-Adviser or any affiliated person of
either Company, Distributor, CSIM, or Sub-Adviser (collectively "Related
Parties"), except to the extent permitted by the 1940 Act or any exemptive
or other relief granted by the SEC. Sub-adviser will not execute any
transactions with brokers or dealers that are Related Parties without the
prior written approval of CSIM.
(e) Consistent with any policies established by Fund Parties, Sub-Adviser may
aggregate orders for purchase or sale of Managed Assets with similar orders
being made concurrently for other accounts managed by Sub-Adviser, if, in
Sub-Adviser's reasonable judgment, such aggregation will result in an
overall economic benefit to Fund, taking into consideration the transaction
price, brokerage commission and other expenses. In any single transaction
in which purchases or sales of securities of any issuer for the account of
a Fund are aggregated with other accounts managed by Sub-Adviser, the
actual prices applicable to the transaction will be averaged among the
accounts for which the transaction is effected, including the account of
the Fund.
6. Compensation of sub-adviser
For the Services provided and expenses assumed by Sub-Adviser under this
Agreement, CSIM will pay to Sub-Adviser compensation at the rate specified
in Schedule B, as may be amended from time to time. Such compensation will
be paid at the times and on the terms set forth in Schedule B. All rights
of compensation under this Agreement for Services performed as of the
termination date will survive the termination of this Agreement. Except as
otherwise prohibited by law or regulation, Sub-Adviser may, in its
discretion, from time to time, waive a portion of its compensation.
67
7. Reports
(a) Sub-Adviser will provide written quarterly reports to Fund Parties
regarding the Managed Assets. CSIM will specify the information to be
included in such quarterly reports. Sub-Adviser will make available to Fund
Parties any economic, statistical and investment services that Sub-Adviser
makes available to its other institutional clients.
(b) Sub-Adviser will promptly communicate to Fund Parties any information
relating to transactions in the Managed Assets, as Fund Parties may
reasonably request.
(c) Sub-Adviser will promptly notify Fund Parties of any financial or
regulatory condition that is likely to impair the ability of Sub-Adviser to
perform the Services. In addition, Sub-Adviser will promptly notify Fund
Parties of any intended change in control of Sub-Adviser and of any
intended change in portfolio or senior management, as far in advance of
such change as possible.
(d) Sub-Adviser will make its officers and employees available to meet with
Fund Parties at such times and places, as Fund Parties may reasonably
request, including at quarterly and special meetings of the Trustees in San
Francisco, California.
8. Status of sub-adviser
Sub-Adviser is and will continue to be registered under the Advisers Act.
The Services of Sub-Adviser to Company for each Fund are not to be deemed
exclusive, and Sub-Adviser is free to render similar services to others so
long as its Services to the Fund are not impaired thereby. Sub-Adviser is
and will continue to be an independent contractor and, unless otherwise
expressly provided or authorized, has no authority to act for or represent
Company in any way or otherwise act as agent of Company.
9. Code of ethics
Sub-Adviser will furnish to Fund Parties a current copy of its code of
ethics that complies with the requirements of Rule 17j-1 under the 1940
Act. Upon written request of CSIM, Sub-Adviser will permit Fund Parties to
examine the reports made by Sub-Adviser pursuant to Rule 17j-1 and other
records relevant to Sub-Adviser's code of ethics. Sub-Adviser will provide
an annual certification to Fund Parties certifying that there have been no
material violations of Sub-Adviser's code of ethics or, if such violations
have occurred, that appropriate actions have been taken in response to such
violations.
10. Certain records
(a) Sub-Adviser will maintain all books and records with respect to
transactions involving the Managed Assets required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940
Act. Sub-Adviser will provide to Fund Parties periodic and special reports,
balance sheets, profitability analyses, financial information, and such
other information with regard to Sub-Adviser's affairs, as Fund Parties may
reasonably request, including any information requested by Fund Parties to
assist the Trustees in evaluating the terms of this Agreement and any
renewal thereof under Section 15(c) of the 1940 Act.
(b) Sub-Adviser will keep the books and records relating to the Managed Assets
required to be maintained by Sub-Adviser under this Agreement and will
timely furnish to Fund Parties all information relating to Sub-Adviser's
Services under this Agreement needed by Fund Parties to keep the other
books and records of the Company required by Rule 31a-1 under the 1940 Act.
Sub-Adviser will also
68 Exhibits
furnish to Fund Parties any other information relating to the Managed
Assets that must be filed by Company with the SEC or sent to shareholders
under the 1940 Act, and any exemptive or other relief granted by the SEC.
Sub-Adviser agrees that all records that it maintains on behalf of Company
are property of Company and Sub-Adviser will surrender promptly to Company
any of such records upon Fund Parties' request; provided, however,
Sub-Adviser may retain a copy of such records. In addition, Sub-Adviser
will preserve for the periods prescribed by Rule 31a-2 under 1940 Act any
such records as are required to be maintained by it pursuant to this
Agreement, and will transfer said records to any successor sub-adviser upon
the termination of this Agreement (or, if there is no successor
sub-adviser, to CSIM).
11. Limitation of liability of sub-adviser
Sub-Adviser will not be liable for any claims, liabilities, damages, costs
or losses ("collectively" claims) arising out of this Agreement, except to
the extent such claims arise out of: (a) Sub-Adviser's negligence, bad
faith or willful misfeasance; or (b) Sub-Adviser's breach of this
Agreement. Nothing in this Section 11 will be deemed a waiver or limitation
of any obligation or duty that may not by law be waived or limited.
12. Indemnification
(a) Sub-Adviser will indemnify and hold harmless Fund Parties, their affiliates
and their respective employees, officers and directors from and against all
claims arising out of this Agreement to the extent such claims arise out
of: (i) Sub-Adviser's negligence, bad faith or willful misfeasance; or (ii)
Sub-Adviser's breach of this Agreement.
(b) CSIM will indemnify and hold harmless Sub-Adviser, its affiliates, and
their respective employees, officers and directors from and against all
claims arising out of this Agreement, except to the extent such claims
arise out of: (i) Sub-Adviser's negligence, bad faith or willful
misfeasance; or (ii) Sub-Adviser's breach of this Agreement.
13. Confidentiality
The Mutual Confidentiality and Non-Disclosure Agreement ("Confidentiality
Agreement") previously entered into between the parties is attached hereto
as Schedule C and incorporated herein by reference. The Confidentiality
Agreement will remain in effect throughout the term of this Agreement, and
each party will abide by all of the provisions set forth therein. Upon
termination of this Agreement, each party will continue to hold any
Confidential Information (as that term is defined in the Confidentiality
Agreement) in strict confidence for ten years from the date of termination,
except with regard to: (a) trade secrets of either party which will be held
in confidence for as long as such information remains a trade secret; and
(b) Schwab Customer Information (as that term is defined in the
Confidentiality Agreement) which will be held by Sub-Adviser in strict
confidence in perpetuity and which will be used by Sub-Adviser only to
perform the Services and for no other purpose. In the event any of the
provisions of the Confidentiality Agreement conflict with any of the
provisions of this Agreement, the latter will control.
14. Publicity
During and after the term of this Agreement, Sub-Adviser will not make any
media release or other public announcement relating to this Agreement
without Schwab Parties' prior written consent. Sub-Adviser will acquire no
right to use, and will not use, without Schwab Parties' prior written
consent, with respect to
69
each use, the terms or existence of this Agreement, the names, trade names,
trademarks, service marks, artwork, designs, or copyrighted materials of
Schwab Parties or their affiliates in any sales or advertising materials,
press releases, client lists, presentations, promotions or other publicity
related materials or media.
15. Duration and termination
(a) This Agreement will become effective for each Fund upon its approval by the
Trustees and by a vote of the majority of the outstanding voting securities
of each Fund; provided, however, if CSIM obtains exemptive relief from the
SEC permitting it to engage a Sub-Adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the Fund involved, the Agreement will become effective upon its approval by
the Trustees, without approval by the shareholders. This Agreement will
remain in effect until two years from date of each effectiveness, and
thereafter, for periods of one year so long as such continuance thereafter
is specifically approved at least annually (i) by the vote of a majority of
those Trustees who are not parties to this Agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Trustees, or by the vote of a
majority of the outstanding voting securities of the Fund; provided,
however, that if the shareholders of a Fund fail to approve the Agreement
as provided herein, Sub-Adviser may continue to serve hereunder in the
manner and to the extent permitted by the 1940 Act. The foregoing
requirement that continuance of this Agreement be "specifically approved at
least annually" will be construed in a manner consistent with the 1940 Act.
(b) This Agreement may be terminated at any time, without cause and without
payment of any penalty by Fund Parties, by vote of a majority of the
Trustees or by vote of a majority of the outstanding voting securities of a
Fund on not more than 60 days' written notice to the Sub-Adviser, or by
CSIM upon 90 days' written notice to Sub-Adviser. In addition, this
Agreement may be terminated, with cause, by CSIM at any time, without
payment of any penalty by Fund Parties, upon written notice to Sub-Adviser.
As used herein, "with cause" means: (i) any material breach of the
Agreement by Sub-Adviser; (ii) any federal or state regulatory violation by
Sub-Adviser; and (iii) any material financial or other impairment that in
the reasonable judgment of CSIM impairs Sub-Adviser's ability to perform
the Services.
(c) This Agreement may not be terminated by the Sub-Adviser prior to January 1,
2003. Thereafter, this Agreement may be terminated by the Sub-Adviser at
any time, without cause and without payment of any penalty, upon 90 days'
written notice to CSIM.
(d) This Agreement will automatically and immediately terminate in the event of
its assignment or in the event of the termination of the Management
Agreement.
(e) Any termination of this Agreement in accordance with the terms hereof will
not affect the obligations or liabilities accrued prior to termination. As
used in this Section 15, the terms "assignment", "interested persons," and
a "vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in the 1940 Act; subject to such exceptions
and other relief as may be granted by the SEC.
16. Notice
All notices required or permitted hereunder will be deemed sufficient upon
receipt if sent by: (a) hand; (b) registered or certified mail, postage
prepaid; (c) overnight courier; or (d) facsimile transmission to the last
address furnished by the other party to the party giving notice. At the
outset, such notices will be delivered to the following addresses:
70 Exhibits
CSIM: Charles Schwab Investment Sub-Adviser:
Management, Inc. Name:
101 Montgomery Street Street Address:
San Francisco, CA 94104 City and Zip Code:
Attention: Treasurer Attention:
Telephone: (415) 667-3901 Telephone:
Facsimile: (415) 667-3800 Facsimile:
17. Noncompete provisions
Except as set forth in Schedule D, Sub-Adviser is not and will not become a
party to any noncompete agreement or other agreement or arrangement that
would restrict, limit or otherwise interfere with the ability of Schwab
Parties and their affiliates to employ or engage any person or entity, now
or in the future, to provide investment advisory or other services.
18. Severability
If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby.
19. Governing law
This Agreement will be construed in accordance with the laws of the State
of California and the applicable provisions of the 1940 Act. To the extent
that the applicable laws of the State of California, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act,
the latter will control. Any legal action or proceeding arising out of this
Agreement will be brought only in the courts of the State of California
located in the City and County of San Francisco or in the United States
District Court for the Northern District of California. Each party will
submit to the jurisdiction of such courts and venue in such courts and will
waive any claims that such courts lack jurisdiction or are inconvenient
forums.
20. Miscellaneous
(a) This Agreement constitutes the entire agreement and understanding between
the parties relating to the Services. Any prior agreements, promises or
representations not expressly set forth in this Agreement are of no force
and effect. No waiver or modification of this Agreement will be effective
unless reduced to writing and signed by the party to be charged. No failure
to exercise and no delay in exercising on the part of any party hereto of
any right, remedy, power or privilege hereunder will operate as a waiver
thereof.
(b) This Agreement is entered into on behalf of each Fund severally, and not
jointly, with the express intention that the provisions contained herein
will apply separately with respect to each Fund, as if contained in
separate agreements.
(c) Except as set forth in Section 15, this Agreement binds and inures to the
benefit of parties, their successors and assigns. This Agreement may be
executed in more than one counterpart each of which will be deemed an
original and both of which, taken together, will be deemed to constitute
one and the same instrument.
(d) Company refers to Schwab Capital Trust and its Trustees, as Trustees but
not individually or personally, acting under a Declaration of Trust dated
May 7, 1993. A copy of the Certificate of Trust of Company is on file with
the Secretary of State of the State of Massachusetts. Notice is hereby
given that the obligations of Company entered into in the name of or on
behalf of Company by any of its Trustees, representatives or agents are
made not individually, but in such Company
71
capacities. Such obligations are not binding upon any of the Trustees,
shareholders or representatives of Company personally, but bind only the
assets of Company belonging to such Fund for the enforcement of any claims
against Company.
(e) As used in this Agreement, any references to any laws (including, without
limitation, the 1940 Act, Advisers Act, Code and CEA) incorporate the
effects of: (i) any amendments to such laws; (ii) any rules or regulations
promulgated under such laws; and (iii) any interpretations of such laws,
rules or regulations by the applicable regulatory authorities.
NOW THEREFORE, the parties hereto have caused this Agreement to be executed as
of the day and year first written above.
Charles Schwab Investment [Sub-adviser]
Management, Inc.
By: By:
Name: Name:
Title Title
- --------------------------------------------------------------------------------
Schedule A to the investment sub-advisory agreement between Charles Schwab
Investment Management, Inc. and [Sub-adviser]
Fund(s)
1.
2.
Effective Date of this Schedule A: _______________
- --------------------------------------------------------------------------------
Schedule B to the Investment Sub-advisory Agreement between Charles Schwab
Investment Management, Inc. and [Sub-adviser]
Fees
Fees will be accrued each day by applying to the Net Asset Value of the Managed
Assets at the end of that day, the daily rate, using a 365-day year, equivalent
to the applicable fee percentage set forth below ("Company Percentage").
Sub-Adviser represents and warrants that the Company Percentage now is and in
the future will be equal to or less than the applicable fee percentage payable
to Sub-Adviser under any other advisory or sub-advisory agreement for comparable
investment advisory services (each a "Third Party Percentage"). If at any times,
the Company Percentage is greater than any Third Party Percentage, the Company
Percentage will be reduced to the lowest Third Party Percentage, including with
respect to any advisory or sub-advisory agreement amended or entered into by
Sub-Adviser after the effective date of this Schedule. Fees will be paid within
30 days following the end of each calendar quarter.
72 Exhibits
Company percentage
___ Basis points on the first $___________
___ Basis points on the next $___________
Effective Date of this Schedule B: ______________
- --------------------------------------------------------------------------------
Schedule C to the Investment Sub-advisory Agreement between Charles Schwab
Investment Management, Inc. and [Sub-adviser]
Mutual confidentiality and non-disclosure agreement Effective Date of this
Schedule C: ______________
- --------------------------------------------------------------------------------
Schedule D to the Investment Sub-advisory Agreement between Charles Schwab
Investment Management, Inc. and [Sub-adviser]
Noncompete provisions: Effective Date of this Schedule D: ______________
Exhibit C
- --------------------------------------------------------------------------------
Sub-advisory Agreement: Schwab Multi-manager Balanced Fund
This SUB-ADVISORY AGREEMENT (the "Agreement") is entered into effective as of
the 14th day of January, 2002, by and between BERGER LLC, a Nevada limited
liability company ("Berger") and PERKINS, WOLF, MCDONNELL & COMPANY, a Delaware
corporation ("PWM").
WHEREAS, Berger has entered into an Investment Sub-Advisory Agreement (the
"Advisory Agreement") with Charles Schwab Investment Management, Inc. ("CSIM"),
with respect to the Schwab Multi-Manager Balanced Fund (the "Fund"), a series of
the Schwab Capital Trust, a Massachusetts Trust (the "Trust") pursuant to which
Berger has agreed to provide investment advisory services with respect to the
Fund;
and WHEREAS, PWM is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, Berger desires to retain PWM to furnish investment advisory services
with respect to the Fund, and PWM is willing to furnish such services;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
73
1. Duties of PWM
Berger hereby engages the services of PWM as subadviser in furtherance of
the Advisory Agreement. PWM agrees to perform the following duties, subject
to the oversight of Berger and CSIM and to the overall control of the
officers and the Board of Trustees (the "Trustees") of the Trust:
(a) PWM shall manage the investment portfolio of the Fund allocated to Berger
under the Advisory Agreement and the composition of such portfolio, shall
determine without prior consultation with the Trust or Berger, what
securities and other assets of such portfolio will be acquired, held,
disposed of or loaned, and shall direct Berger with respect to the
execution of trades in connection with such determinations, in conformity
with the investment objectives, policies and restrictions and the other
statements concerning the Fund in the Trust's trust instrument, as amended
from time to time (the "Trust Instrument"), bylaws and registration
statements under the 1940 Act and the Securities Act of 1933, as amended
(the "1933 Act"), the Advisers Act, the rules thereunder and all other
applicable federal and state laws and regulations, and the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable to
the Fund as a regulated investment company;
(b) PWM shall cause its officers to attend meetings and furnish oral or written
reports, as the Trust or Berger may reasonably require, in order to keep
Berger, CSIM, the Trustees and appropriate officers of the Trust fully
informed as to the condition of the investment portfolio of the Fund
allocated to Berger under the Advisory Agreement, the investment decisions
of PWM, and the investment considerations which have given rise to those
decisions;
(c) PWM shall maintain all books and records required to be maintained by PWM
pursuant to the 1940 Act, the Advisers Act, and the rules and regulations
promulgated thereunder, as the same may be amended from time to time, with
respect to transactions on behalf of the Fund, and shall furnish the
Trustees, CSIM, and Berger with such periodic and special reports as the
Trustees, CSIM, or Berger reasonably may request. PWM hereby agrees that
all records which it maintains for the Fund or the Trust are the property
of the Trust, agrees to permit the reasonable inspection thereof by the
Trust, CSIM, Berger, or its designees and agrees to preserve for the
periods prescribed under the 1940 Act and the Advisers Act any records
which it maintains for the Trust and which are required to be maintained
under the 1940 Act and the Advisers Act, and further agrees to surrender
promptly to the Trust, CSIM, Berger, or their designees any records which
it maintains for the Trust upon request by the Trust;
(d) At such times as shall be reasonably requested by the Trustees, CSIM, or
Berger, PWM shall provide the Trustees, CSIM, and Berger with economic,
operational and investment data and reports, including without limitation
all information and materials reasonably requested by or requested to be
delivered to the Trustees of the Trust pursuant to Section 15(c) of the
1940 Act, and shall make available to the Trustees, CSIM and Berger any
economic, statistical and investment services normally available to similar
investment company clients of PWM; and
(e) PWM will provide to Berger, CSIM, and the Trust for regulatory filings and
other appropriate uses materially accurate and complete information
relating to PWM as may reasonably be requested by Berger and the Trust from
time to time and, notwithstanding anything herein to the contrary, PWM
shall be liable to Berger for all damages, costs and expenses, including
without limitation reasonable attorneys' fees (hereinafter referred to
collectively as "Damages"), incurred by Berger as a result of any material
inaccuracies or omissions in such information provided by PWM to Berger;
provided, however, that PWM shall not be liable to the extent
74 Exhibits
that any Damages are based upon inaccuracies or omissions made in reliance
upon information furnished to PWM by Berger or CSIM.
2. Further Obligations
In all matters relating to the performance of this Agreement, PWM shall act
in conformity with the Trust's Agreement and Declaration of Trust, bylaws
and currently effective registration statements under the 1940 Act and the
1933 Act and any amendments or supplements thereto (the "Registration
Statements") and with the written policies, procedures and guidelines of
the Fund, and written instructions and directions of the Trustees, CSIM,
and Berger, and shall comply with the requirements of the 1940 Act, the
Advisers Act, the rules thereunder, and all other applicable federal and
state laws and regulations. Berger agrees to provide to PWM copies of the
Trust's Agreement and Declaration of Trust, bylaws, Registration Statement,
written policies, procedures and guidelines and written instructions and
directions of the Trustees and Berger, and any amendments or supplements to
any of them at, or, if practicable, before the time such materials become
effective.
3. Obligations of Berger
Berger shall have the following obligations under this Agreement:
(a) To keep PWM continuously and fully informed (or request the custodian of
the Fund's assets to keep PWM so informed) as to the composition of the
investment portfolio of the Fund and the nature of all of the Fund's assets
and liabilities from time to time as such information is made available to
Berger;
(b) To furnish PWM with copies of any financial statements or reports made
available to Berger;
(c) To furnish PWM with any further materials or information which PWM may
reasonably request and made available to Berger to enable it to perform its
function under this Agreement; and
(d) To compensate PWM for its services in accordance with the provisions of
Section 4 hereof.
4. Compensation
For PWM's services under this Agreement, Berger shall pay to PWM a fee
equal to 50% of the advisory fee Berger receives from CSIM. Such fee shall
be computed and accrued daily and payable 30 days from as of the last day
of each quarter during which or part of which this Agreement is in effect.
For the quarter during which this Agreement becomes effective and the month
during which it terminates, however, there shall be an approprirate
proration of the fee payable for such month based on the number of calendar
days of such month during which the Agreement is effective.
5. Expenses
PMW shall pay all its own costs and expenses incurred in rendering its
service under this Agreement.
6. Representations of PWM
PWM hereby represents, warrants and covenants to Berger as follows:
(a) PWM: (i) is registered as an investment adviser under the Advisers Act and
will continue to be so registered for so long as this Agreement remains in
effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the serv-
75
ices contemplated by this Agreement; (iii) has met, and will continue to
meet for so long as this Agreement remains in effect, any other applicable
federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory organization necessary to be met in
order to perform the services contemplated by this Agreement; (iv) has the
legal and corporate authority to enter into and perform the services
contemplated by this Agreement; and (v) will immediately notify Berger of
the occurrence of any event that would disqualify PWM from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the
1940 Act or otherwise, and of the institution of any administrative,
regulatory or judicial proceeding against PWM that could have a material
adverse effect upon PWM's ability to fulfill its obligations under this
Agreement.
(b) PWM has adopted a written code of ethics complying with the requirements of
Rule 17j-1 under the 1940 Act and will provide Berger with a copy of such
code of ethics, together with evidence of its adoption. Upon request of
CSIM or Berger , the president or a vice president of PWM shall certify to
Berger and to CSIM that PWM has complied with the requirements of Rule
17j-1 during the previous year and that there has been no violation of
PWM's code of ethics or, if such a violation has occurred, that appropriate
action was taken in response to such violation. Upon the written request of
Berger, PWM shall permit Berger, its employees or its agents to examine the
reports required to be made to PWM by Rule 17j- 1(c)(1) and all other
records relevant to PWM's code of ethics.
(c) PWM has provided Berger with a copy of its Form ADV as most recently filed
with the U.S. Securities and Exchange Commission ("SEC") and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy of
such amendment to Berger.
(d) PWM will notify Berger of any change in the identity or control of its
shareholders owning a 10% or greater interest in PWM, or any change that
would constitute a change in control of PWM under the 1940 Act, prior to
any such change if PWM is aware, or should be aware, of any such change,
but in any event as soon as any such change becomes known to PWM.
7. Representations of Berger
Berger hereby represents, warrants and covenants to PWM as follows:
(a) Berger: (i) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains
in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from
fulfilling its obligations under this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of
any regulatory or industry self-regulatory organization necessary to be met
in order to fulfill its obligations under this Agreement; (iv) has the
legal and corporate authority to enter into and perform this Agreement; and
(v) will immediately notify PWM of the occurrence of any event that would
disqualify Berger from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise, and of the
institution of any administrative, regulatory or judicial proceeding
against Berger that could have a material adverse effect upon Berger's
ability to fulfill its obligations under this Agreement.
(b) Berger has adopted a written code of ethics complying with the requirements
of Rule 17j-1 under the 1940 Act and will provide PWM with a copy of such
code of ethics, together with evidence of its adoption.
(c) Berger has provided PWM with a copy of its Form ADV as most recently filed
76 Exhibits
with the U.S. Securities and Exchange Commission ("SEC") and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy of
such amendment to PWM.
(d) Berger will notify PWM of any change in the identity or control of its
shareholders owning a 10% or greater interest in Berger, or any change that
would constitute a change in control of Berger under the 1940 Act, prior to
any such change if Berger is aware, or should be aware, of any such change,
but in any event as soon as any such change becomes known to Berger.
8. Term
This Agreement shall become effective for the Fund upon its approval by the
Trustees of the Fund and by a vote of the majority of the outstanding
voting securities of the Fund; provided, however, if CSIM obtains exemptive
relief from the SEC permitting it to engage a Sub-Adviser without first
obtaining approval of the Agreement from a majority of the outstanding
voting securities of the Fund involved, the Agreement will become effective
upon its approval by the Trustees, without approval by the shareholders.
This Agreement will remain in effect until two years from date of such
execution, unless sooner terminated in accordance with its terms, and shall
continue in effect from year to year thereafter only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Trustees of the Trust who are not parties hereto or
interested persons of the Trust, Berger, CSIM, or PWM, cast in person at a
meeting called for the purpose of voting on the approval of the terms of
such renewal, and by either the Trustees of the Trust or the affirmative
vote of a majority of the outstanding voting securities of the Fund.
9. Termination
This Agreement may be terminated at any time, without penalty, by the
Trustees or by the shareholders of the Fund acting by vote of at least a
majority of its outstanding voting securities, provided in any such case
that 60 days' advance written notice of termination be given to PWM at its
principal place of business. This Agreement may also be terminated by
Berger or the Trust: (i) upon a material breach by PWM of this Agreement;
or (ii) if PWM becomes unable to discharge its duties and obligations under
this Agreement. This Agreement may not be terminated by PWM prior to
January 1, 2003. Thereafter, this agreement may be terminated by Berger or
by PWM at any time, without cause and without payment of any penalty, upon
120 days written notice by either party. In addition, this Agreement shall
terminate, without penalty, upon the termination of the Advisory
Agreement.
10. Assignment
This Agreement shall automatically terminate in the event of its
assignment.
11. Amendments
This Agreement may be amended by the parties only in a written instrument
signed by the parties to this Agreement and, if required by applicable law,
if such amendment is approved (i) by a majority of the Trustees, including
a majority of the Trustees who are not interested persons of the Trust,
CSIM, or Berger, PWM or their affiliates, and (ii) by the affirmative vote
of a majority of the outstanding voting securities of the Fund.
12. Limitation on Personal Liability
NOTICE IS HEREBY GIVEN that the Trust is a business trust organized under
the State of Massachusetts pursuant to a Certificate of Trust filed in the
office of the Secretary of State of the State of Massachusetts. All parties
to this Agreement acknowledge and agree that the Trust is a series trust
and all debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing
77
with respect to a particular series shall be enforceable against the assets
held with respect to such series only, and not against the assets of the
Trust generally or against the assets held with respect to any other series
and further that no Trustee, officer or holder of shares of beneficial
interest of the Trust shall be personally liable for any of the foregoing.
13. Limitation of Liability of PWM
Berger will not seek to hold PWM, and PWM shall not be, liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or any act or omission taken with respect to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and
duties hereunder and except to the extent otherwise provided by law. As
used in this section, "PWM" shall include any affiliate of PWM performing
services for the Fund contemplated hereunder and directors, officers and
employees of PWM and such affiliates.
14. Activities of PWM
The services of PWM hereunder are not to be deemed to be exclusive, and PWM
is free to render services to other parties, so long as its services under
this Agreement are not materially adversely affected or otherwise impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of PWM to engage in any other business or to
devote his or her time and attention in part to the management or other
aspects of any business, whether of a similar nature or dissimilar nature.
15. Third Party Beneficiary
The parties expressly acknowledge and agree that the Trust and CSIM are
third party beneficiaries of this Agreement and that the Trust and CSIM
shall have the full right to sue upon and enforce this Agreement in
accordance with its terms as if it were a signatory hereto.
16. Notices
Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered personally or by
overnight delivery service or mailed by certified or registered mail,
return receipt requested and postage prepaid, or sent by facsimile
addressed to the parties at their respective addresses set forth below, or
at such other address as shall be designated by any party in a written
notice to the other party.
(a) To Berger at: (b) To PWM at:
Berger LLC Perkins, Wolf, McDonnell & Company
210 University Boulevard, #800 310 S. Michigan Avenue #2600
Denver, Colorado 80206 Chicago, Illinois 60604
Attention: President Attention: President
Phone: (303) 329-0200 Phone: (312) 922-0355
Fax: (303) 394-4397 Fax: (312) 922-0418
with a copy to the following with a copy to:
at the same address above: John R. Short, Esq.
Attention: Anthony R. Bosch Blackwell Sanders Peper Martin LLP
Phone: (303) 336-4568 720 Olive Street, Suite 2400
Fax: (303) 336-4633 St. Louis, Missouri 63101
Phone: (314) 345-6430
Fax: (314) 345-6060
78 Exhibits
17. Certain Definitions
As used in this Agreement, the terms "vote of a majority of the outstanding
voting securities," "assignment," "approved at least annually," and
"interested persons" shall have the respective meanings specified in the
1940 Act, as now in effect or hereafter amended, and the rules and
regulations thereunder, subject to such orders, exemptions and
interpretations as may be issued by the SEC under the 1940 Act and as may
be then in effect. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Agreement is made less
restrictive by a rule, regulation, order, interpretation or other authority
of the SEC, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation, order,
interpretation or other authority.
18. Governing Law
This Agreement shall be construed in accordance with the laws of the State
of Colorado (without giving effect to the conflicts of laws principles
thereof) and the 1940 Act. To the extent that the applicable laws of the
State of Colorado conflict with the applicable provisions of the 1940 Act,
the latter shall control.
19. Miscellaneous
The headings in this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions thereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
20. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an originally, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers designated below as of the day and year first
above written.
Berger LLC Perkins, Wolf, McDonnell & Company
By: Jack R. Thompson By: Gregory E. Wolf
President Chief Operating Officer
79
- --------------------------------------------------------------------------------
How to vote your shares
Voting your shares is easy and doesn't take long. Use any of the following
options-- and remember that voting by internet or phone will help lower fund
expenses. For internet and touch tone phone voting, you'll need the 12-digit
number(s) on your enclosed proxy voting card(s).
o By internet: go to www.proxyvote.com and follow the instructions
o By touch tone phone: call the toll-free number on your proxy card and
follow the recorded instructions
o By mail: mark your votes on the enclosed proxy card(s), sign and date, and
mail using the postage-paid envelope provided
Remember: if you vote by internet or phone, do not mail your proxy card(s).
Please make sure you vote all the enclosed proxy cards. Questions on any part of
this document? Call our proxy solicitor, D.F. King and Co., Inc. at
1-800-628-8528.
SCHWAB Funds(R)
(C)2002 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE.
SCHWAB CAPITAL TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE SCHWAB MARKETMANAGER GROWTH PORTFOLIO
May 28, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF
SCHWAB CAPITAL TRUST
This proxy is for your use in voting on various matters relating to the Schwab
MarketManager Growth Portfolio (the "Fund"), a portfolio of Schwab Capital Trust
(the "Trust"). The undersigned shareholder(s) of the Fund, revoking previous
proxies, hereby appoint(s) Koji E. Felton and Stephen B. Ward, and each of them
(with full power of substitution), the proxies of the undersigned to attend the
Special Meeting of Shareholders of the Fund to be held on May 28, 2002 (the
"Special Meeting"), at Schwab University Auditorium, 101 Montgomery St., 2nd
Floor, San Francisco, California, 94104, commencing at 9 a.m. Pacific time and
any adjournments thereof, to vote all of the shares of the Fund that the
signer(s) would be entitled to vote at the Special Meeting and on any matter
incident to the conduct of the Special Meeting, all as set forth in the Notice
of Special Meeting of Shareholders and Proxy Statement of the Board of Trustees.
Said proxies are directed to vote or refrain from voting pursuant to the Proxy
Statement as indicated upon the matter set forth below.
This proxy will be voted as indicated below. If you sign without otherwise
indicating a vote on any of the proposals, this proxy will be voted FOR each
proposal set forth below. If no indication is made with respect to a proposal,
this proxy will be voted as recommended by the Board of Trustees for such
proposal. As to any other matter, the shares will be voted by said proxies in
accordance with their judgment. The undersigned acknowledges receipt with this
proxy of a copy of the Notice of Special Meeting of Shareholders and the Proxy
Statement of the Board of Trustees.
To Vote by Telephone:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-690-6903.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to website www.proxyvote.com.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY STATEMENT PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [x]
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS.
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Vote on Converting the MarketManager Growth Portfolio to a Multi-Manager Fund
and amending its fundamental investment objective.
For Against Abstain
To vote on all of the Proposals. [ ] [ ] [ ]
Stop here unless you would like to vote on each Proposal.
1. To authorize Charles Schwab [ ] [ ] [ ]
Investment Management, Inc. ("CSIM"),
subject to the supervision and approval
of the Board of Trustees, to hire, terminate
or replace investment sub-advisers without
shareholder approval.
2. To approve the amendment to [ ] [ ] [ ]
the investment advisory and
administration agreement with CSIM.
3A. To approve the sub-advisory agreements with: For Against Abstain
(1) Eagle Asset Management, Inc. [ ] [ ] [ ]
(2) Harris Associates, L.P. [ ] [ ] [ ]
(3) TCW Investment Management Company [ ] [ ] [ ]
(4) Thornburg Investment Management, Inc. [ ] [ ] [ ]
For Against Abstain
4A. To amend the fundamental investment objective. [ ] [ ] [ ]
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
- --------------------------------------- -------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date
- ---------------------------------------
Print Name
- --------------------------------------- -------------------------------
Signature [Joint Owners] Date
- ---------------------------------------
Print Name
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
SCHWAB CAPITAL TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE SCHWAB MARKETMANAGER BALANCED PORTFOLIO
May 28, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF
SCHWAB CAPITAL TRUST
This proxy is for your use in voting on various matters relating to the Schwab
MarketManager Balanced Portfolio (the "Fund"), a portfolio of Schwab Capital
Trust (the "Trust"). The undersigned shareholder(s) of the Fund, revoking
previous proxies, hereby appoint(s) Koji E. Felton and Stephen B. Ward, and each
of them (with full power of substitution), the proxies of the undersigned to
attend the Special Meeting of Shareholders of the Fund to be held on May 28,
2002 (the "Special Meeting"), at Schwab University Auditorium, 101 Montgomery
St., 2nd Floor, San Francisco, California 94104 commencing at 9 a.m. Pacific
time and any adjournments thereof, to vote all of the shares of the Fund that
the signer(s) would be entitled to vote at the Special Meeting and on any matter
incident to the conduct of the Special Meeting, all as set forth in the Notice
of Special Meeting of Shareholders and Proxy Statement of the Board of Trustees.
Said proxies are directed to vote or refrain from voting pursuant to the Proxy
Statement as indicated upon the matter set forth below.
This proxy will be voted as indicated below. If you sign without otherwise
indicating a vote on any of the proposals, this proxy will be voted FOR each
proposal set forth below. If no indication is made with respect to a proposal,
this proxy will be voted as recommended by the Board of Trustees for such
proposal. As to any other matter, the shares will be voted by said proxies in
accordance with their judgment. The undersigned acknowledges receipt with this
proxy of a copy of the Notice of Special Meeting of Shareholders and the Proxy
Statement of the Board of Trustees.
To Vote by Telephone:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-690-6903.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to website www.proxyvote.com.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY STATEMENT PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [x]
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS.
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Vote on Converting the MarketManager Balanced Portfolio to a Multi-Manager Fund
and amending its fundamental investment objective.
For Against Abstain
To vote on all of the Proposals. [ ] [ ] [ ]
Stop here unless you would like to vote on each Proposal.
1. To authorize Charles Schwab [ ] [ ] [ ]
Investment Management, Inc. ("CSIM"),
subject to the supervision and approval
of the Board of Trustees, to hire,
terminate or replace investment
sub-advisers without shareholder approval.
2. To approve the amendment to [ ] [ ] [ ]
the investment advisory and
administration agreement with CSIM.
3B. To approve the sub-advisory agreements with: For Against Abstain
(1) Aronson + Partners [ ] [ ] [ ]
(2) Berger Financial Group, LLC [ ] [ ] [ ]
(3) Perkins, Wolf, McDonnell & Co. [ ] [ ] [ ]
(4) Eagle Asset Management, Inc. [ ] [ ] [ ]
(5) PIMCO [ ] [ ] [ ]
For Against Abstain
4B. To amend the fundamental investment objective. [ ] [ ] [ ]
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
- --------------------------------------- -------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date
- ---------------------------------------
Print Name
- --------------------------------------- -------------------------------
Signature [Joint Owners] Date
- ---------------------------------------
Print Name
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
SCHWAB CAPITAL TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE SCHWAB MARKETMANAGER SMALL CAP PORTFOLIO
May 28, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF
SCHWAB CAPITAL TRUST
This proxy is for your use in voting on various matters relating to the Schwab
MarketManager Small Cap Portfolio (the "Fund"), a portfolio of Schwab Capital
Trust (the "Trust"). The undersigned shareholder(s) of the Fund, revoking
previous proxies, hereby appoint(s) Koji E. Felton and Stephen B. Ward, and each
of them (with full power of substitution), the proxies of the undersigned to
attend the Special Meeting of Shareholders of the Fund to be held on May 28,
2002 (the "Special Meeting"), at Schwab University Auditorium, 101 Montgomery
St., 2nd Floor, San Francisco, California, 94104 commencing at 9 a.m. Pacific
time and any adjournments thereof, to vote all of the shares of the Fund that
the signer(s) would be entitled to vote at the Special Meeting and on any matter
incident to the conduct of the Special Meeting, all as set forth in the Notice
of Special Meeting of Shareholders and Proxy Statement of the Board of Trustees.
Said proxies are directed to vote or refrain from voting pursuant to the Proxy
Statement as indicated upon the matter set forth below.
This proxy will be voted as indicated below. If you sign without otherwise
indicating a vote on any of the proposals, this proxy will be voted FOR each
proposal set forth below. If no indication is made with respect to a proposal,
this proxy will be voted as recommended by the Board of Trustees for such
proposal. As to any other matter, the shares will be voted by said proxies in
accordance with their judgment. The undersigned acknowledges receipt with this
proxy of a copy of the Notice of Special Meeting of Shareholders and the Proxy
Statement of the Board of Trustees.
To Vote by Telephone:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-690-6903.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to website www.proxyvote.com.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY STATEMENT PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [x]
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS.
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Vote on Converting the MarketManager Small Cap Portfolio to a Multi-Manager Fund
For Against Abstain
To vote on all of the Proposals. [ ] [ ] [ ]
Stop here unless you would like to vote on each Proposal.
1. To authorize Charles Schwab [ ] [ ] [ ]
Investment Management, Inc. ("CSIM"),
subject to the supervision and approval
of the Board of Trustees, to hire,
terminate or replace investment sub-
advisers without shareholder approval.
2. To approve the amendment to [ ] [ ] [ ]
the investment advisory and
administration agreement with CSIM.
3C. To approve the sub-advisory agreements with: For Against Abstain
(1) Royce & Associates, Inc. [ ] [ ] [ ]
(2) TCW Investment Management Company [ ] [ ] [ ]
(3) Tocqueville Asset Management L.P. [ ] [ ] [ ]
(4) Veredus Asset Management, LLC [ ] [ ] [ ]
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
- --------------------------------------- -------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date
- ---------------------------------------
Print Name
- --------------------------------------- -------------------------------
Signature [Joint Owners] Date
- ---------------------------------------
Print Name
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
SCHWAB CAPITAL TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE SCHWAB MARKETMANAGER INTERNATIONAL PORTFOLIO
May 28, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF
SCHWAB CAPITAL TRUST
This proxy is for your use in voting on various matters relating to the Schwab
MarketManager International Portfolio (the "Fund"), a portfolio of Schwab
Capital Trust (the "Trust"). The undersigned shareholder(s) of the Fund,
revoking previous proxies, hereby appoint(s) Koji E. Felton and Stephen B. Ward,
and each of them (with full power of substitution), the proxies of the
undersigned to attend the Special Meeting of Shareholders of the Fund to be held
on May 28, 2002 (the "Special Meeting"), at Schwab University Auditorium, 101
Montgomery St, 2nd Floor, San Francisco, California, 94104 commencing at 9 a.m.
Pacific time and any adjournments thereof, to vote all of the shares of the Fund
that the signer(s) would be entitled to vote at the Special Meeting and on any
matter incident to the conduct of the Special Meeting, all as set forth in the
Notice of Special Meeting of Shareholders and Proxy Statement of the Board of
Trustees. Said proxies are directed to vote or refrain from voting pursuant to
the Proxy Statement as indicated upon the matter set forth below.
This proxy will be voted as indicated below. If you sign without otherwise
indicating a vote on any of the proposals, this proxy will be voted FOR each
proposal set forth below. If no indication is made with respect to a proposal,
this proxy will be voted as recommended by the Board of Trustees for such
proposal. As to any other matter, the shares will be voted by said proxies in
accordance with their judgment. The undersigned acknowledges receipt with this
proxy of a copy of the Notice of Special Meeting of Shareholders and the Proxy
Statement of the Board of Trustees.
To Vote by Telephone:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-690-6903.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to website www.proxyvote.com.
3) Enter the 12-digit control number set forth on the Proxy card and follow the
simple instructions.
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY STATEMENT PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [x]
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS.
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Vote on Converting the MarketManager International Portfolio to a Multi-Manager
Fund
For Against Abstain
To vote on all of the Proposals. [ ] [ ] [ ]
Stop here unless you would like to vote on each Proposal.
1. To authorize Charles Schwab [ ] [ ] [ ]
Investment Management, Inc. ("CSIM"),
subject to the supervision and approval
of the Board of Trustees, to hire,
terminate or replace investment sub-
advisers without shareholder approval.
2. To approve the amendment to [ ] [ ] [ ]
the investment advisory and
administration agreement with CSIM.
3D. To approve the sub-advisory agreements with: For Against Abstain
(1) American Century Investment [ ] [ ] [ ]
Management, Inc.
(2) Artisan Partners L.P. [ ] [ ] [ ]
(3) Harris Associates, L.P. [ ] [ ] [ ]
(4) William Blair & Company, LLC [ ] [ ] [ ]
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must sign.
- --------------------------------------- -------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date
- ---------------------------------------
Print Name
- --------------------------------------- -------------------------------
Signature [Joint Owners] Date
- ---------------------------------------
Print Name
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
Proposed changes could improve your SchwabFund -- but we need your response!