nv14
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2009
REGISTRATION NO. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
o Pre-Effective Amendment No.
o Post-Effective Amendment No.
SCHWAB CAPITAL TRUST
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street
San Francisco, CA 94104
(Address of Principal Executive Offices) (Zip code)
800.648.5300
(Registrants Telephone Number, including Area Code)
Randall W. Merk
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)
Copies of communications to:
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Timothy W. Levin, Esq.
Morgan Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
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John Loder, Esq.
Ropes & Gray LLP
One International Place
Boston, MA 02110-2624
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Koji Felton, Esq.
Charles Schwab Investment
Management, Inc.
101 Montgomery Street
120KNY-14-109
San Francisco, CA 94104 |
As soon as practicable after the Registration Statement becomes effective under the Securities
Act of 1933.
It is proposed that this filing will become effective on April 26, 2009 pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered an indefinite number of
shares under the Securities Act of 1933 pursuant to Section 24(f) under the Investment Company Act
of 1940.
SCHWAB CAPITAL TRUST
101 Montgomery Street
San Francisco, CA 94104
April ___, 2009
Dear Shareholder:
Enclosed is some important information concerning your investment in the Schwab Retirement
Income Fund (the Retirement Income Fund or Acquired Fund).
We wish to inform you that the Board of Trustees of Schwab Capital Trust (the Trust), after
careful consideration, has approved the reorganization of the Retirement Income Fund into the
Schwab Monthly Income FundEnhanced Payout (the Monthly Income Fund or Surviving Fund and,
together with the Retirement Income Fund, the Funds). The Acquired Fund and the Surviving Fund
pursue the same investment objectives and have similar investment strategies and policies, and as a
result, typically have significant overlap in their underlying investments.
We expect that the reorganization will benefit shareholders as follows:
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The reorganization will result in a larger fund. Shareholders could potentially
benefit from the growth in assets realized by the combination of the Funds, because the
Surviving Fund can potentially take advantage of the benefits of any future economies of
scale, including the ability to spread certain fixed costs across a larger asset base. |
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The reorganization is intended to be tax-free to shareholders for federal income tax
purposes, and will be accomplished in such a manner as to not dilute your investment. |
At the close of business on June 9, 2009, the Acquired Fund will transfer its assets and
liabilities to the Surviving Fund. In connection with the reorganization, you will receive shares
of the Surviving Fund equal in aggregate net asset value to your shares of the Acquired Fund. We
have enclosed a Prospectus/Information Statement that describes the reorganization in greater
detail and contains important information about the Surviving Fund.
THE TRANSACTION WILL NOT REQUIRE ANY ACTION ON YOUR PART. You will automatically receive
shares of the Surviving Fund in exchange for your shares of the Acquired Fund as of the closing
date. If you have questions, you may contact us at (800)648-5300. If you invest through another
financial institution, such as a brokerage firm, please contact your financial institution should
you have any questions.
You are a valued investor and we thank you for your continued investment in the Schwab Funds.
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Sincerely,
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Randall W. Merk |
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President |
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SCHWAB CAPITAL TRUST
101 Montgomery Street
San Francisco, CA 94104
PROSPECTUS/INFORMATION STATEMENT
April ___, 2009
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Acquisition of the assets and liabilities of:
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By and in exchange for shares of: |
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Schwab Retirement Income Fund
A series of the Schwab Capital Trust
c/o Charles Schwab Investment Management, Inc.
101 Montgomery Street
San Francisco, California 94104
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Schwab Monthly Income FundEnhanced Payout
A series of the Schwab Capital Trust
c/o Charles Schwab Investment Management, Inc.
101 Montgomery Street
San Francisco, California 94104 |
This Prospectus/Information Statement is being furnished to shareholders of the Schwab
Retirement Income Fund (the Retirement Income Fund or the Acquired Fund), a series of Schwab
Capital Trust (the Trust), in connection with an Agreement and Plan of Reorganization (the
Plan) that has been approved by the Board of Trustees of the Trust (the Board). Under the Plan,
shareholders of the Acquired Fund will receive shares of the Schwab Monthly Income FundEnhanced
Payout (the Monthly Income Fund or the Surviving Fund and, together with the Acquired Fund, the
Funds), a series of the Trust, equal in value to the aggregate value of the assets transferred by
the Acquired Fund to the Surviving Fund less the liabilities of the Acquired Fund that are assumed
by the Surviving Fund, as of the closing date of the reorganization (the Reorganization). After
the Reorganization is complete, the Acquired Fund will be terminated. The Reorganization is
expected to be completed on or about June 10, 2009.
The Board believes that the Reorganization is in the best interest of the Acquired Fund and
that the interests of the Acquired Funds shareholders will not be diluted as a result of the
Reorganization. For federal income tax purposes, the Reorganization is intended to be structured as
a tax-free transaction for the Acquired Fund and its shareholders. Shareholders of the Acquired
Fund are not being asked to vote on the Plan or approve the Reorganization because shareholder
approval is not required under the Trusts governing documents or the Investment Company Act of
1940.
The Acquired Fund and the Surviving Fund are each a series of the Trust, a Massachusetts
business trust registered with the Securities and Exchange Commission (the SEC) as an open-end
management investment company. The Trust currently consists of 38 separate series, including the
Acquired Fund and the Surviving Fund. Charles Schwab Investment Management, Inc. (the Adviser or
CSIM) serves as the investment adviser to both the Acquired Fund and the Surviving Fund.
The investment objective of both Funds is to provide current income and, as a secondary
investment objective, capital appreciation. Both Funds seek to achieve this objective by investing
in a combination of Schwab Funds and Laudus Funds (the underlying funds) in accordance with each
Funds target asset allocation. Because the Funds invest in other mutual funds, each Fund is
considered a fund of funds. See SynopsisComparison of the Investment Objectives, Strategies
and Policies of the Funds as well as Additional Information about the Acquired Fund and Surviving
FundComparison of the Funds for a more complete discussion of the Funds investment strategies.
This Prospectus/Information Statement and the enclosures are being mailed to shareholders on
or about May 8, 2009. The Prospectus/Information Statement sets forth concisely the information
that you should know about the Acquired Fund and Surviving Fund and the Reorganization. You should
read it
carefully and retain it for future reference.
A Statement of Additional Information dated April ___, 2009 relating to this
Prospectus/Information Statement and the Reorganization has been filed with the SEC and is
incorporated by reference into this Prospectus/Information Statement. In addition, the following
documents have been filed with the SEC and are incorporated herein by reference.
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The prospectus for the Acquired Fund, dated February 28, 2009, as amended April 20,
2009. |
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The prospectus for the Surviving Fund, dated April 30, 2009. |
In addition, the prospectus for the Surviving Fund, dated April 30, 2009, accompanies this
Prospectus/Information Statement. Additional information relating to the Acquired Fund is
contained in the Statement of Additional Information for the Acquired Fund, dated February 28,
2009, and the Annual Report to shareholders of the Acquired Fund for the fiscal year ended October
31, 2008. Additional information relating to the Surviving Fund is contained in the Statement of
Additional Information for the Surviving Fund, dated April 30, 2009, and the Annual Report to
shareholders of the Surviving Fund for the fiscal year ended December 31, 2008. These Statements
of Additional Information and Annual Reports have been filed with the SEC.
For a free copy of any of the documents described above, you may call 1-800-435-4000, or you
may write to the Schwab Funds at the address listed on the cover of this Prospectus/Information
Statement. You may also obtain these documents by accessing the Internet site for the Funds at
www.schwab.com/schwabfunds. In addition, these documents may be obtained from the EDGAR database
on the SECs Internet site at www.sec.gov. You may review and copy documents at the SEC Public
Reference Room in Washington, DC or the SECs Chicago Regional Office located at 175 W. Jackson
Boulevard, Suite 900, Chicago, IL 60604 and the SECs New York Regional Office located at 3 World
Financial Center, Suite 400, New York, NY 10281-1022 (for information on the operation of the
Public Reference Room, call 1-202-551-8090). You may request documents by mail from the SEC, upon
payment of a duplication fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-0102. You may also obtain this information upon payment of a
duplicating fee, by e-mailing the SEC at the following address: publicinfo@sec.gov.
This Prospectus/Information Statement and the enclosures are expected to be available to
shareholders on or about May 8, 2009. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
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A-1 |
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I. SYNOPSIS
The following Synopsis provides a brief overview of the key points the Acquired Fund believes
are typically of concern to shareholders considering a proposed transaction, such as the
Reorganization. For further information and details about the proposed Reorganization, please see
the entirety of the Prospectus/Information Statement that follows this Synopsis.
The Proposed Reorganization.
The Reorganization involves the transfer of all of the assets and liabilities of the Acquired
Fund to the Surviving Fund in exchange for shares of the Surviving Fund. This transfer of assets
and liabilities is expected to take place after market close on or about June 9, 2009. The
transfer of assets by the Acquired Fund will occur at its then-current market value as determined
in accordance with the Acquired Funds valuation procedures, and shares of the Surviving Fund to be
issued to the Acquired Fund will be valued at their then-current net asset value as determined in
accordance with the Surviving Funds valuation procedures. Shares of the Surviving Fund will be
distributed to shareholders of the Acquired Fund on the Closing Date in exchange for their shares
of the Acquired Fund. After completion of the Reorganization, each shareholder of the Acquired
Fund will own shares of the Surviving Fund equal in value to the current net asset value of such
shareholders shares of the Acquired Fund. Following the completion of the Reorganization, the
Acquired Fund will be liquidated and its registration under the Investment Company Act of 1940 (the
1940 Act) will be terminated.
The Reorganization is intended to be tax-free for U.S. Federal income tax purposes. This
means that it is intended that shareholders of the Acquired Fund will become shareholders of the
Surviving Fund without realizing any gain or loss for federal income tax purposes. This also means
that it is intended that the Reorganization will be tax-free for the Surviving Fund.
The implementation of the Reorganization is subject to a number of conditions set forth in the
Plan. Among the more significant conditions is the receipt by the Funds of an opinion of counsel
to the effect that the Reorganization will be treated as a tax-free transaction to the Funds and
their shareholders for federal income tax purposes, as described further below. For more
information about the Reorganization, see Information about the Reorganization below.
The Acquired Fund will bear the costs and pay the expenses related to the preparation and
assembly of this Prospectus/Information Statement and all mailing and other expenses associated
with the Reorganization, which are expected to be approximately $55,000. If the Reorganization is
not completed, CSIM will pay all such costs and expenses.
Comparison of the Investment Objectives, Principal Investment Strategies, Asset Allocation
Strategies and Distribution Goals of the Funds
The Acquired Fund and Surviving Fund have identical investment objectives: to provide
current income and, as a secondary investment objective, capital appreciation.
The Acquired Fund and the Surviving Fund pursue similar investment strategies. Both Funds
seek to achieve this objective by investing in a combination of other underlying funds. For each
Fund, the Adviser allocates assets among the underlying funds, which include equity funds,
fixed-income funds, and money market funds. Each Fund intends to invest in a combination of
underlying funds; however, each Fund may invest directly in equity and fixed income securities,
cash equivalents, including money market securities, and futures. In addition the Surviving Fund
may invest in securities of nonproprietary mutual funds as part of its principal investment
strategy.
1
The target asset allocation for the Acquired Fund is expected to remain fixed at approximately
20% to equity funds, 75% to fixed income funds, and 5% to money market funds. The target asset
allocation for the Surviving Fund is approximately 25% to equity funds, 70% to fixed income funds
and 5% to money market funds. However, the Surviving Funds target asset allocation is not fixed,
and the Surviving Fund has the flexibility to move within a target asset allocation range of 10-40%
to equity funds, 50-90% to fixed income funds, and 0-12% to money market funds.
The Surviving Funds asset allocation strategy is designed to accommodate the Funds
distribution goal, which is to provide a targeted annual payout of income to its shareholders. The
targeted annual payout for the Surviving Fund is 4-5%, and is based on historic yield environments
over a ten year period. The Surviving Funds actual annual payout could be higher or lower than
the targeted annual payout. The Surviving Fund pays out income based on CSIMs annual projection
of income and forecast of interest rates for the upcoming year. The Surviving Fund seeks to tailor
the amount of its monthly income payments in order to moderate fluctuations in the amounts
distributed to shareholders over the course of the year, although the amounts distributed to
shareholders are not fixed and may not be the same each month. At the end of the year, the
Surviving Fund may be required under applicable law to recharacterize distributions for the year
among ordinary income, capital gains, and return of capital (if any) for purposes of tax reporting
to shareholders. The Surviving Fund distributes income on or about the 15th calendar
day of each month.
The Acquired Fund does not have a specific distribution goal nor does it target a specific
annual payout of income to its shareholders. The Acquired Fund distributes its income to
shareholders at the end of each month.
For further information about the Funds investment objectives and strategies, see Additional
Information about the Acquired Fund and Surviving FundComparison of the Funds.
Fees and Expenses.
Neither of the Funds pays a management fee to CSIM. After the Reorganization, the Surviving
Fund is expected to have the same total annual operating expenses as that of the Acquired Fund.
However, as discussed below, due to fee waivers and expenses reimbursements in effect until April
29, 2011, the actual fees and expenses incurred by shareholders of the Surviving Fund after the
Reorganization will be lower than the fees and expenses currently being incurred by shareholders of
the Acquired Fund.
Each Fund is a fund of funds, and the fee table below reflects the acquired fund fees and
expenses (AFFE)that is, those fees and expenses that are incurred indirectly by a Fund and its
shareholders through its investments in the underlying fundsplus other fees and expenses incurred
by the Fund. In each case, CSIM and Charles Schwab & Co., Inc. (Schwab) have agreed to limit the
Funds net operating expenses (not inclusive of AFFE) as follows: the net operating expenses of
the Acquired Fund and the Surviving Fund are limited to 0.10% and 0.00%, respectively.
The following table sets forth: (i) the fees and expenses of the Acquired Fund as of December
31, 2008 (unaudited); (ii) the fees and expenses of the Surviving Fund as of December 31, 2008
(audited); and (iii) the estimated fees and expenses of the Surviving Fund on a pro forma basis
after giving effect to the Reorganization, based on pro forma combined assets as of December 31,
2008 (unaudited).
2
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
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RETIREMENT |
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MONTHLY |
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PRO FORMA COMBINED |
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INCOME |
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MONTHLY INCOME FUND |
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FUND |
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FUND |
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(SURVIVING FUND) |
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SHAREHOLDER FEES
(paid directly from your investment) |
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Redemption Fee (charged only to shares redeemed
or exchanged within 30 days of purchase) |
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None |
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None |
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None |
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ANNUAL
FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) |
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Management Fees |
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None |
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None |
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None |
Distribution and Shareholder Service
(12b-1) Fees |
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None |
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None |
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None |
Other Expenses |
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0.17 |
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0.56 |
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0.16 |
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Acquired fund fees and expenses (AFFE)1 |
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0.57 |
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0.62 |
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0.58 |
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Total Annual Fund Operating Expenses |
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0.74 |
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1.18 |
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0.74 |
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Less Expense Reduction2 |
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(0.07 |
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(0.56 |
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Net Operating Expenses (including AFFE) |
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0.67 |
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0.62 |
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0.58 |
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AFFE reflects the estimated amount of the fees and expenses incurred indirectly by a Fund
through its investments in the underlying funds. |
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Schwab and CSIM have agreed to limit the net operating expenses (excluding interest, taxes
and certain non-routine expenses) of each the Retirement Income Fund and Monthly Income Fund
through 2/27/2011 and 4/29/2011, respectively. The Retirement Income Fund is limited to
0.10%. The Monthly Income Fund is limited to 0.00%. In each case, the agreement to limit a
Funds net operating expenses is limited to a Funds direct operating expenses and therefore
does not apply to AFFE, which are indirect expenses incurred by the Fund through its
investments in the underlying funds. |
Example: This Example is intended to help you compare the current cost of investing in the
Acquired Fund and the Surviving Fund, and also allows you to compare these costs with the cost of
investing in other mutual funds. Your actual costs may be higher or lower.
The Example below includes both a Funds operating expenses and its AFFE (as listed in the
table above), and assumes that you invest $10,000 in a Fund for the time periods indicated and that
you sell your shares at the end of the period. In addition, the Example assumes that each year
your investment has a 5% return, a Funds operating expenses remain the same and you reinvest all
dividends and distributions. The expenses would be the same whether you stayed in the Funds or
sold your shares at the end of each period. The one-year figures are based on net operating
expenses (including AFFE).
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RETIREMENT INCOME FUND |
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68 |
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232 |
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428 |
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$ |
995 |
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MONTHLY INCOME FUND |
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$ |
63 |
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$ |
270 |
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$ |
568 |
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$ |
1,416 |
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PRO FORMA COMBINED MONTHLY INCOME FUND |
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$ |
59 |
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$ |
214 |
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$ |
410 |
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$ |
978 |
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The projected post-Reorganization pro forma Annual Fund Operating Expenses and Example
Expenses presented above are based on numerous material assumptions, including (1) that the current
contractual agreements will remain in place and (2) that certain fixed costs involved in operating
the Acquired Fund will be eliminated. Although these projections represent good faith estimates,
there can be no assurance that any particular level of expenses or expense savings will be achieved
because expenses depend on a variety of factors, including the future level of the Surviving Funds
assets, many of which are beyond the control of the Surviving Fund and CSIM.
3
Purchase and Redemption Procedures; Exchange Procedures; Dividends, Distributions and Pricing.
The procedures for purchasing, redeeming and exchanging shares of the Surviving Fund are the
same as the transaction procedures applicable to the Acquired Fund. You may continue to purchase
and redeem shares of the Acquired Fund prior to the Reorganization.
Every year, each Fund distributes to its shareholders substantially all of its net investment
income and net capital gains, if any. Each Fund distributes its investment income monthly, and its
capital gains, if any, annually in December to all shareholders of record.
The Funds determine their net asset value per share as of the close of regular trading hours
on the New York Stock Exchange (normally 4:00 p.m., Eastern time). The Funds procedures for
valuing their assets are the same. In valuing underlying fund investments, each Fund uses the net
asset values reported by the underlying funds.
II. PRINCIPAL RISK FACTORS.
Risks of the Acquired Fund and Surviving Fund
The following principal risks of investments in the Acquired Fund and Surviving Fund are
identical: investment risk, asset allocation risk, market risk and direct investment risk.
Investment risk. Your investment is not a bank deposit. Your investment in the Funds is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government
agency.
Asset allocation risk. The Funds are subject to asset allocation risk, which is the risk that the
selection of the underlying funds and the allocation of the Funds assets among the various asset
classes and market segments will cause the Funds to underperform other funds with a similar
investment objective.
Market risk. Stock and bond markets rise and fall daily. As with any investment whose performance
is tied to these markets, the value of your investment in the Funds will fluctuate, which means
that you could lose money on your investment.
Direct investment risk. Each Fund may invest a portion of its assets directly in equity and fixed
income securities, cash equivalents, including money market securities, and futures. A Funds
direct investment in these securities is subject to the same or similar risks as those described
for an underlying funds investment in the same security.
The Surviving Fund has the following additional risk that is not applicable to the Acquired Fund.
Structural risk. The Surviving Funds monthly income payments will be made from the Surviving
Funds assets and will reduce the amount of assets available for investment by the Surviving Fund.
It is possible for the Surviving Fund to experience substantial investment losses and additional
asset reductions as a result of its income payments to shareholders. Additionally, even if the
Surviving Funds capital grows over time, such growth may be insufficient to enable the Surviving
Fund to maintain the amount of its targeted annual payout and targeted monthly income payments.
The dollar amount of the Surviving Funds monthly income payments could vary substantially from one
year to the next and over time depending on several factors, including the performance of the
financial markets in
4
which the Surviving Fund invests, the allocation of Surviving Fund assets across different asset
classes and investments, the performance of the Surviving Funds investment strategies, and the
amount and timing of prior distributions by the Surviving Fund. It is also possible for your
income payments to go down substantially from one year to the next and over time depending on the
timing of your investments in the Surviving Fund. Any redemptions you make will proportionately
reduce the amount of future cash income payments you will receive from the Surviving Fund.
There is no guarantee that the Surviving Fund will make monthly income payments to its shareholders
or, if made, that the Surviving Funds monthly income payments to shareholders will remain at a
fixed amount throughout the year.
Principal Risks of the Underlying Funds
The net asset value of the Funds depends on the prices of the underlying funds that the Funds
purchase. In turn, the price of each underlying fund is based on the value of its securities. The
price of these securities changes daily and each underlying funds performance reflects the risks
of investing in a particular asset class. The degree to which these risks apply to a Fund varies
according to it allocation to that underlying fund.
The Funds generally have the same investable universe of underlying funds, although the Funds will
not always be invested in the same underlying funds. As a result, there are no material differences
in the principal risks associated with the Acquired Funds underlying funds as compared to the
principal risks associated with the Surviving Funds underlying funds. For further information
about the principal risks associated with the underlying funds, see the prospectus for the Acquired
Fund, dated February 28, 2009, as amended April 20, 2009, and the prospectus for the Surviving
Fund, dated April 30, 2009, which are incorporated herein by reference.
III. INFORMATION ABOUT THE REORGANIZATION
Material Features of the Plan
The Plan sets forth the terms and conditions of the Reorganization. Material provisions of
the Plan are summarized below; however, this summary is qualified in its entirety by reference to
the Plan, a form of which is attached as Appendix A to this Prospectus/Information Statement.
At the consummation of the Reorganization, which is expected to occur at the close of business
on or about June 9, 2009, (the Effective Time), all of the assets and liabilities of the Acquired
Fund will be transferred to the Surviving Fund in exchange for shares of the Surviving Fund, such
that at and after the Effective Time, the assets and liabilities of the Acquired Fund will become
the assets and liabilities of the Surviving Fund. The transfer of assets by the Acquired Fund will
occur at their then-current market value as determined in accordance
with the Acquired Funds valuation
procedures and shares of the Surviving Fund to be issued to the Acquired Fund shall be valued at
their then-current net asset value determined in accordance with the Surviving Funds valuation
procedures. Shares of the Surviving Fund will be distributed to shareholders of the Acquired Fund
in exchange for their shares of the Acquired Fund. After completion of the Reorganization, each
shareholder of the Acquired Fund will own shares of the Surviving Fund equal in value to the
current net asset value of such shareholders shares of the Acquired Fund. Following the completion
of the Reorganization, the Acquired Fund will be liquidated and its registration under the
Investment Company Act of 1940 will be terminated.
The Plan provides that the Board will declare a dividend or dividends with respect to the
Acquired Fund prior to the Effective Time. This dividend, together with all previous dividends,
will have the effect of
5
distributing to the shareholders of the Acquired Fund all undistributed ordinary income earned
and net capital gains recognized up to and including the Effective Time. The shareholders of the
Acquired Fund will recognize ordinary income and capital gain with respect to this distribution and
such income and gain may be subject to federal, state and/or local taxes.
The stock transfer books of the Trust with respect to the Acquired Fund will be permanently
closed as of the close of business on the day immediately preceding the Effective Time. Redemption
requests received thereafter by the Trust with respect to the Acquired Fund will be deemed to be
redemption requests for shares of the Surviving Fund issued pursuant to the Plan. If any shares of
the Acquired Fund are represented by a share certificate, the certificate must be surrendered to
the Trusts transfer agent for cancellation before the Surviving Fund shares issuable to the
shareholder pursuant to this Plan will be redeemed. The Surviving Fund does not expect to issue
share certificates with respect to the Surviving Fund. Any special options relating to a
shareholders account in the Acquired Fund will transfer over to the Surviving Fund without the need
for the shareholder to take any action.
The Reorganization is subject to a number of conditions as set forth in the Plan attached
hereto as Appendix A. Except as set forth below, the Trust, by consent of its Board or an officer
authorized by the Board, may waive any condition to the obligations of the Acquired Fund or the
Surviving Fund under the Plan if, in its or such officers judgment, such waiver will not have a
material adverse effect on the interests of the shareholders of the Acquired Fund or the
shareholders of the Surviving Fund. Certain conditions under the Plan cannot be waived by the
Trust, including the condition that the Funds receive a favorable tax opinion from Morgan, Lewis &
Bockius LLP. The Board may abandon the Plan and the Reorganization at any time for any reason prior
to the Effective Time. The Plan provides further that at any time prior to the Reorganization the
Funds may amend any of the provisions of the Plan; provided, however, that (i) no such amendment
may have the effect of changing the provisions for determining the number of the Surviving Fund
shares to be issued to the Acquired Fund shareholders under the Plan to the detriment of such
Acquired Fund shareholders; and (ii) the Board determines that such amendment is in the best
interest of shareholders of the Acquired Fund and the Surviving Fund.
The Acquired Fund will bear the expenses incurred in connection with the Reorganization. The
Adviser estimates that these expenses will be $55,000.
Description of Reorganization Shares
Shares of the Surviving Fund will be issued to the Acquired Funds shareholders in accordance
with the Plan. Both the Acquired Fund and the Surviving Fund have a single share class which have
the same transaction policies. There are no material differences in the transactional or other
procedures between Acquired Fund and Surviving Fund.
For additional information about the Surviving Fund shares, see Additional Information about
the FundsShareholder Information.
Reasons for Reorganization
The Board considered the Reorganization at a meeting of the Board of Trustees on November 11,
2008, and the Board, including a majority of the Trustees who are not interested persons of the
Trust as that term is defined in the 1940 Act, approved the Plan by written consent on January 21,
2009. In approving the Reorganization, the Board of the Acquired Fund determined that (i)
participation in the Reorganization is in the best interest of the Acquired Funds shareholders;
and (ii) the interests of the Acquired Funds shareholders will not be diluted as a result of the
Reorganization.
6
In making this determination, the Board of the Acquired Fund considered a number of factors,
including:
|
|
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the investment objectives of the Acquired Fund and the Surviving Fund are
identical; |
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|
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|
the similarities in investment strategies between the Funds and the resulting
overlap in the underlying funds in which each invests; |
|
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|
|
the possibility that greater aggregate assets upon consummation of the
Reorganization would allow the Surviving Fund to take advantage of the possible benefits of
a larger asset base, including future economies of scale and spreading costs across a larger
asset base to the potential benefit of all shareholders; |
|
|
|
|
the future prospects of the Funds if the Reorganization was not effected,
including each of the Funds continuing viability as a stand-alone series of the Trust; |
|
|
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|
the Reorganization is intended to be tax-free for federal income tax purposes
for shareholders of the Acquired Fund; |
|
|
|
|
that each Fund does not pay a management fee to CSIM; |
|
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|
|
that, after the Reorganization, the Surviving Fund is expected to have the same
total annual operating expenses as that of the Acquired Fund; and |
|
|
|
|
that Schwab and CSIM have agreed to limit the net operating expenses
(excluding interest, taxes, certain non-routine expenses and acquired fund fees and
expenses) of the Surviving Fund to 0.00% through 4/29/2011, resulting in an overall expense
reduction for Acquired Fund shareholders. |
The Board of the Surviving Fund has also determined that (i) participation in the
Reorganization is in the best interest of the Surviving Funds shareholders; and (ii) the interests
of the Surviving Funds shareholders will not be diluted as a result of the Reorganization.
Federal Income Tax Consequences
Each Fund intends to qualify as of the Effective Time as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the Code). Accordingly, each of the Funds
has been, and expects to continue to be, relieved of all or substantially all federal income taxes.
Consummation of the transaction is subject to the condition that the Trust receive an opinion from
Morgan, Lewis & Bockius LLP, subject to appropriate factual assumption and customary
representations, to the effect that for federal income tax purposes:
|
(1) |
|
The transfer of all of the assets and liabilities of the Acquired Fund
to the Surviving Fund in exchange for shares of the Surviving Fund and the
distribution to shareholders of the Acquired Fund of shares of the Surviving Fund,
as described in the Plan, will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code, and the Acquired Fund and the Surviving Fund
each will be considered a party to a reorganization within the meaning of Section
368(b) of the Code; |
|
|
(2) |
|
No gain or loss will be recognized by the Acquired Fund upon the
transfer of all of its assets to the Surviving Fund in exchange solely for the
issuance of shares of the Surviving Fund and the assumption by the Surviving Fund
of the Acquired Funds liabilities, if any, or upon the distribution by the Acquired Fund to its shareholders of shares of the Surviving
Fund received as a result of the Reorganization; |
7
|
(3) |
|
No gain or loss will be recognized by the Surviving Fund upon the
receipt by it of all of the assets of the Acquired Fund in exchange solely for the
issuance of shares of the Surviving Fund and the assumption by the Surviving Fund
of the Acquired Funds liabilities, if any; |
|
|
(4) |
|
The aggregate adjusted tax basis of the Surviving Fund shares received
by a shareholder of the Acquired Fund will be the same as the tax basis of the
shareholders Acquired Fund shares immediately prior to the Reorganization; |
|
|
(5) |
|
The adjusted tax basis of the assets received by the Surviving Fund
pursuant to the Reorganization will be the same as the tax basis of the assets in
the hands of the Acquired Fund immediately before the Reorganization; |
|
|
(6) |
|
The holding period for the shares of the Surviving Fund received by the
Acquired Funds shareholders will include the holding period of the Acquired Fund
shares surrendered in exchange therefor, provided that the shareholder held such
shares of the Acquired Fund as capital assets; and |
|
|
(7) |
|
The holding period for the Surviving Fund with respect to the assets of
the Acquired Fund received in the Reorganization will include the period for which
such assets were held by the Acquired Fund. |
No opinion will be expressed as to the effect of the Reorganization on (i) the Acquired Fund
or the Surviving Fund with respect to any asset as to which any unrealized gain or loss is required
to be recognized for federal income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of accounting and (ii) any Acquired
Fund or the Surviving Fund shareholder that is required to recognize unrealized gains and losses
for federal income tax purposes under a mark-to-market system of accounting.
As of December 31, 2008, the Acquired Fund had unutilized capital loss carryforwards of
approximately $5,956,245. The final amount of unutilized capital loss carryforwards for the
Acquired Fund is subject to change and will not be finally determined until the Effective Time of
the Reorganization. Under Section 382 of the Code, the ability of the Surviving Fund to fully
utilize the capital loss carryforwards of the Acquired Fund may be limited because the
Reorganization will result in a change in control of the Acquired Fund. Therefore, the capital loss
carryforwards that may be utilized as tax deductions by the Surviving Fund will be limited each
taxable year to an amount equal to the value of the capital stock of the Acquired Fund at the time
of the Reorganization multiplied by an interest rate set monthly by the Internal Revenue Service
(IRS) that approximates a tax-exempt bond yield. Such capital loss carryforwards of the Acquired
Fund will expire in 2016.
The Funds have not sought a tax ruling on the federal tax consequences of the Reorganization
from the IRS. The opinion to be received from Morgan, Lewis & Bockius LLP, with respect to the
federal income tax consequences of the Reorganization described in this section is not binding on
the IRS and does not preclude the IRS from adopting a contrary position.
Shareholders should consult their own advisors concerning the potential tax consequences to
them, including state and local income tax consequences.
8
Shareholder Rights
The Trust is organized as a Massachusetts business trust. The Acquired Fund and the Surviving
Fund are both series of the Trust and, therefore, shareholders of the Acquired Fund and the
Surviving Fund are shareholders of the same legal entity, the Trust. The Trusts Amended and
Restated Declaration of Trust (Declaration of Trust), the Trusts governing document, does not
afford any rights to the shareholders of the Surviving Fund that differ in any material respect
from the rights afforded to the shareholders of the Acquired Fund.
Each share in the Surviving Fund represents an equal proportionate interest in the Surviving
Fund and each shareholder is entitled to such dividends and distributions out of the income earned
on the assets belonging to the Fund as are declared in the discretion of the Trusts Board. When
sold in accordance with the Declaration of Trust, and for the consideration described in its
registration statement, shares of the Surviving Fund will be fully paid and non-assessable.
Surviving Fund shares have no preemptive rights and only such conversion or exchange rights as
the Board may grant in its discretion. In the event of a liquidation or dissolution of the
Surviving Fund, its shareholders are entitled to receive the assets available for distribution
belonging to the Surviving Fund and a proportionate distribution, based upon the relative asset
values of the Trusts portfolios, of any general assets of the Trust not belonging to any
particular portfolio of the Trust which are available for distribution. In the event of a
liquidation or dissolution of the Trust, its shareholders will be entitled to the same distribution
process.
Capitalization.
The Surviving Funds total capitalization after the Reorganization will be greater than the
current capitalization of the Acquired Fund as a result of the combination of the Acquired Fund
with the Surviving Fund. The following table sets forth as of December 31, 2008 (on an unaudited
basis, except for the capitalization of the Monthly Income Fund):
|
(1) |
|
the capitalization of the Retirement Income Fund; |
|
|
(2) |
|
the capitalization of the Monthly Income Fund; and |
|
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(3) |
|
the pro forma capitalization of the Monthly Income Fund as adjusted to give effect
to the Reorganization. |
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|
PRO FORMA COMBINED |
|
|
RETIREMENT |
|
MONTHLY INCOME |
|
MONTHLY INCOME FUND |
|
|
INCOME FUND |
|
FUND |
|
(SURVIVING FUND) |
Total Net Assets |
|
$ |
53,225,740 |
|
|
$ |
9,939,495 |
|
|
$ |
63,165,235 |
|
Shares Outstanding |
|
|
6,211,882 |
|
|
|
1,135,494 |
|
|
|
7,216,035 |
|
Net Asset Value Per Share |
|
$ |
8.57 |
|
|
$ |
8.75 |
|
|
$ |
8.75 |
|
This information is for informational purposes only. There is, of course, no assurance that
the Reorganization will be consummated. Moreover, if consummated, the capitalization of the
Acquired Fund and the Surviving Fund is likely to be different at the Effective Time as a result of
daily share purchase and redemption activity in the Funds. Accordingly, the foregoing should not be
relied upon to reflect the number of shares of the Surviving Fund that actually will be received on
or after such date.
9
IV. ADDITIONAL INFORMATION ABOUT THE SURVIVING
FUND AND THE ACQUIRED FUND
Performance History
Set forth below is past performance information for the Acquired Fund. Because the Surviving
Fund has less than one calendar year of performance, performance information is not shown for the
Surviving Fund.
The following total returns information shows the returns of the Acquired Fund before and
after taxes, and compares the performance (which varies over time) of the Acquired Fund to that of
two indices. The indices are unmanaged and do not include expenses or taxes. All figures assume
distributions were reinvested.
The after-tax figures:
|
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reflect the highest individual federal marginal income tax rates that applied during
the period, but assume no state or local taxes |
|
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|
may not reflect your actual after-tax performance |
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|
may not be relevant to shares in an IRA, 401(k) or other tax-advantaged retirement
account. |
Keep in mind that future performance (both before and after taxes) may differ from past
performance.
|
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|
|
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|
Since |
Schwab Retirement Income Fund |
|
1 year |
|
Inception |
|
Before taxes |
|
|
-12.24 |
|
|
|
-0.03 |
1 |
After taxes on distributions |
|
|
-13.41 |
|
|
|
-1.43 |
1 |
After taxes on distributions and sale of shares |
|
|
-7.81 |
|
|
|
-0.73 |
1 |
Dow Jones Wilshire 5000 Composite Index |
|
|
-37.33 |
|
|
|
-5.63 |
2 |
Barclays Capital U.S. Aggregate Bond Index |
|
|
5.24 |
|
|
|
4.67 |
2 |
|
|
|
1 |
|
Inception: 7/1/05. |
|
2 |
|
From: 7/1/05. |
10
Comparison of the Funds
Investment objectives, principal investment strategies, asset allocation strategies and
distribution goals.
The following is a comparison of the investment objectives, principal investment strategies, asset
allocation strategies and distribution goals of the Funds. The primary differences between the
Funds are noted in italics.
|
|
|
RETIREMENT INCOME FUND |
|
MONTHLY INCOME FUND |
(the Acquired Fund) |
|
(the Surviving Fund) |
|
|
|
Investment Objective
|
|
Investment Objective |
|
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|
The Retirement Income Fund seeks to
provide current income and, as a
secondary investment objective,
capital appreciation.
|
|
The Monthly Income Fund seeks to
provide current income and, as a
secondary investment objective,
capital appreciation. |
|
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|
Principal Investment Strategies
|
|
Principal Investment Strategies |
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|
The Retirement Income Fund seeks to
achieve its investment objective by
investing in a combination of other
Schwab Funds and Laudus Funds (the
underlying funds) in accordance with
its target portfolio allocation.
These underlying funds invest their
assets directly in equity, fixed
income, money market, futures and
other securities in accordance with
their own investment objectives and
policies.
|
|
The Monthly Income Fund seeks to
achieve its investment objective by
investing primarily in a combination
of Schwab Funds and Laudus Funds
(the underlying funds) in accordance
with its target asset allocation.
The investment adviser will allocate
assets among the underlying funds,
which will include equity funds,
fixed-income funds, and money market
funds. |
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|
The Fund intends to invest in a
combination of underlying funds;
however, the Fund may invest
directly in equity and fixed income
securities, cash equivalents,
including money market securities,
and futures.
|
|
The Fund intends to invest in a
combination of underlying funds;
however, the Fund may invest
directly in equity and fixed income
securities, cash equivalents,
including money market securities,
futures and securities of
nonproprietary mutual funds. |
11
|
|
|
RETIREMENT INCOME FUND |
|
MONTHLY INCOME FUND |
(the Acquired Fund) |
|
(the Surviving Fund) |
|
|
|
For temporary defensive purposes
during unusual economic or market
conditions or for liquidity
purposes, the Fund may invest up to
100% of its assets directly in cash,
money market instruments, repurchase
agreements and other short-term
obligations. When the Fund engages
in such activities, it may not
achieve its investment objective.
|
|
For temporary defensive purposes
during unusual economic or market
conditions or for liquidity
purposes, the Fund may invest up to
100% of its assets directly in cash,
money market instruments, repurchase
agreements and other short-term
obligations. When the Fund engages
in such activities, it may not
achieve its investment objective. |
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|
Asset Allocation Strategies
|
|
Asset Allocation Strategies |
|
|
|
The target asset allocation for the
Retirement Income Fund is expected
to remain fixed over time at 20% to
equity funds, 75% to fixed income
funds and 5% to money market funds.
However, the Adviser reserves the
right to modify the Funds target
asset allocations from time to time
should circumstances warrant a
change. The Adviser may adjust the
Funds underlying fund allocations
within a particular asset class
based on the following
considerations: market trends, its
outlook for a given market
capitalization, and the underlying funds performance in various market
conditions. Accordingly, the Funds
allocation to a particular
underlying fund may increase or
decrease throughout the year.
|
|
The Funds asset allocation strategy
is designed to accommodate the
Funds targeted annual payout
percentage while taking into
accounts the Funds specific risk
tolerances and the desired level of
capital appreciation. The target
asset allocation for the Monthly
Income Fund is approximately 25% to
equity funds, 70% to fixed income
funds and 5% to money market funds.
However, the target asset allocation
for the Monthly Income Fund is not
fixed and the Fund has the
flexibility to move within the
following asset allocation ranges: 10-40% in equity funds, 50-90% in
fixed income funds and 0-12% in
money market funds. |
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Distribution Goals
|
|
Distribution Goals |
|
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|
The Retirement Income Fund does not
have a specific distribution goal
nor does it target a specific annual
payout of income to its
shareholders. The Acquired Fund
distributes its income to
shareholders at the end of each
month.
|
|
The Monthly Income Funds
distribution goal is to provide a
targeted annual payout of income to
shareholders. The targeted annual
payout for the Fund is 4-5% . The
targeted annual payout for the Fund
is based on historic yield
environments over a ten year period.
The Funds actual annual payout
could be higher or lower than the
targeted annual payout based on the
interest rate environment and other
market factors occurring during that
year. During a lower interest rate
environment, it is generally
expected that the Fund will have
lower actual annual payouts.
Conversely, during a high interest
rate environment, it is generally
expected that the Fund will have a
higher annual payout. As of April
30, 2009, the investment adviser
currently views the interest rate
environment as trending lower. |
12
|
|
|
RETIREMENT INCOME FUND |
|
MONTHLY INCOME FUND |
(the Acquired Fund) |
|
(the Surviving Fund) |
|
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|
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|
The expected impact of interest
rate changes on the Funds actual
annual payout is set forth below: |
|
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|
Anticipated Annual Payout in
Low Interest Rate Environment: 3-5% |
|
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|
|
Anticipated Annual Payout in
High Interest Rate Environment: 4-6% |
|
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The Fund pays out income based on
the investment advisers annual
projection of income and forecast of
interest rates for the upcoming
year. There is no guarantee that
the Fund will be able to achieve its
distribution goal during any given
year. In addition to the interest
rate environment discussed above,
the Funds actual annual payout
could also be affected by a number
of other factors, including, without
limitation, the performance of the
financial markets in which the Fund
invests, the allocation of Fund
assets across different asset
classes and investments, the
performance of the Funds investment
strategies, and the amount and
timing of prior distributions by the
Fund. |
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|
The Fund makes monthly income
payments to shareholders on or about
the 15th calendar day of each month.
The Fund seeks to tailor the amount
of its monthly income payments in
order to moderate fluctuations in
the amounts distributed to
shareholders over the course of the
year. Although the Fund attempts to
moderate fluctuations, the amounts
distributed to shareholders are not
fixed and may not be the same each
month. The Fund may make an
additional distribution at the end
of the year in order to comply with
applicable law. This additional
distribution may include an income
component that may be higher or
lower than the Funds regular
monthly income payment. |
|
|
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|
At the end of the year, the Fund may
be required under applicable law to
recharacterize distributions for the
year among ordinary income, capital
gains, and return of capital (if
any) for purposes of tax reporting
to shareholders. |
13
Fundamental Investment Policies.
A fundamental investment policy may be changed only by vote of a majority of a Funds outstanding
shares. The Acquired Fund and Surviving Fund have identical fundamental investment policies.
Management of the Funds
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab Corporation located at 101 Montgomery
Street, San Francisco CA 94104, serves as the investment adviser and the administrator of the
Acquired Fund and the Surviving Fund. CSIM does not receive a management fee for the services it
performs for the funds. However, CSIM is entitled to receive an annual management fee from each
underlying Schwab Fund or Laudus Fund. Upon consummation of the Reorganization, the management fee
paid to CSIM with respect to the Surviving Fund will remain at 0.00%.
|
|
|
RETIREMENT INCOME FUND |
|
MONTHLY INCOME FUND |
(the Acquired Fund) |
|
(the Surviving Fund) |
|
|
|
Jeffrey Mortimer, CFA, senior vice
president and chief investment
officer of CSIM, is responsible for
the overall management of the Funds.
Prior to joining the firm in October
1997, he worked for more than eight
years in asset management.
|
|
Jeffrey Mortimer, CFA, senior vice
president and chief investment
officer of CSIM, is responsible for
the overall management of the Fund.
Prior to joining the firm in
October 1997, he worked for more
than eight years in asset
management. |
|
|
|
Caroline Lee, a managing director and
portfolio manager of CSIM, co-manages
the Fund. Prior to joining the firm
in November 2005, she worked in asset
management for over four years
overseeing sub-advisor relationships
in the pension group of a major
corporation. She also has three years
of previous experience in investment
management at another financial
services firm.
|
|
Caroline Lee, a managing director
and portfolio manager of CSIM,
co-manages the Fund. Prior to
joining the firm in November 2005,
she worked in asset management for
over four years overseeing
sub-advisor relationships in the
pension group of a major
corporation. She also has three
years of previous experience in
investment management at another
financial services firm. |
|
|
|
Daniel Kern, CFA, a managing director
and portfolio manager of CSIM, is
responsible for the day-to-day
co-management of the Fund. He was
appointed portfolio manager in 2008.
Prior to joining the firm in 2003, he
worked for more than 13 years in the
investment management industry.
|
|
Daniel Kern, CFA, a managing
director and portfolio manager of
CSIM, is responsible for the
day-to-day co-management of the
Fund. He was appointed portfolio
manager in 2008. Prior to joining
the firm in 2003, he worked for
more than 13 years in the
investment management industry. |
Other Service Providers. The Funds other service providers are the same. These entities are
listed below.
|
|
|
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104
|
|
Distributor
Shareholder Service Agent
Transfer Agent |
|
|
|
State Street Bank and Trust Company
Boston, Massachusetts 02102
|
|
Custodian
Fund Accountant |
14
Shareholder Information
Shareholder information, such as pricing of Fund shares, purchase and redemption of Fund
shares, frequent purchases and redemption of Fund shares, and tax consequences of buying and
selling shares, are generally the same between the Funds except as set forth in this section. A
summary of this information is included below. More detailed shareholder information is contained
in the Acquired Funds prospectus, dated February 28, 2009, as amended April 20, 2009, and the
Surviving Funds prospectus, dated April 30, 2009, each of which is incorporated herein by
reference. A Statement of Additional Information for the Acquired Fund, dated February 28, 2009,
and a Statement of Additional Information for the Surviving Fund, dated April 30, 2009, also
contains additional information concerning these matters. A free copy of these documents is
available upon request as described on the first page of this Prospectus/Information Statement. In
addition, the prospectus for the Surviving Fund, dated April 30, 2009, accompanies this
Prospectus/Information Statement.
Pricing of Fund Shares
The Funds are open for business each day that the New York Stock Exchange (NYSE) is open.
Each Fund calculates its share price each business day as of the close of the NYSE (generally 4
p.m. Eastern time). A Funds share price is its net asset value per share, or NAV, which is the
Funds net assets divided by the number of its shares outstanding. Orders to buy, sell or exchange
shares that are received by a Fund in good order on or prior to the close of the Fund (generally 4
p.m. Eastern time) will be executed at the next share price calculated that day.
In valuing their underlying fund investments, the Funds use the NAVs reported by their
underlying funds. In valuing other portfolio securities, the Funds use market quotes or official
closing prices if they are readily available. In cases where quotes are not readily available, a
Fund may value securities based on fair values developed using methods approved by the Funds
Board.
Shareholders of the Funds should be aware that because foreign markets are often open on
weekends and other days when the Funds are closed, the value of some of a Funds securities may
change on days when it is not possible to buy or sell shares of the Funds.
Purchase and Redemption of Fund Shares
Procedures for purchasing, redeeming and exchanging shares of the Surviving Fund are the same
as those of the Acquired Fund. You may continue to purchase and redeem shares of the Acquired Fund
prior to the Reorganization.
The initial investment minimum for the Surviving Fund is $100, and there is no subsequent
investment minimum. In addition, there is no minimum balance requirement.
The Funds are intended for long-term investment, and the Funds Board has adopted policies and
procedures intended to deter short-term or excessive trading, which include trade activity
monitoring and fair value pricing.
Dividends and Distributions
Each Fund distributes to its shareholders substantially all of its net investment income and
net capital gains, if any. Each Funds policy is to (i) declare and pay distributions of its
dividends and interest monthly, and (ii) distribute any capital gains annually.
15
The Retirement Income Fund typically makes income distributions at the end of each month.
The Monthly Income Fund typically pays its dividends on or about the 15th of each
month. Because the Monthly Income Fund seeks to provide a targeted annual payout of income to
shareholders, it may seek to tailor the amount of its monthly income payments in order to moderate
fluctuations in the amounts distributed to shareholders over the course of the year, although the
amounts distributed to shareholders are not fixed and may not be the same each month. The Monthly
Income Fund may pay an additional distribution at the end of the year in order to comply with
applicable law. The additional distribution may include an income component that may be higher or
lower than the Monthly Income Funds regular monthly income payment. At the end of the year, the
Monthly Income Fund may be required under applicable law to recharacterize distributions for the
year among ordinary income, capital gains, and return of capital (if any) for purposes of tax
reporting to shareholders.
Each Fund allows shareholders to choose among the same three options for Fund distributions.
The three options are described below. Your current option for Fund distributions will not change
on consummation of the Reorganization. The Monthly Income Fund is designed with the expectation
that the monthly income payments will be paid in cash.
|
|
|
Option |
|
Features |
Reinvestment
|
|
All dividends and capital gain distributions are
invested automatically in shares of the Fund. |
|
|
|
Cash/reinvestment mix
|
|
You receive payment for dividends, while any capital
gain distributions are invested automatically in
shares of the Fund. |
|
|
|
Cash
|
|
You receive payment for all dividends and capital
gain distributions. |
Distribution Arrangements
Pursuant to a Distribution Agreement with the Trust, Schwab, a wholly owned subsidiary of The
Charles Schwab Corporation and a registered broker-dealer and member of the Financial Industry
Regulatory Authority, Inc. (FINRA), acts as the distributor and principal underwriter for both
the Retirement Income Fund and Monthly Income Fund. Shares of the Funds are offered for sale on a
continuous basis at NAV. The Funds have not adopted a plan of distribution (i.e., a 12b-1 Plan).
Under the Distribution Agreement between Schwab and the Trust, Schwab will use appropriate efforts
to solicit orders for the sale of shares of the Funds, which might include advertising,
compensation of dealers or sales personnel, and preparation of sales literature. Schwab has also
been authorized by the Trust to enter into selling agreements with financial intermediaries, some
of which may be compensated by Schwab or CSIM for the shareholder services they provide. Schwab
receives no compensation from the Funds for acting as distributor for the Funds.
Additional information about distribution arrangements of the Funds is contained in the
Acquired Funds prospectus, dated February 28, 2009, as amended April 20, 2009, and the Surviving
Funds prospectus, dated April 30, 2009, each of which is incorporated herein by reference. A
Statement of Additional Information of the Acquired Fund, dated February 28, 2009, and a Statement
of Additional Information for the Surviving Fund, dated April 30, 2009, also contain additional
information concerning these matters. A free copy of these documents is available upon request as
described on the first page of this Prospectus/Information Statement. In addition, the prospectus
for the Surviving Fund, dated April 30, 2009, accompanies this Prospectus/Information Statement.
16
Financial Highlights
The financial highlights tables that follow are intended to help you understand each Funds
financial performance for the periods shown. The total returns in the tables represent the rate
that an investor would have earned (or lost) on an investment in the particular Fund (assuming
reinvestment of all dividends and distributions). The information for each Fund has been audited
by PricewaterhouseCoopers LLP, whose reports, along with the
Funds financial statements, are included in the Acquired Funds Annual Report to shareholders, dated October 31, 2008, and in the
Surviving Funds Annual Report to shareholders, dated December 31, 2008. A free copy of these
documents is available upon request as described on the first page of this Prospectus/Information
Statement.
Schwab Retirement Income Fund
Financial Statements
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/07- |
|
|
11/1/06- |
|
|
11/1/05- |
|
|
7/1/051- |
|
|
|
10/31/08 |
|
|
10/31/07 |
|
|
10/31/06 |
|
|
10/31/05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-Share Data ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
|
|
10.44 |
|
|
|
10.19 |
|
|
|
9.90 |
|
|
|
10.00 |
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
0.38 |
|
|
|
0.45 |
|
|
|
0.41 |
|
|
|
0.11 |
|
Net realized and unrealized gains (losses) |
|
|
(1.89 |
) |
|
|
0.25 |
|
|
|
0.32 |
|
|
|
(0.09 |
) |
|
|
|
Total from investment operations |
|
|
(1.51 |
) |
|
|
0.70 |
|
|
|
0.73 |
|
|
|
0.02 |
|
Less distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
(0.40 |
) |
|
|
(0.45 |
) |
|
|
(0.41 |
) |
|
|
(0.12 |
) |
Distributions from net realized gains |
|
|
(0.04 |
) |
|
|
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Total distributions |
|
|
(0.44 |
) |
|
|
(0.45 |
) |
|
|
(0.44 |
) |
|
|
(0.12 |
) |
|
|
|
Net asset value at end of period |
|
|
8.49 |
|
|
|
10.44 |
|
|
|
10.19 |
|
|
|
9.90 |
|
|
|
|
Total return (%) |
|
|
(14.96 |
) |
|
|
6.98 |
|
|
|
7.52 |
|
|
|
0.16 |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating expenses3 |
|
|
0.10 |
|
|
|
0.10 |
|
|
|
0.10 |
|
|
|
0.10 |
4 |
Gross operating expenses3 |
|
|
0.15 |
|
|
|
0.15 |
|
|
|
0.36 |
|
|
|
0.64 |
4 |
Net investment income (loss) |
|
|
3.98 |
|
|
|
4.43 |
|
|
|
4.20 |
|
|
|
3.40 |
4 |
Portfolio turnover rate |
|
|
95 |
5 |
|
|
|
|
|
|
1 |
|
|
|
|
|
Net assets, end of period ($ x 1,000,000) |
|
|
53 |
|
|
|
68 |
|
|
|
36 |
|
|
|
14 |
|
|
|
|
1 |
|
Commencement of operations. |
|
2 |
|
Not annualized. |
|
3 |
|
The expenses incurred by underlying funds in which the fund invests are not included in this ratio. |
|
4 |
|
Annualized. |
|
5 |
|
The portfolio turnover rate increased due to additional rebalancing activity of the underlying funds during the period. |
17
Schwab® Monthly Income Fund Enhanced Payout
Financial Statements
Financial Highlights
|
|
|
|
|
|
|
3/28/081 |
|
|
12/31/08 |
|
Per-Share Data ($) |
|
|
|
|
|
Net asset value at beginning of period |
|
|
10.00 |
|
|
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
Net investment income (loss) |
|
|
0.32 |
|
Net realized and unrealized gains (losses) |
|
|
(1.26 |
) |
|
|
|
|
|
Total from investment operations |
|
|
(0.94 |
) |
Less distributions: |
|
|
|
|
Dividends from net investment income |
|
|
(0.31 |
) |
|
|
|
|
|
Net asset value at end of period |
|
|
8.75 |
|
|
|
|
|
|
Total return (%) |
|
|
(9.53 |
)2 |
|
|
|
|
|
Ratios/Supplemental Data (%) |
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
Net operating expenses3 |
|
|
0.00 |
4 |
Gross operating expenses3 |
|
|
0.56 |
4 |
Net investment income (loss) |
|
|
4.34 |
4 |
Portfolio turnover rate |
|
|
39 |
2 |
Net assets, end of period ($ x 1,000,000) |
|
|
10 |
|
|
|
|
1 |
|
Commencement of operations. |
|
2 |
|
Not annualized. |
|
3 |
|
The expenses incurred by underlying funds in which the fund invests are not included in this ratio. |
|
4 |
|
Annualized. |
18
Principal Holders of Securities and Control Persons
Principal Shareholders.
As of March 20, 2009, the following shareholders owned, of record, 5% or more of the
outstanding shares of the Funds. To the knowledge of the Funds, no shareholders owned,
beneficially, 5% or more outstanding shares of the Funds as of that same date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Outstanding Shares |
Monthly Income Fund |
|
Name and address |
|
Nature of Ownership |
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
Charles Schwab & Co., Inc.
FBO Customers
101 Montgomery Street
San Francisco, California 94104
|
|
Record
|
|
|
99.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Outstanding Shares |
Retirement Income Fund |
|
Name and address |
|
Nature of Ownership |
|
Owned |
|
|
|
|
|
|
|
|
|
Charles Schwab & Co., Inc.
|
|
Record |
|
99.6% |
|
|
FBO Customers
|
|
|
|
|
|
|
101 Montgomery Street
|
|
|
|
|
|
|
San Francisco, California 94104 |
|
|
|
|
On the basis of the share holdings information presented above, the following persons will own
in excess of 5% of the outstanding shares of the Monthly Income Fund upon consummation of the
Reorganization. These tables assume that the value of the shareholders interest in a Fund on the
date of the consummation of the Reorganization is the same as on March 20, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Outstanding |
Monthly Income Fund |
|
Name and address |
|
Nature of Ownership |
|
Shares Owned |
|
|
|
|
|
|
|
|
|
Charles Schwab & Co., Inc.
|
|
Record |
|
99.8% |
|
|
FBO Customers
|
|
|
|
|
|
|
101 Montgomery Street
|
|
|
|
|
|
|
San Francisco, California 94104 |
|
|
|
|
Control Persons.
As of March 20, 2009, Schwab, an affiliate of CSIM, held of record approximately 99.8% of the
outstanding shares of the Monthly Income Fund, as agent or custodian
for its customers, but did
not own such shares beneficially because it did not have voting or investment discretion with
respect to such shares.
As of March 20, 2009, the Trustees and officers as a group owned less than 1% of the
outstanding shares of the Monthly Income Fund, and less than 1% of the outstanding shares of all
funds of the Trust in the aggregate.
As of March 20, 2009, Schwab held of record approximately 99.6% of the Retirement Income
Funds outstanding shares, as agent or custodian for its customers, but did not own such shares
beneficially because it did not have voting or investment discretion with respect to such shares.
As of March 20, 2009, the Trustees and officer as a group owned less than 1% of the
outstanding shares of the Retirement Income Fund, and less than 1% of the outstanding shares of all
funds of the Trust in the aggregate.
19
APPENDIX A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of this day of May,
2009, by and between the Schwab Capital Trust, a Massachusetts business trust (the Trust), on
behalf of the Schwab Retirement Income Fund (the Acquired Fund), and the Trust, on behalf of the
Schwab Monthly Income FundEnhanced Payout (the Surviving Fund and, together with the Acquired
Fund, the Funds). Charles Schwab Investment Management, Inc. (CSIM) joins this Agreement
solely for purposes of Sections 14(b) and 18(b). Except for the Acquired Fund and Surviving Fund,
no other series of the Trust are parties to this Agreement. The Trust has its principal place of
business at 101 Montgomery Street, San Francisco CA, 94104.
WHEREAS, the Trust was established on May 10, 1993 under the laws of the Commonwealth of
Massachusetts as a business trust under a Declaration of Trust, as amended and restated from time
to time, and the Trust is an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the 1940 Act);
WHEREAS, the Acquired Fund and the Surviving Fund are each a separate investment series of the
Trust and the Acquired Fund owns securities that generally are assets of the character in which the
Surviving Fund is permitted to invest;
WHEREAS, each of the Acquired Fund and the Surviving Fund is authorized to issue shares of
beneficial interest;
WHEREAS, the Funds intend this Agreement to be, and adopt it as, a plan of reorganization
within the meaning of the regulations under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code); and
WHEREAS, the Trustees of the Trust, including a majority of Trustees that are not interested
persons, as such term is defined in section 2(a)(19) of the 1940 Act, of the Trust have determined
that the transactions contemplated herein are in the best interests of the Funds and that the
interests of the Funds respective existing shareholders will not be diluted as a result;
NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be
legally bound hereby, the parties hereto hereby agree to effect the transfer of all of the assets
of the Acquired Fund solely in exchange for the assumption by the Surviving Fund of all of the
liabilities of the Acquired Fund and shares of beneficial interest of the Surviving Fund
(Surviving Fund Shares) followed by the distribution, at the Closing Date (as defined in Section
13 of this Agreement), of such Surviving Fund Shares to the holders of shares of the Acquired Fund
(Acquired Fund Shares) on the terms and conditions hereinafter set forth in liquidation of the
Acquired Fund. The parties hereto hereby covenant and agree as follows:
1. Plan of Reorganization. At the Closing Date, the Acquired Fund shall assign, deliver
and otherwise transfer all of its assets and good and marketable title thereto, and assign all of
the liabilities as are set forth in a statement of assets and liabilities, to be prepared as of the
Valuation Time (as defined in Section 5 of this Agreement) (the Statement of Assets and
Liabilities), to the Surviving Fund, free and clear of all liens, encumbrances and adverse claims
except as provided in this Agreement, and the Surviving Fund shall acquire all assets, and shall
assume all liabilities of the Acquired Fund, and the Surviving Fund shall deliver to the Acquired
Fund a number of Surviving Fund Shares (both full and fractional) equivalent in value to the
Acquired Fund Shares outstanding immediately prior to the Closing Date. Shareholders of record of
the Acquired Fund at the Closing Date shall be credited with full and fractional shares of the
Surviving Fund. The assets and liabilities of the Acquired Fund shall be exclusively assigned to
and assumed by the Surviving
A-1
Fund. All debts, liabilities, obligations and duties of the Acquired Fund, to the extent that they
exist at or after the Closing Date, shall after the Closing Date attach to the Surviving Fund and
may be enforced against the Surviving Fund to the same extent as if the same had been incurred by
the Surviving Fund. The events outlined in this Section 1 are referred to herein collectively as
the Reorganization.
2. Transfer of Assets.
(a) The assets of the Acquired Fund to be acquired by the Surviving Fund and allocated thereto
shall include, without limitation, all cash, cash equivalents, securities, receivables (including
interest and dividends receivable) as set forth in the Statement of Assets and Liabilities, as well
as any claims or rights of action or rights to register shares under applicable securities laws,
any books or records of the Acquired Fund and other property owned by the Acquired Fund at the
Closing Date.
(b) The Surviving Fund will, within a reasonable time prior to the Closing Date, furnish the
Acquired Fund with a list of the securities, if any, on the Acquired Funds list referred to in the
second sentence of this paragraph that do not conform to the Surviving Funds investment
objectives, policies, and restrictions. The Acquired Fund will, within a reasonable period of time
(not less than 30 days) prior to the Closing Date, furnish the Surviving Fund with a list of its
portfolio securities and other investments. In the event that the Acquired Fund holds any
investments that the Surviving Fund may not hold, the Acquired Fund, if requested by the Surviving
Fund, will dispose of such securities prior to the Closing Date. In addition, if it is determined
that the Acquired Fund and the Surviving Fund portfolios, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the Surviving Fund with respect
to such investments, the Acquired Fund, if requested by the Surviving Fund, will dispose of a
sufficient amount of such investments as may be necessary to avoid violating such limitations as of
the Closing Date. Notwithstanding the foregoing, nothing herein will require the Acquired Fund to
dispose of any investments or securities if, in the reasonable judgment of the Acquired Fund, such
disposition would either violate the Acquired Funds fiduciary duty to its shareholders or
adversely affect the tax-free nature of the Reorganization.
(c) The Acquired Fund shall direct State Street Bank and Trust Company, as custodian for the
Acquired Fund (the Custodian), to deliver, at or prior to the Closing Date, a certificate of an
authorized officer stating that: (i) assets have been delivered in proper form to the Surviving
Fund at the Closing Date, and (ii) all necessary taxes in connection with the delivery of the
assets, including all applicable foreign, federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Funds portfolio securities
represented by a certificate or other written instrument shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Surviving Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The Custodian shall
deliver prior to or as of the Closing Date by book entry, in accordance with the customary
practices of any securities depository, as defined in Rule 17f-4 under the 1940 Act, in which the
Acquired Funds assets are deposited, the Acquired Funds assets deposited with such depositories.
The cash to be transferred by the Acquired Fund shall be delivered by wire transfer of federal
funds prior to or as of the Closing Date.
(d) The Acquired Fund shall direct Boston Financial Data Services, Inc. (the Sub-Transfer
Agent), on behalf of the Acquired Fund, to deliver prior to or as of the Closing Date a
certificate of an authorized officer stating that its records contain the names and addresses of
the holders of the Acquired Fund Shares and the number and percentage ownership of outstanding
shares owned by each shareholder immediately prior to the Closing Date. The Surviving Fund shall
issue and deliver a confirmation evidencing the Surviving Fund Shares to be credited at the Closing
Date to the Secretary of the Acquired Fund, or provide evidence that the Surviving Fund Shares have
been credited to the Acquired Funds account on the books of the Surviving Fund. No later than the
Closing Date, each party shall deliver to the other such bill of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its counsel may reasonably
request.
A-2
3. Calculations.
(a) The number of full and fractional Surviving Fund Shares to be issued in exchange for the
Acquired Funds assets pursuant to Section 1 hereof shall be determined by multiplying the
outstanding shares of the Acquired Fund by the ratio computed by dividing the net asset value per
share of the Acquired Fund for each class by the net asset value per share of the Surviving Fund on
the Valuation Date, determined in accordance with Section 3(b). Shareholders of record of shares
of the Acquired Fund at the Closing Date shall be credited with full and fractional Surviving Fund
Shares.
(b) The net asset value per share of the Surviving Fund Shares shall be the net asset value
per share computed as of the time at which the Surviving Funds net asset value is calculated at
the Valuation Time, in accordance with the pricing policies and procedures adopted by the Trust as
described in the then current prospectus and statement of additional information of the Funds under
the Securities Act of 1933 (the 1933 Act).
4. Valuation of Assets. The value of the assets of the Acquired Fund shall be the value of
such assets computed as of the time at which the Acquired Funds net asset value is calculated at
the Valuation Time. The net asset value of the assets of the Acquired Fund to be transferred to
the Surviving Fund shall be computed by the Acquired Fund. In determining the value of the
securities transferred by the Acquired Fund to the Surviving Fund, each security shall be priced in
accordance with the pricing policies and procedures adopted by the Trust as described in the then
current prospectus and statement of additional information of the Funds under the 1933 Act. For
such purposes, price quotations and the security characteristics relating to establishing such
quotations shall be determined by the Acquired Fund, provided that such determination shall be
subject to the approval of the Surviving Fund. The Acquired Fund and the Surviving Fund agree to
use all commercially reasonable efforts to resolve, prior to the Valuation Time, any material
pricing differences.
5. Valuation Time. The valuation time shall be 4:00 p.m., Eastern Time, on June 9, 2009,
or such earlier or later date and time as may be mutually agreed in writing by an authorized
officer of the Funds (the Valuation Time). Notwithstanding anything herein to the contrary, in
the event that at the Valuation Time, (a) the New York Stock Exchange shall be closed to trading or
trading thereon shall be restricted, or (b) trading or the reporting of trading on such exchange or
elsewhere shall be disrupted so that, in the judgment of the Trust, accurate appraisal of the value
of the net assets of the Acquired Fund is impracticable, the Valuation Time shall be postponed
until the first business day after the day when trading shall have been fully resumed without
restriction or disruption, reporting shall have been restored and accurate appraisal of the value
of the net assets of the Acquired Fund is practicable.
6. Liquidation of the Acquired Fund and Cancellation of Shares. At the Closing Date, the
Acquired Fund will liquidate and the Surviving Fund Shares (both full and fractional) received by
the Acquired Fund will be distributed to the shareholders of record of the Acquired Fund as of the
Closing Date in exchange for their Acquired Fund Shares and in complete liquidation of the Acquired
Fund. Such liquidation and distribution will be accompanied by the establishment of an open
account on the share records of the Surviving Fund in the name of each shareholder of the Acquired
Fund that represents the respective number of Surviving Fund Shares due such shareholder. All of
the issued and outstanding shares of the Acquired Fund shall be cancelled on the books of the Trust
at the Closing Date and shall thereafter represent only the right to receive Surviving Fund Shares.
The Acquired Funds transfer books shall be closed permanently. The Trust also shall take any and
all other steps as shall be necessary and proper to effect a complete termination of the Acquired
Fund.
7. Representations and Warranties of the Surviving Fund. The Surviving Fund represents and
warrants to the Acquired Fund as follows:
A-3
(a) The Surviving Fund has been duly established as a separate investment series of the Trust,
which is a business trust duly organized and validly existing under the Commonwealth of
Massachusetts.
(b) The Trust is registered as an investment company classified as a management company of the
open-end type, and its registration with the Securities and Exchange Commission (the Commission)
as an investment company under the 1940 Act is in full force and effect.
(c) The authorized capital of the Trust consists of an unlimited number of shares of
beneficial interest. The shares of the Surviving Fund have been duly established and represent a
fractional undivided interest in the Surviving Fund. The issued and outstanding shares of the
Surviving Fund are duly authorized, validly issued, fully paid and nonassessable. There are no
outstanding options, warrants or other rights of any kind to acquire from the Trust any shares of
any class or equity interests of the Surviving Fund or securities convertible into or exchangeable
for, or which otherwise confer on the holder thereof any right to acquire, any such additional
shares, nor is the Trust committed to issue any share appreciation or similar rights or options,
warrants, rights or securities in connection with the Surviving Fund. The Surviving Fund Shares to
be issued and delivered to the Acquired Fund, for the account of the Acquired Funds shareholders,
pursuant to the terms of this Agreement will, at the Closing Date, have been duly authorized and,
when so issued and delivered, will be duly and validly issued Surviving Fund Shares, and will be
fully paid and nonassessable.
(d) The execution, delivery and performance of this Agreement by the Trust, on behalf of the
Surviving Fund, and the consummation of the transactions contemplated herein have been duly and
validly authorized by the Trusts Board of Trustees and no other proceedings by the Surviving Fund
are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Trust, on behalf of the Surviving Fund, and
assuming due authorization, execution and delivery by the Trust, on behalf of the Acquired Fund, is
a legal, valid and binding obligation of the Trust, as it relates to the Surviving Fund,
enforceable in accordance with its terms subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors rights and to
general equity principles. The Surviving Fund is not a party to or obligated under any charter,
by-law, indenture or contract provision or any other commitment or obligation, or subject to any
order or decree, which would be violated by its executing and carrying out this Agreement.
(e) The audited financial statements of the Surviving Fund as of December 31, 2008 are in
accordance with generally accepted accounting principles consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition
of the Surviving Fund as of such date, and there are no known contingent liabilities of the
Surviving Fund as of such date not disclosed therein.
(f) Since December 31, 2008, there has not been any material adverse change in the Surviving
Funds financial condition, assets, liabilities, or business other than changes occurring in the
ordinary course of business, or any incurrence by the Surviving Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquired Fund. For purposes of this paragraph (f), a decline in the net asset
value of the Surviving Fund shall not constitute a material adverse change.
(g) The current prospectus and statement of additional information of the Surviving Fund
conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading.
A-4
(h) Except as otherwise disclosed in writing and accepted by the Acquired Fund, no litigation,
administrative proceeding or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Surviving Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely affect its financial
condition and the conduct of its business or the ability of the Surviving Fund to carry out the
transactions contemplated by this Agreement. The Surviving Fund knows of no facts that might form
the basis for the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions contemplated herein.
(i) Except for contracts and agreements disclosed to the Acquired Fund, under which no default
exists, the Surviving Fund is not a party to or subject to any material contract, debt instrument,
plan, lease, franchise, license or permit of any kind or nature whatsoever with respect to the
Surviving Fund.
(j) As of the Closing Date, all Federal and other tax returns, information returns and other
tax-related reports of the Surviving Fund required by law to have been filed by such date
(including extensions) shall have been filed, and all other taxes shall have been paid so far as
due, or provision shall have been made for the payment thereof, and to the best of the Surviving
Funds knowledge, no such return is currently under audit by the Internal Revenue Service or any
state or local tax authority, and no assessment has been asserted with respect to any of such
returns.
(k) For each taxable year of its operation, the Surviving Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and has elected to be
treated as such, and has been eligible to and has computed its federal income tax under Section 852
of the Code. The Surviving Fund currently qualifies, and shall continue to qualify, as a regulated
investment company under the Code.
(l) The Surviving Fund agrees to use all reasonable efforts to obtain any necessary approvals
and authorizations required by the 1933 Act, the Securities Exchange Act of 1934 (the 1934 Act),
the 1940 Act, and such of the state Blue Sky or securities laws as it may deem appropriate in order
to continue its operations after the Closing Date.
(m) The information statement and prospectus and statement of additional information
(collectively, the Prospectus/Information Statement) to be included in the Surviving Funds
registration statement on Form N-14 (the Registration Statement) and filed in connection with
this Agreement, and the documents incorporated therein by reference and any amendment or supplement
thereto insofar as they relate to the Surviving Fund, each comply or will comply in all material
respects with the applicable requirements of the 1933 Act, 1934 Act and the 1940 Act and the
applicable rules and regulations of the Commission thereunder on the effective date of such
Registration Statement. Each of the Prospectus/Information Statement, Registration Statement and
the documents incorporated therein by reference and any amendment or supplement thereto, insofar as
it relates to the Surviving Fund, does not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not materially misleading on the effective date of such
Registration Statement; provided, however, that the Surviving Fund makes no
representations or warranties as to the information contained in the Prospectus/Information
Statement, Registration Statement and the documents incorporated therein by reference and any
amendment or supplement thereto in reliance upon and in conformity with information relating to the
Acquired Fund and furnished by the Acquired Fund to the Surviving Fund specifically for use in
connection with the Prospectus/Information Statement, Registration Statement and the documents
incorporated therein by reference and any amendment or supplement thereto.
8. Representations and Warranties of the Acquired Fund. The Acquired Fund represents and
warrants to the Surviving Fund as follows:
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(a) The Acquired Fund has been duly established as a separate investment series of the Trust,
which is a business trust duly organized and validly existing under the Commonwealth of
Massachusetts.
(b) The Trust is registered as an investment company classified as a management company of the
open-end type, and its registration with the Commission as an investment company under the 1940 Act
is in full force and effect.
(c) The authorized capital of the Trust consists of an unlimited number of shares of
beneficial interest. Shares of the Acquired Fund have been duly established and represent a
fractional undivided interest in the Acquired Fund. The issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly authorized, validly issued, fully paid and
nonassessable. All of the issued and outstanding shares of the Acquired Fund will, at the time of
the Closing Date, be held by the persons and in the amounts set forth in the records of the
Transfer Agent as provided in Section 2(d). There are no outstanding options, warrants or other
rights of any kind to acquire from the Trust any shares of any class or equity interests of the
Acquired Fund or securities convertible into or exchangeable for, or which otherwise confer on the
holder thereof any right to acquire, any such additional shares, nor is the Trust committed to
issue any share appreciation or similar rights or options, warrants, rights or securities in
connection with the Acquired Fund.
(d) The audited financial statements of the Acquired Fund as of October 31, 2008, are in
accordance with generally accepted accounting principles consistently applied, and such statements
(copies of which have been furnished to the Surviving Fund) fairly reflect the financial condition
of the Acquired Fund as of such date, and there are no known contingent liabilities of the Acquired
Fund as of such date not disclosed therein.
(e) Since October 31, 2008, there has not been any material adverse change in the Acquired
Funds financial condition, assets, liabilities, or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Surviving Fund. For purposes of this paragraph (e), a decline in the net asset
value of the Acquired Fund shall not constitute a material adverse change.
(f) The Acquired Fund will have, at the Closing Date, good and marketable title to, and full
right, power and authority to sell, assign, transfer and deliver, the assets to be transferred to
the Surviving Fund pursuant to Section 1. Upon delivery and payment for such assets, the Surviving
Fund will have good and marketable title to such assets without restriction on the transfer thereof
free and clear of all liens, encumbrances and adverse claims other than as disclosed to the
Surviving Fund and accepted by the Surviving Fund.
(g) The execution, delivery and performance of this Agreement by the Trust, on behalf of the
Acquired Fund, and the consummation of the transactions contemplated herein have been duly and
validly authorized by the Trusts Board of Trustees and no other proceedings by the Acquired Fund
are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Trust, on behalf of the Acquired Fund, and
assuming due authorization, execution and delivery by the Trust, on behalf of the Surviving Fund,
is a legal, valid and binding obligation of the Trust, as it relates to the Acquired Fund,
enforceable in accordance with its terms subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors rights and to
general equity principles. The Acquired Fund is not a party to or obligated under any charter,
by-law, indenture or contract provision or any other commitment or obligation, or subject to any
order or decree, which would be violated by its executing and carrying out this Agreement.
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(h) The current prospectus and statement of additional information of the Acquired Fund
conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading.
(i) Except as otherwise disclosed in writing and accepted by the Surviving Fund, no
litigation, administrative proceeding or investigation of or before any court or governmental body
is presently pending or to its knowledge threatened against the Acquired Fund or any of its
properties or assets, which, if adversely determined, would materially and adversely affect its
financial condition and the conduct of its business or the ability of the Acquired Fund to carry
out the transactions contemplated by this Agreement. The Acquired Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a party to or subject to
the provisions of any order, decree, or judgment of any court or governmental body that materially
and adversely affects its business or its ability to consummate the transactions contemplated
herein.
(j) Except for contracts and agreements disclosed to the Surviving Fund, under which no
default exists, the Acquired Fund is not a party to or subject to any material contract, debt
instrument, plan, lease, franchise, license or permit of any kind or nature whatsoever with respect
to the Acquired Fund.
(k) As of the Closing Date, all Federal and other tax returns, information returns and other
tax-related reports of the Acquired Fund required by law to have been filed by such date (including
extensions) shall have been filed, and all other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of the Acquired Funds
knowledge, no such return is currently under audit by the Internal Revenue Service or any state or
local tax authority, and no assessment has been asserted with respect to any of such returns.
(l) For each taxable year of its operation, the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and has elected to be
treated as such, and has been eligible to and has computed its federal income tax under Section 852
of the Code. The Acquired Fund currently qualifies, and shall continue to qualify, as a regulated
investment company under the Code.
(m) The Prospectus/Information Statement to be included in the Registration Statement and
filed in connection with this Agreement, and the documents incorporated therein by reference and
any amendment or supplement thereto insofar as they relate to the Acquired Fund, each comply or
will comply in all material respects with the applicable requirements of the 1933 Act, 1934 Act and
the 1940 Act and the applicable rules and regulations of the Commission thereunder on the effective
date of such Registration Statement. Each of the Prospectus/Information Statement, Registration
Statement and the documents incorporated therein by reference and any amendment or supplement
thereto, insofar as it relates to the Acquired Fund, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not materially misleading on the
effective date of such Registration Statement; provided, however, that the Acquired
Fund makes no representations or warranties as to the information contained in the
Prospectus/Information Statement, Registration Statement and the documents incorporated therein by
reference and any amendment or supplement thereto in reliance upon and in conformity with
information relating to the Surviving Fund and furnished by the Surviving Fund to the Acquired Fund
specifically for use in connection with the Prospectus/Information Statement, Registration
Statement and the documents incorporated therein by reference and any amendment or supplement
thereto.
9. Covenants of the Surviving Fund and the Acquired Fund.
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(a) The Surviving Fund and the Acquired Fund each will operate its business in the ordinary
course between the date hereof and the Closing Date, it being understood that such ordinary course
of business will include customary dividends and distributions.
(b) The Acquired Fund will assist the Surviving Fund in obtaining such information as the
Surviving Fund reasonably requests concerning the beneficial ownership of the Acquired Fund shares.
(c) Subject to the provisions of this Agreement, the Surviving Fund and the Acquired Fund will
each take, or cause to be taken, all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions contemplated by
this Agreement, including any actions required to be taken after the Closing Date.
(d) As promptly as practicable, but in any case within sixty days after the Closing Date, the
Acquired Fund shall furnish the Surviving Fund, in such form as is reasonably satisfactory to the
Surviving Fund, a statement of the earnings and profits of the Acquired Fund for federal income tax
purposes that will be carried over by the Surviving Fund as a result of Section 381 of the Code,
and certified by the Acquired Funds President, Vice President or Treasurer.
(e) On or before the Closing Date, the Acquired Fund shall declare and pay a dividend or
dividends which, together with all previous such dividends, shall have the effect of distributing
to its shareholders all of the Acquired Funds investment company taxable income (computed without
regard to any deduction for dividends paid), if any, plus the excess, if any, of its interest
income excludible from gross income under Section 103(a) of the Code over its deductions disallowed
under Sections 265 and 171(a)(2) of the Code for all taxable periods or years ending on or before
the Closing Date, and all of its net capital gains realized (after reduction for any capital loss
carry forward), if any, in all taxable periods or years ending on or before the Closing Date.
10. Conditions Precedent to Obligations of the Surviving Fund. The obligations of the
Surviving Fund to complete the transactions provided for herein shall be subject, at its election,
to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following conditions:
(a) All representations and warranties of the Acquired Fund contained in this Agreement shall
be true and correct in all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same
force and effect as if made on and as of the Closing Date. On the Closing Date, the Surviving Fund
shall have received a certificate from the President or Vice President of the Acquired Fund, dated
as of such date, certifying on behalf of the Acquired Fund that as of such date that the conditions
set forth in this clause (a) have been met.
(b) The Surviving Fund shall have received an opinion of Morgan, Lewis & Bockius LLP, dated as
of the Closing Date, in a form reasonably satisfactory to the Surviving Fund, covering the
following points:
(i) The Acquired Fund is a separate investment series of the Trust, which is duly organized
and validly existing under the laws of the Commonwealth of Massachusetts and has the trust power to
own all of its properties and assets and, to the knowledge of such counsel, to carry on its
business as presently conducted.
(ii) The Trust is registered as an investment company under the 1940 Act, and, to such
counsels knowledge, such registration with the Commission as an investment company under the 1940
Act is in full force and effect.
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(iii) This Agreement has been duly authorized, executed and delivered by the Acquired Fund
and, assuming due authorization, execution, and delivery of this Agreement by the Surviving Fund,
is a valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights generally and to general
equity principles.
(iv) The execution and delivery of the Agreement did not, and the consummation of the
transactions contemplated in the Agreement will not, conflict with or result in a material breach
of the terms or provisions of, or constitute a material default under, the then-current declaration
of trust or by-laws of the Acquired Fund, or, to the knowledge of such counsel (without any
independent investigation), any material agreement or instrument to which the Acquired Fund is a
party or by which any properties belonging to the Acquired Fund may be bound.
(v) To the knowledge of such counsel, no consent, approval, authorization or order of any
court or governmental authority of the United States or the Commonwealth of Massachusetts is
required for consummation by the Acquired Fund of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, 1934 Act and the 1940 Act, and as may be required under
state securities laws or where the failure to obtain any such consent, approval, order or
authorization would not have a material adverse effect on the operations of the Acquired Fund or
the consummation of the transactions contemplated by this Agreement.
(vi) To the knowledge of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending or threatened as to
the Acquired Fund or any of its respective properties or assets and the Acquired Fund is not a
party to nor subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business other than as previously
disclosed in the Registration Statement.
(vii) Assuming that a consideration therefor of not less than the net asset value thereof has
been paid, and assuming that such shares were issued in accordance with the terms of the Acquired
Funds registration statement, or any amendment or supplement thereto, in effect at the time of
such issuance, all issued and outstanding shares of the Acquired Fund are legally issued and fully
paid and non-assessable (except that shareholders of the Acquired Fund may under certain
circumstances be held personally liable for its obligations).
Such opinion may contain such assumptions and limitations as shall be in the opinion of such
counsel appropriate to render the opinions expressed therein. In addition, such counsel shall be
entitled to state that they have relied upon officers certificates and certificates of public
officials in rendering their opinion.
(c) The Acquired Fund shall have delivered to the Surviving Fund at the Closing Date the
Acquired Funds Statement of Assets and Liabilities, prepared in accordance with generally accepted
accounting principles consistently applied, together with a certificate of the Treasurer or
Assistant Treasurer of the Acquired Fund as to the aggregate asset value of the Acquired Funds
portfolio securities.
(d) On the Closing Date, the Acquired Fund shall have performed and complied in all material
respects with each of its agreements and covenants required by this Agreement to be performed or
complied with by the Acquired Fund prior to or at the Closing Date and the Surviving Fund shall
have received a certificate from the President or Vice President of the Acquired Fund, dated as of
such date, certifying on behalf of the Acquired Fund that the conditions set forth in this clause
(d) have been and continue to be, satisfied.
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11. Conditions Precedent to Obligations of the Acquired Fund. The obligations of the
Acquired Fund to consummate the transactions provided for herein shall be subject, at its election,
to the performance by the Surviving Fund of all the obligations to be performed by it hereunder on
or before the Closing Date, and, in addition thereto, the following further conditions:
(a) All representations and warranties of the Surviving Fund contained in this Agreement shall
be true and correct in all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same
force and effect as if made on and as of the Closing Date. On the Closing Date, the Acquired Fund
shall have received a certificate from the President or Vice President of the Surviving Fund, dated
as of such date, certifying on behalf of Surviving Fund that as of such date that the conditions
set forth in this clause (a) have been met.
(b) The Acquired Fund shall have received an opinion of Morgan, Lewis & Bockius LLP, dated as
of the Closing Date, in a form reasonably satisfactory to the Acquired Fund, covering the following
points:
(i) The Surviving Fund is a separate investment series of the Trust, which is duly organized
and validly existing under the laws of the Commonwealth of Massachusetts and has the trust power to
own all of its properties and assets and, to the knowledge of such counsel, to carry on its
business as presently conducted.
(ii) The Trust is registered as an investment company under the 1940 Act, and, to such
counsels knowledge, such registration with the Commission as an investment company under the 1940
Act is in full force and effect.
(iii) This Agreement has been duly authorized, executed and delivered by the Surviving Fund
and, assuming due authorization, execution, and delivery of this Agreement by the Acquired Fund, is
a valid and binding obligation of the Surviving Fund enforceable against the Surviving Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights generally and to general
equity principles.
(iv) The execution and delivery of the Agreement did not, and the consummation of the
transactions contemplated in the Agreement will not, conflict with or result in a material breach
of the terms or provisions of, or constitute a material default under, the then-current declaration
of trust or by-laws of the Surviving Fund, or, to the knowledge of such counsel (without any
independent investigation), any material agreement or instrument to which the Surviving Fund is a
party or by which any properties belonging to the Surviving Fund may be bound.
(v) To the knowledge of such counsel, no consent, approval, authorization or order of any
court or governmental authority of the United States or the Commonwealth of Massachusetts is
required for consummation by the Surviving Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, 1934 Act and the 1940 Act, and as may be required
under state securities laws or where the failure to obtain any such consent, approval, order or
authorization would not have a material adverse effect on the operations of the Surviving Fund or
the consummation of the transactions contemplated by this Agreement.
(vi) To the knowledge of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending or threatened as to
the Surviving Fund or any of its respective properties or assets and the Surviving Fund is not a
party to nor subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business other than as previously
disclosed in the Registration Statement.
A-10
(vii) Assuming that a consideration therefor not less than the net asset value thereof has
been paid, the Surviving Fund Shares to be issued and delivered to the Acquired Fund on behalf of
the Acquired Fund shareholders as provided by this Agreement are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and nonassessable, and no
shareholder of the Surviving Fund has any statutory preemptive rights in respect thereof (except
that shareholders of the Surviving Fund may under certain circumstances be held personally liable
for its obligations).
(viii) The Registration Statement, to the knowledge of such counsel, has been declared
effective by the Commission and no stop order under the 1933 Act pertaining thereto has been
issued.
Such opinion may contain such assumptions and limitations as shall be in the opinion of such
counsel appropriate to render the opinions expressed therein. In addition, such counsel shall be
entitled to state that they have relied upon officers certificates and certificates of public
officials in rendering their opinion.
(c) On the Closing Date, the Surviving Fund shall have performed and complied in all material
respects with each of its agreements and covenants required by this Agreement to be performed or
complied with by the Surviving Fund prior to or at the Closing Date and the Acquired Fund shall
have received a certificate from the President or Vice President of the Surviving Fund, dated as of
such date, certifying on behalf of the Surviving Fund that the conditions set forth in this clause
(c) have been, and continue to be, satisfied.
12. Further Conditions Precedent to Obligations of the Acquired Fund and the Surviving
Fund. If any of the conditions set forth below do not exist on or before the Closing Date with
respect to the Funds, the other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
(a) The Trusts Board of Trustees, on behalf of each of the Acquired Fund and Surviving Fund,
shall have approved this Agreement.
(b) On the Closing Date, the Commission shall not have issued an unfavorable report under
Section 25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the consummation of
the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act and no action,
suit or other proceeding shall be threatened or pending before any court or governmental agency in
which it is sought to restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
(c) All required consents of other parties and all other consents, orders, and permits of
federal, state and local regulatory authorities (including those of the Commission and of state
Blue Sky securities authorities, including any necessary no-action positions of and exemptive
orders from such federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any such consent,
order, or permit would not involve a risk of a material adverse effect on the assets or properties
of the Surviving Fund or the Acquired Fund, provided that either party hereto may for itself waive
any of such conditions.
(d) The Registration Statement shall have become effective under the 1933 Act, and no stop
orders suspending the effectiveness of the Registration Statement shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the 1933 Act.
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(e) The Funds shall have received a favorable opinion of Morgan, Lewis & Bockius LLP addressed
to the Surviving Fund and the Acquired Fund substantially to the effect that with respect to the
Acquired Fund and the Surviving Fund for Federal income tax purposes:
(i) The Reorganization will constitute a tax-free reorganization within the meaning of Section
368(a) of the Code, and the Acquired Fund and the Surviving Fund will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by the Acquired Fund upon the transfer of all of its
assets to the Surviving Fund solely in exchange for Surviving Fund Shares and the assumption by the
Surviving Fund of all of the liabilities of the Acquired Fund or upon the distribution of Surviving
Fund Shares to shareholders of the Acquired Fund.
(iii) No gain or loss will be recognized by the Surviving Fund upon the receipt of the assets
of the Acquired Fund solely in exchange for Surviving Fund Shares and the assumption by the
Surviving Fund of the liabilities of the Acquired Fund.
(iv) The tax basis of the assets of the Acquired Fund received by the Surviving Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately prior to the exchange.
(v) The holding period of the assets of the Acquired Fund received by the Surviving Fund will
include the period during which such assets were held by the Acquired Fund.
(vi) No gain or loss will be recognized by the shareholders of the Acquired Fund upon the
exchange of their shares of the Acquired Fund for Surviving Fund Shares (including fractional
shares to which they may be entitled).
(vii) The aggregate tax basis of Surviving Fund Shares received by each shareholder of the
Acquired Fund (including fractional shares to which they may be entitled) will be the same as the
aggregate tax basis of the Acquired Fund shares exchanged therefor.
(viii) The holding period of the Surviving Fund Shares received by the shareholders of the
Acquired Fund (including fractional shares to which they may be entitled) will include the holding
period of the Acquired Fund shares surrendered in exchange therefor, provided that the Acquired
Fund shares were held as a capital asset as of the Closing Date of the Reorganization.
No opinion will be expressed as to the effect of the Reorganization on (i) the Acquired Fund
or the Surviving Fund with respect to any asset as to which any unrealized gain or loss is required
to be recognized for federal income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of accounting and (ii) any Acquired
Fund or the Surviving Fund shareholder that is required to recognize unrealized gains and losses
for federal income tax purposes under a mark-to-market system of accounting.
Such opinion shall be based on customary assumptions, limitations and such representations as
Morgan, Lewis & Bockius LLP may reasonably request, and the Acquired Fund and Surviving Fund will
cooperate to make and certify the accuracy of such representations. Such opinion may contain such
assumptions and limitations as shall be in the opinion of such counsel appropriate to render the
opinions expressed therein. Notwithstanding anything herein to the contrary, neither the Surviving
Fund nor the Acquired Fund may waive the conditions set forth in this Section 12(e).
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13. Closing Date of the Reorganization. The exchange of the Acquired Funds assets for the
Surviving Fund Shares shall be effective as of opening of business on June 9, 2009, or at such
other time and date as fixed by the mutual consent of the parties (the Closing Date).
14. Termination.
(a) This Agreement may be terminated by the mutual agreement of the Surviving Fund and the
Acquired Fund. In addition, either the Surviving Fund or the Acquired Fund may at its option
terminate this Agreement at or prior to the Closing Date:
(i) because of a material breach by the other party of any representation, warranty, covenant
or agreement contained herein to be performed at or prior to the Closing Date;
(ii) because of a condition herein expressed to be precedent to the obligations of the
terminating party which has not been met and which reasonably appears will not or cannot be met;
(iii) by resolution of the Trusts Board of Trustees if circumstances should develop that, in
the good faith opinion of the Board, make proceeding with the Agreement not in the best interests
of either of the Acquired Funds or Surviving Funds shareholders;
(b) In the event of any such termination, in the absence of willful default, there shall be no
liability for damages on the part of the Acquired Fund, the Surviving Fund, the Trust, or their
Trustees or officers, to the other party. In such event, CSIM shall bear the expenses incurred by
the Acquired Fund and the Surviving Fund incidental to the preparation and carrying out of this
Agreement as provided in Section 18.
15. Amendment. This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Funds; provided, however,
that no such amendment may have the effect of changing the provisions for determining the number of
the Surviving Fund Shares to be issued to the Acquired Fund shareholders under this Agreement to
the detriment of such Acquired Fund shareholders.
16. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the conflicts of laws
provisions thereof.
17. Notices. Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy,
certified mail or overnight express courier addressed as follows:
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Acquired Fund:
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Surviving Fund: |
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Randall W. Merk
President, Schwab Capital Trust
101 Montgomery Street
San Francisco CA, 94104
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Randall W. Merk
President, Schwab Capital Trust
101 Montgomery Street
San Francisco CA, 94104 |
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with a copy to:
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with a copy to: |
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Timothy W. Levin, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
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Timothy W. Levin, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103 |
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18. Fees and Expenses.
(a) Each of the Surviving Fund and the Acquired Fund represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
(b) Except as otherwise provided for herein, all expenses that are solely and directly related
to the Reorganization contemplated by this Agreement will be borne and paid by the Acquired Fund.
Such expenses include, without limitation, to the extent solely and directly related to the
Reorganization contemplated by this Agreement: (i) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (ii) expenses associated
with the preparation and filing of the Registration Statement under the 1933 Act covering the
Surviving Fund Shares to be issued pursuant to the provisions of this Agreement; (iii) registration
or qualification fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Surviving Fund Shares to be issued in connection
herewith in each state in which the Acquired Funds shareholders are resident as of the date of the
mailing of the Prospectus/Information Statement to such shareholders; (iv) postage; (v) printing;
(vi) accounting fees; and (vii) legal fees. Acquired Fund agrees that all such fees and expenses so
borne and paid, shall be paid directly by Acquired Fund to the relevant providers of services or
other payees in accordance with the principles set forth in the Internal Revenue Service Rev.
Ruling 73-54, 1973-1 C.B. 187. Fees and expenses not incurred directly in connection with the
consummation of the transactions contemplated by this Agreement will be borne by the party
incurring such fees and expenses. Notwithstanding the foregoing, expenses will in any event be
paid by the party directly incurring such expenses if and to the extent that the payment by the
other party of such expenses would result in the disqualification of the Acquired Fund or the
Surviving Fund, as the case may be, as a regulated investment company within the meaning of
Section 851 of the Code. Acquired Fund shareholders will pay their respective expenses, if any,
incurred in connection with the transactions contemplated by this Agreement. Neither the Acquired
Fund nor the Surviving Fund will pay the Surviving Fund shareholders expenses, if any. In the
event this Agreement is terminated at or prior to the Closing Date in accordance with Section 14
hereto, CSIM will bear the costs incurred by the Acquired Fund under this Section 18(b).
19. Headings, Counterparts, Assignment.
(a) The section headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts, each of which shall be
deemed an original.
(c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, but no assignment or transfer hereof or of any rights or
obligations hereunder shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to confer upon or give any
person, firm or corporation other than the parties hereto and their respective successors and
assigns any rights or remedies under or by reason of this Agreement.
(d) The Surviving Fund and Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement
between the parties. The representations, warranties and covenants contained herein or in any
document delivered pursuant hereto or in connection herewith shall not survive the consummation of
the transactions contemplated hereunder.
A-14
(e) A copy of the Trusts Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf
of the Trust by officers of such Trust as officers and not individually and that the obligations of
or arising out of this Agreement with respect to the Surviving Fund and the Acquired Fund are not
binding upon any of the trustees, officers or shareholders of the Trust individually but are
binding only upon the assets and property belonging to the Surviving Fund and the Acquired Fund.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first
written above.
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SCHWAB CAPITAL TRUST, ON BEHALF OF ITS SERIES, THE SCHWAB
RETIREMENT INCOME FUND
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By: |
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Name: |
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Title: |
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SCHWAB CAPITAL TRUST, ON BEHALF OF ITS SERIES, THE SCHWAB MONTHLY
INCOME FUNDENHANCED PAYOUT
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By: |
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Name: |
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Title: |
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SOLELY FOR PURPOSES OF SECTIONS 14(B) AND 18(B), CHARLES SCHWAB
INVESTMENT MANAGEMENT, INC.
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By: |
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Name: |
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Title: |
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A-15
SCHWAB CAPITAL TRUST
101 Montgomery Street
San Francisco, CA 94104
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets and Liabilities of
SCHWAB RETIREMENT INCOME FUND
a series of
Schwab Capital Trust
101 Montgomery Street
San Francisco, CA 94104
By and in Exchange for Shares of
SCHWAB MONTHLY INCOME FUNDENHANCED PAYOUT
a series of
Schwab Capital Trust
101 Montgomery Street
San Francisco, CA 94104
April , 2009
This Statement of Additional Information (the SAI), which is not a prospectus, relating
specifically to the proposed transfer of assets and liabilities of the Schwab Retirement Income
Fund (the Retirement Income Fund or the Acquired Fund) to the Schwab Monthly Income
FundEnhanced Payout (the Monthly Income Fund or the Surviving Fund and, together with the
Retirement Income Fund, the Funds) (the Reorganization), should be read in conjunction with the
Prospectus/Information Statement dated April ___, 2009 relating specifically to the Reorganization
(the Prospectus). Copies of the Prospectus may be obtained at no charge by calling (800)
435-4000.
This SAI, relating specifically to the Reorganization, consists of this cover page and the
following described documents, each of which is incorporated by reference herein:
1. The Statement of Additional Information of the Trust relating to the Acquired Fund dated
February 28, 2009.
2. The Statement of Additional Information of the Trust relating to the Surviving Fund dated
April 30, 2009.
3. The Report of the Independent Registered Public Accounting Firm and audited financial
statements of the Acquired Fund included in the Funds Annual Report for the period ended October
31, 2008 (the Acquired Fund Annual Report). No other parts of the Acquired Fund Annual Report
are incorporated herein by reference.
4. The Report of the Independent Registered Public Accounting Firm and audited financial
statements of the Surviving Fund included in the Funds Annual Report for the period ended December
31, 2008 (the Surviving Fund Annual Report). No other parts of the Surviving Fund Annual Report
are incorporated herein by reference.
A. General Information
The Board of Trustees of the Acquired Fund has approved an Agreement and Plan of
Reorganization (the Plan) which contemplates the transfer of substantially all the assets and
liabilities of the Acquired Fund to the Surviving Fund in exchange for shares of the Surviving
Fund.
After the transfer of substantially all its assets and liabilities in exchange for shares of
the Surviving Fund, the Acquired Fund will distribute the shares to its shareholders in liquidation
of the Acquired Fund. Each shareholder owning shares of the Acquired Fund at the closing of the
Reorganization will receive shares of the Surviving Fund equal in aggregate value to his or her
interest in the Acquired Fund, and will receive any unpaid dividends or distributions on shares of
the Acquired Fund that were declared at or before the closing of the Reorganization. The Surviving
Fund will establish an account for each former shareholder of the Acquired Fund reflecting the
appropriate number of shares distributed to the shareholder. These accounts will be substantially
identical to the accounts currently maintained by the Surviving Fund for each shareholder. In
connection with the Reorganization, all outstanding shares of the Acquired Fund will be cancelled,
and the Acquired Fund will wind up its affairs and be terminated. For further information about
the Reorganization, see the Prospectus.
B. Additional Information about the Acquired Fund and the Surviving Fund
This SAI incorporates by reference the Statement of Additional Information of the Trust
relating to the Acquired Fund dated February 28, 2009, and the Statement of Additional Information
of the Trust relating to the Surviving Fund dated April 30, 2009.
C. Financial Statements
Historical financial information regarding the Acquired Fund and Surviving Fund is
incorporated herein by reference as follows:
1. the Report of the Independent Registered Public Accounting Firm and audited financial
statements of the Acquired Fund included in the Acquired Funds Annual Report are incorporated
herein by reference to such Annual Report. No other parts of the Annual Report are
incorporated herein by reference; and
2. the Report of the Independent Registered Public Accounting Firm and audited
financial statements of the Surviving Fund included in the Surviving Funds Annual Report
are incorporated herein by reference to such Annual Report. No other parts of the Annual
Report are incorporated herein by reference.
D. Pro Forma Financial Information (Unaudited)
The unaudited pro forma combined financial statements are presented for the information of the
reader and may not necessarily be representative of what the actual combined financial statements
would have been had the Reorganization occurred on December 31, 2008.
The unaudited pro forma combined schedule of investments and statement of assets and
liabilities reflect the combined financial position of the Acquired Fund and Surviving Fund as of
December 31, 2008. The unaudited pro forma combined statement of operations for the period ended
December 31, 2008, presents the combined results of operations of the Acquired Fund and Surviving
Fund for the period ended December 31, 2008. The pro forma results of operations are not
necessarily indicative of future operations or the actual results that would have occurred had the
combination been consummated at
3
December 31, 2008. These historical statements have been derived from the respective books of
the Acquired Fund and Surviving Fund and records utilized in calculating daily net asset value at
December 31, 2008, and for the twelve-month period then ended under auditing principles generally
accepted in the United States of America in the investment company industry.
Under generally accepted accounting principles, the historical cost of investment securities
will be carried forward to the surviving entity and the results of operations of the Monthly Income
Fund for pre-combination periods will not be restated.
The unaudited pro forma combined financial statements should be read in conjunction with the
separate financial statements of the Acquired Fund and Surviving Fund incorporated by reference
into this SAI.
Pro Forma Schedule of Investments (Unaudited)
Retirement Income Fund, Monthly Income Fund and Pro Forma Monthly Income Fund
December 31, 2008
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Pro Forma |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Monthly |
|
|
Retirement Income |
|
Monthly Income |
|
Income Fund |
|
|
Fund |
|
Fund |
|
(Surviving Fund) |
Security Description and Percentage of Net Assets |
|
Number of |
|
Value |
|
Number |
|
Value |
|
Number of |
|
Value |
(Surviving Fund) |
|
Shares |
|
($ x 1,000) |
|
of Shares |
|
($ x 1,000) |
|
Shares |
|
($ x 1,000) |
Equity Funds 19.9% |
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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Laudus International MarketMasters Fund,
Select Shares |
|
|
241,521 |
|
|
|
2,637 |
|
|
|
19,839 |
|
|
|
217 |
|
|
|
261,360 |
|
|
|
2,854 |
|
Schwab Dividend Equity Fund, Select Shares |
|
|
389,764 |
|
|
|
3,964 |
|
|
|
89,935 |
|
|
|
915 |
|
|
|
479,699 |
|
|
|
4,879 |
|
Laudus Rosenberg U.S. Large Capitalization
Value Fund, Select Shares |
|
|
547,940 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
547,940 |
|
|
|
3,967 |
|
Laudus Rosenberg U.S. Large Capitalization
Growth Fund, Select Shares |
|
|
|
|
|
|
|
|
|
|
39,138 |
|
|
|
239 |
|
|
|
39,138 |
|
|
|
239 |
|
Schwab Global Real Estate Fund, Select Shares |
|
|
|
|
|
|
|
|
|
|
136,554 |
|
|
|
606 |
|
|
|
136,554 |
|
|
|
606 |
|
|
|
|
|
|
|
|
10,568 |
|
|
|
|
|
|
|
1,977 |
|
|
|
|
|
|
|
12,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Funds 62.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schwab Premier Income Fund, Institutional
Shares |
|
|
1,159,983 |
|
|
|
10,927 |
|
|
|
326,646 |
|
|
|
3,077 |
|
|
|
1,486,629 |
|
|
|
14,004 |
|
Schwab Inflation Protected Fund, Select Shares |
|
|
293,291 |
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
293,291 |
|
|
|
2,801 |
|
Laudus Mondrian International Fixed Income
Fund, Institutional Shares |
|
|
261,772 |
|
|
|
2,848 |
|
|
|
49,238 |
|
|
|
536 |
|
|
|
311,010 |
|
|
|
3,384 |
|
Schwab Total Bond Market Fund |
|
|
1,222,262 |
|
|
|
10,890 |
|
|
|
286,562 |
|
|
|
2,553 |
|
|
|
1,508,824 |
|
|
|
13,443 |
|
Schwab Short-Term Bond Market Fund |
|
|
487,504 |
|
|
|
4,373 |
|
|
|
144,037 |
|
|
|
1,292 |
|
|
|
631,541 |
|
|
|
5,665 |
|
|
|
|
|
|
|
|
31,839 |
|
|
|
|
|
|
|
7,458 |
|
|
|
|
|
|
|
39,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Funds 17.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schwab Value Advantage Money Fund,
Institutional Shares |
|
|
10,654,543 |
|
|
|
10,655 |
|
|
|
537,698 |
|
|
|
537 |
|
|
|
11,192,241 |
|
|
|
11,192 |
|
State Street Institutional Liquid Reserves Fund |
|
|
|
|
|
|
|
|
|
|
7,539 |
|
|
|
8 |
|
|
|
7,539 |
|
|
|
8 |
|
|
|
|
|
|
|
|
10,655 |
|
|
|
|
|
|
|
545 |
|
|
|
|
|
|
|
11,200 |
|
Total Investments 99.8% |
|
|
15,258,580 |
|
|
|
53,062 |
|
|
|
1,637,186 |
|
|
|
9,980 |
|
|
|
16,895,766 |
|
|
|
63,042 |
|
4
Pro Forma Statement of Assets and Liabilities (Unaudited)
Retirement Income Fund, Monthly Income Fund and Pro Forma Monthly Income Fund
December 31, 2008
(All numbers are x 1,000 except NAV)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Income |
|
|
Retirement |
|
Monthly |
|
Pro Forma |
|
Fund (Surviving |
|
|
Income Fund |
|
Income Fund |
|
Adjustments |
|
Fund) |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated underlying funds, at
value (cost $57,634 and $11,452, respectively) |
|
$ |
53,062 |
|
|
|
9,972 |
|
|
|
|
|
|
|
63,034 |
|
Investments in unaffiliated issuers, at value
(cost $0 and $8, respectively) |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
Total investments, at value (cost $57,634
and $11,460, respectively) |
|
|
53,062 |
|
|
|
9,980 |
|
|
|
|
|
|
|
63,042 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments sold |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
100 |
|
Fund shares sold |
|
|
373 |
|
|
|
29 |
|
|
|
|
|
|
|
402 |
|
Dividends |
|
|
136 |
|
|
|
35 |
|
|
|
|
|
|
|
171 |
|
Due from brokers for futures |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
Total assets |
|
|
53,671 |
|
|
|
10,045 |
|
|
|
|
|
|
|
63,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments bought |
|
|
136 |
|
|
|
36 |
|
|
|
|
|
|
|
172 |
|
Fund shares redeemed |
|
|
32 |
|
|
|
35 |
|
|
|
|
|
|
|
67 |
|
Due to custodian |
|
|
129 |
|
|
|
0 |
|
|
|
|
|
|
|
129 |
|
Distribution and shareholder services fees |
|
|
124 |
|
|
|
23 |
|
|
|
|
|
|
|
147 |
|
Accrued expenses |
|
|
24 |
|
|
|
12 |
|
|
|
|
|
|
|
36 |
|
|
|
|
Total liabilities |
|
|
445 |
|
|
|
106 |
|
|
|
|
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
53,671 |
|
|
|
10,045 |
|
|
|
|
|
|
|
63,716 |
|
Total liabilities |
|
|
445 |
|
|
|
106 |
|
|
|
|
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
53,226 |
|
|
|
9,939 |
|
|
|
|
|
|
|
63,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets by Source |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital received from investors |
|
|
64,252 |
|
|
|
11,642 |
|
|
|
|
|
|
|
75,894 |
|
Distributions in excess of net investment income |
|
|
(83 |
) |
|
|
8 |
|
|
|
|
|
|
|
(75 |
) |
Net realized capital losses |
|
|
(6,371 |
) |
|
|
(231 |
) |
|
|
|
|
|
|
(6,602 |
) |
Net unrealized capital losses |
|
|
(4,572 |
) |
|
|
(1,480 |
) |
|
|
|
|
|
|
(6,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value (NAV) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets |
|
$ |
53,226 |
|
|
|
9,939 |
|
|
|
|
|
|
|
63,165 |
|
Shares Outstanding |
|
|
6,212 |
|
|
|
1,135 |
|
|
|
6,081 |
|
|
|
7,216 |
|
Net Asset Value |
|
|
8.57 |
|
|
|
8.75 |
|
|
|
|
|
|
|
8.75 |
|
|
|
|
5
Pro Forma Statement of Operations (Unaudited)
Retirement Income Fund, Monthly Income Fund and Pro Forma Monthly Income Fund
For the Year Ended December 31, 2008
(All numbers are x 1,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Retirement |
|
|
|
|
|
|
|
|
|
Monthly Income |
|
|
Income |
|
Monthly |
|
Pro Forma |
|
Fund (Surviving |
|
|
Fund |
|
Income Fund |
|
Adjustments |
|
Fund) |
|
|
|
Investment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received from affiliated underlying funds |
|
$ |
2,623 |
|
|
$ |
406 |
|
|
|
|
|
|
$ |
3,029 |
|
Interest |
|
|
17 |
|
|
|
2 |
|
|
|
|
|
|
|
19 |
|
|
|
|
Total investment income |
|
|
2,640 |
|
|
|
408 |
|
|
|
|
|
|
|
3,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gains and Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized capital gain distributions received from
affiliated underlying funds |
|
|
24 |
|
|
|
2 |
|
|
|
|
|
|
|
26 |
|
Realized losses on sales of affiliated underlying funds |
|
|
(6,735 |
) |
|
|
(233 |
) |
|
|
|
|
|
|
(6,968 |
) |
|
|
|
Net realized losses |
|
|
(6,711 |
) |
|
|
(231 |
) |
|
|
|
|
|
|
(6,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gains and Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on affiliated underlying funds |
|
|
(4,301 |
) |
|
|
(1,480 |
) |
|
|
|
|
|
|
(5,781 |
) |
Net unrealized losses on futures contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses |
|
|
(4,301 |
) |
|
|
(1,480 |
) |
|
|
|
|
|
|
(5,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder reports |
|
|
16 |
|
|
|
14 |
|
|
|
|
|
|
|
30 |
|
Portfolio accounting fees |
|
|
16 |
|
|
|
5 |
|
|
|
(5 |
) (a) |
|
|
16 |
|
Registration fees |
|
|
20 |
|
|
|
8 |
|
|
|
|
|
|
|
28 |
|
Custodian fees |
|
|
6 |
|
|
|
2 |
|
|
|
(4 |
) (b) |
|
|
4 |
|
Professional fees |
|
|
38 |
|
|
|
18 |
|
|
|
(33 |
)(c) |
|
|
23 |
|
Trustees fees |
|
|
8 |
|
|
|
5 |
|
|
|
(4 |
) (d) |
|
|
9 |
|
Other expenses |
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
|
Total expenses |
|
|
107 |
|
|
|
53 |
|
|
|
(46 |
) |
|
|
114 |
|
|
|
|
Expense reduction by adviser |
|
|
(42 |
) |
|
|
(53 |
) |
|
|
46 |
|
|
|
(49 |
) |
Custody credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses |
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Assets from Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
|
2,640 |
|
|
|
408 |
|
|
|
|
|
|
|
3,048 |
|
Net expenses |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
|
Net investment income |
|
|
2,575 |
|
|
|
408 |
|
|
|
|
|
|
|
2,983 |
|
Net realized losses |
|
|
(6,711 |
) |
|
|
(231 |
) |
|
|
|
|
|
|
(6,942 |
) |
Net unrealized losses |
|
|
(4,301 |
) |
|
|
(1,480 |
) |
|
|
|
|
|
|
(5,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in net assets from operations |
|
|
($8,437 |
) |
|
|
($1,303 |
) |
|
|
|
|
|
|
($9,740 |
) |
|
|
|
6
1. BASIS OF COMBINATION
The unaudited Pro Forma Combined Statement of Assets and Liabilities, including the Pro Forma
Schedule of Investments (Pro Forma Statements) as of December 31, 2008, and the related Pro Forma
Combined Statement of Operations for the period ended December 31, 2008, reflect the accounts of
the Schwab Retirement Income Fund (the Retirement Income Fund or the Acquired Fund) and Schwab
Monthly Income FundEnhanced Payout (the Monthly Income Fund or the Surviving Fund and,
together with the Acquired Fund, the Funds), each a series of Schwab Capital Trust (the Trust).
The Pro Forma Combined Statement of Assets and Liabilities has been restated to reflect a tax free
exchange of the Acquired Funds shares as of the close of business on December 31, 2008.
The Pro Forma Statements give effect to the proposed transfer of substantially all assets and
liabilities of the Acquired Fund in exchange for shares of the Surviving Fund. In conjunction with
the reorganization, the Monthly Income Fund is the Surviving Fund.
The Pro Forma Statements should be read in conjunction with the historical financial
statements of the Surviving Fund and the Acquired Fund included in their respective Annual Reports.
2. SIGNIFICANT ACCOUNTING POLICIES
GeneralThe accounting policies are in conformity with accounting principles generally accepted in
the United States of America.
Security ValuationThe Funds value the securities in their portfolios every business day. The
Funds use the following policies to value investments:
|
|
|
Underlying funds: valued at their respective net asset values as determined by those
funds, in accordance with the 1940 Act for a given day. |
|
|
|
|
Short-term securities (60 days or less to maturity): valued at amortized cost, which
approximates market value. |
3. CAPITAL SHARES
The Pro Forma Combined net asset value per share assumes the issuance of additional shares of
the Surviving Fund which would have been issued on December 31, 2008, in connection with the
proposed reorganization. Assuming a merger date of December 31, 2008, shareholders of the
Retirement Income Fund would have received 0.9789 shares of the Monthly Income Fund in exchange for
one share of the Retirement Income Fund. The Pro Forma Statements assume that all shares of the
Acquired Fund outstanding on December 31, 2008, were exchanged, tax free, for shares of the
Surviving Fund.
4. PRO FORMA OPERATING EXPENSES
The pro forma adjustments to these pro forma financial statements are comprised of:
(a) |
|
Adjustment to eliminate certain duplicated accounting/administration fees; |
|
(b) |
|
Adjustment to eliminate duplicate custodian transaction charges; |
|
(c) |
|
Adjustment to eliminate duplicate audit and tax fees; and |
|
(d) |
|
Adjustment to eliminate duplicate per-fund trustee fees. |
5. TAX MATTERS
It is the policy of the Trust that each of the Funds qualify or continue to qualify as a regulated investment company, by
complying with the requirements of the Internal Revenue Code
applicable to
7
regulated investment companies, and by distributing substantially all of its taxable
earnings to its shareholders. In order to avoid a federal excise tax, each Fund is required to
distribute certain minimum amounts of net realized capital gain and net investment income for the
twelve-month periods ending October 31, for the Retirement Income Fund, and December 31, for the
Monthly Income Fund, each year. Under the terms of the Agreement and Plan of Reorganization, this
reorganization should be treated as a tax-free business combination.
6. FUND EXPENSES
Charles Schwab & Co., Inc. and Charles Schwab Investment Management, Inc. (Adviser) have
agreed to limit the net operating expenses (exclusive of nonrecurring account fees, fees on
securities transactions such as exchange fees, dividends and interest on securities sold short,
service fees, interest, taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Funds business) of the Surviving Fund to 0.00% through
April 29, 2011. The agreement to limit the Surviving Funds net operating expenses is limited
to the Funds direct operating expenses and, therefore, does not apply to Acquired Funds fees and
expenses (AFFE), which are indirect expenses incurred by the Fund though its investments in the
underlying funds. The Adviser may, but is not required to, extend the agreement for additional
years.
7. NEW ACCOUNTING STANDARDS
The Funds adopted Financial Accounting Standard Board (FASB) Statement of Financial
Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective April 1, 2008. FAS 157
defines fair value, establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management has concluded that the adoption of FAS 157 is not expected to
have a material impact on the funds financial statements.
Various inputs are used in determining the value of the Funds investments. FAS 157 establishes a
three-tier hierarchy of inputs to establish a classification of fair value measurements for
disclosure purposes. These inputs are summarized in the three broad levels listed below:
|
|
|
Level 1 quoted prices in active markets for identical securities |
|
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar
securities, interest rates, prepayment speeds, credit risk, etc.) |
|
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk
associated with investing in those securities. The following is a summary of the inputs used to
value the Funds net assets as of December 31, 2008:
(All numbers x $1,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Income |
|
|
|
|
|
|
Combined Monthly |
|
Valuation Inputs |
|
Fund |
|
|
Monthly Income Fund |
|
|
Income Fund |
|
Level 1 Quoted Prices |
|
$ |
53,062 |
|
|
$ |
9,980 |
|
|
$ |
63,042 |
|
Level 2 Other
significant observable
inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Significant
unobservable inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
53,062 |
|
|
$ |
9,980 |
|
|
$ |
63,042 |
|
|
|
|
|
|
|
|
|
|
|
8
E. Miscellaneous
Independent Registered Public Accounting Firm
The audited financial statements of the Funds incorporated by reference into this SAI have
been audited by PricewaterhouseCoopers LLP, the Funds independent registered public accounting
firm, to the extent indicated in their reports thereon, which are included in the Funds Annual
Reports.
9
PART C
OTHER INFORMATION
Item 15 Indemnification
Article VIII of Registrants Amended and Restated Declaration of Trust (Exhibit (1) hereto,
which is incorporated by reference) provides in effect that Registrant will indemnify its officers
and trustees against all liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any such officer or trustee in connection with the defense or disposition of any
action, suit, or other proceeding. The relevant language of the Declaration of Trust reads as
follows:
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and officers (including persons who serve
at the Trusts request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a
Covered Person) against all liabilities and expenses, including but not limited to amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a party or otherwise or with
which such Covered Person may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action, suit or other
proceeding to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered
Persons office. Expenses, including counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), shall
be paid from time to time by the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such Covered Person shall
have provided appropriate security for such undertaking, (b) the Trust shall be insured against
losses arising from any such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full trial type
inquiry) that there is reason to believe that such Covered Person will be found entitled to
indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise payment, pursuant to a consent
decree or otherwise) without an adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person either (a) did not act in good faith in the
reasonable belief that his or her action was in the best interests of the Trust or (b) is liable to
the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office, indemnification
shall be provided if (a) approved as in the best interests of the Trust, after notice that it
involves such indemnification, by at least a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed to a full trial
type inquiry) that
such Covered Person acted in good faith in the reasonable belief that his or her action was in the
best interests of the Trust and is not liable to the Trust or its Shareholders by reasons of
willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, or (b) there has been obtained an opinion in writing of
independent legal counsel, based upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person appears to have acted in good faith in
the reasonable belief that his or her action was in the best interests of the Trust and that such
indemnification would not protect such Person against any liability to the Trust to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office. Any approval
pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid
to such Covered Person in accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in
the reasonable belief that such Covered Persons action was in the best interests of the Trust or
to have been liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of such Covered
Persons office.
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall not be exclusive of or affect any
other rights to which such Covered Person may be entitled. As used in this Article VIII, the term
Covered Person shall include such persons heirs, executors and administrators and a
disinterested Trustee is a Trustee who is not an interested person of the Trust as defined in
Section 2(a) (19) of the 1940 Act (or who has been exempted from being an interested person by
any rule, regulation or order of the Commission) and against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees or officers, and other persons
may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person; provided, however, that the Trust shall
not purchase or maintain any such liability insurance in contravention of applicable law, including
without limitation the 1940 Act.
Item 16 Exhibits
|
|
|
|
|
(1)
|
|
Articles of
Incorporation
|
|
Amended and Restated Agreement and Declaration of Trust, dated November
29, 2005 is incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 81 to Registrants Registration on Form N-1A
(File No. 811-7704), electronically filed with the SEC on April 28, 2006
(hereinafter referred to as PEA No. 81). |
|
|
|
|
|
(2)
|
|
By-Laws
|
|
Amended and Restated By-Laws of the Registrant adopted as of November 16,
2004 are incorporated herein by reference to Exhibit (b) of
Post-Effective Amendment No. 70 to the Registrants Registration
Statement on Form N-1A (File No. 811-7704), electronically filed with the
SEC on February 11, 2005 (hereinafter referred to as PEA No. 70). |
|
|
|
|
|
(3)
|
|
Voting Trust
Agreements
|
|
Not Applicable. |
|
|
|
|
|
(4)
|
|
Reorganization
Agreement
|
|
Form of Agreement and Plan of Reorganization is filed herewith as
Appendix A to Part A of this Registration Statement on Form N-14. |
|
|
|
|
|
(5)(a)(1)
|
|
Instruments
Defining rights of
Security Holders
|
|
Reference is made to Article III, Section 5, Article V, Article VI,
Article VIII, Section 4 and Article IX, Sections 1, 5 and 7 of the
Amended and Restated Agreement and Declaration of Trust, referenced in
Exhibit 1 above. |
|
|
|
|
|
(5)(a)(2)
|
|
|
|
Reference is made to Articles 9 and 11 of the Amended and Restated Bylaws
referenced in Exhibit 2, above. |
|
|
|
|
|
(6)(a)(1)
|
|
Investment Advisory
Contracts
|
|
Investment Advisory and Administration Agreement between Registrant and
Charles Schwab Investment Management, Inc. (the Investment Adviser),
dated June 15, 1994, is incorporated herein by reference to Exhibit 5(a)
of Post-Effective Amendment No. 21 to Registrants Registration Statement
on Form N-1A (File No. 811-7704), electronically filed with the SEC on
December 17, 1997 (hereinafter referred to as PEA No. 21). |
|
|
|
|
|
(6)(a)(2)
|
|
|
|
Amended Schedules A and B to the Investment Advisory and Administration
Agreement between Registrant and the Investment Adviser, are incorporated
herein by reference to Exhibit (D)(ii) of Post-Effective Amendment No. 96
to Registrants Registration Statement on Form N-1A (File No. 811-7704),
electronically filed with the SEC on April 29, 2008 (hereinafter referred
to as PEA No. 96). |
|
|
|
|
|
(6)(b)(1)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and American Century Investment Management, Inc., is incorporated herein
by reference to Exhibit (d)(iv) of Post-Effective Amendment No. 48 to
Registrants Registration Statement on Form N-1A (File No. 811-7704),
electronically filed with the SEC on May 30, 2002 (hereinafter referred
to as PEA No. 48). |
|
|
|
|
|
(6)(b)(2)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and Gardner Lewis Asset Management LP dated November 23, 2004, is
incorporated herein by reference to Exhibit (d)(vi) of Post-Effective
Amendment No. 71 to Registrants Registration Statement on Form N-1A
(File No. 811-7704), electronically filed with the SEC on February 25,
2005. |
|
|
|
|
|
(6)(b)(3)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and Harris Associates LP dated January 11, 2002, is incorporated herein
by reference to Exhibit (d)(x) of PEA No. 48. |
|
|
|
|
|
(6)(b)(4)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and TASHO Investment LLC, operating as TAMRO Capital Partners, LLC, dated
July 1, 2007, is incorporated herein by reference to Exhibit (d)(viii) of
Post-Effective Amendment No. 98 to Registrants Registration Statement on
Form N-1A (File No. 811-7704), electronically filed with the SEC on
February 27, 2009 (hereinafter referred to as PEA No. 98). |
|
|
|
|
|
(6)(b)(5)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and TCW Investment Management Company dated January 14, 2002, is
incorporated herein by reference to Exhibit (d)(xiii) of PEA No. 48. |
|
|
|
|
|
(6)(b)(6)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and Thornburg Investment Management Inc. dated January 22, 2002, is
incorporated herein by reference to Exhibit (d)(xiv) of PEA No. 48. |
|
|
|
|
|
|
|
|
|
|
(6)(b)(7)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and Tocqueville Asset Management, L.P. dated January 31, 2002, is
incorporated herein by reference to Exhibit (d)(xv) of PEA No. 48. |
|
|
|
|
|
(6)(b)(8)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser,
and William Blair & Company, L.L.C. dated January 31, 2002, is
incorporated herein by reference to Exhibit (d)(xvii) of PEA No. 48. |
|
|
|
|
|
(6)(b)(9)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser
and Mondrian Investment Partners Limited dated May 24, 2006, is
incorporated herein by reference to Exhibit (d)(xiv) of Post-Effective
Amendment No. 83 to Registrants Registration Statement on Form N-1A
(File No. 811-7704), electronically filed with the SEC on February 28,
2007 (hereinafter referred to as PEA No. 83). |
|
|
|
|
|
(6)(b)(10)
|
|
|
|
Investment Sub-Advisory Agreement among Registrant, Investment Adviser
and Wentworth, Hauser & Violich dated May 23, 2006, is incorporated
herein by reference to Exhibit (d)(xv) of PEA No. 83. |
|
|
|
|
|
(6)(b)(11)
|
|
|
|
Investment Sub-Advisory Agreement between Investment Adviser and
Neuberger Berman Management, Inc. dated June 8, 2007, is filed herewith. |
|
|
|
|
|
(6)(b)(12)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and American Century Investment Management, Inc.,
dated March 26, 2003, is incorporated herein by reference to Exhibit
(d)(xviii) of Post-Effective Amendment No. 60 to Registrants
Registration Statement on Form N-1A (File No. 811-7704), electronically
filed with the SEC on February 26, 2004 (hereinafter referred to as PEA
No. 60). |
|
|
|
|
|
(6)(b)(13)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser and Harris Associates LP, dated March 26, 2003, is
incorporated herein by reference to Exhibit (d)(xxii) of PEA No. 60. |
|
|
|
|
|
(6)(b)(14)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and TCW Investment Management Company, dated March
24, 2003, is incorporated herein by reference to Exhibit (d)(xxv) of PEA
No. 60. |
|
|
|
|
|
(6)(b)(15)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and Thornburg Investment Management Inc., dated March
20, 2003, is incorporated herein by reference to Exhibit (d)(xxvi) of PEA
No. 60. |
|
|
|
|
|
(6)(b)(16)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and Tocqueville Asset Management, LP, dated April 8,
2003, is incorporated herein by reference to Exhibit (d)(xxvii) of PEA
No. 60. |
|
|
|
|
|
(6)(b)(17)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and William Blair & Company, LLC, dated March 26,
2003, is incorporated herein by reference to Exhibit (d)(xxix) of PEA No.
60. |
|
|
|
|
|
|
|
|
|
|
(6)(b)(18)
|
|
|
|
Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and American Century Investment Management, Inc.,
dated January 11, 2005, is incorporated herein by reference to Exhibit
(d)(xxx) of Post-Effective Amendment No. 75 to Registrants Registration
Statement on Form N-1A (File No. 811-7704), electronically filed with the
SEC on February 25, 2005 (hereinafter referred to as PEA No. 75). |
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(6)(b)(19)
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Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and Harris Associates LP, dated December 2, 2004, is
incorporated herein by reference to Exhibit (d)(xxxii) of PEA No. 75. |
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(6)(b)(20)
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Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and TCW Investment Management Company, dated December
2, 2004, is incorporated herein by reference to Exhibit (d)(xxxv) of PEA
No. 75. |
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(6)(b)(21)
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Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and Thornburg Investment Management, Inc., dated
December 2, 2004, is incorporated herein by reference to Exhibit
(d)(xxxvi) of PEA No. 75. |
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(6)(b)(22)
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Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and Tocqueville Asset Management, L.P., dated
December 2, 2004, is incorporated herein by reference to Exhibit
(d)(xxxvii) of PEA No. 75. |
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(6)(b)(23)
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Amendment to Investment Sub-Advisory Agreement among Registrant,
Investment Adviser, and William Blair & Company, LLC, dated December 2,
2004, is incorporated herein by reference to Exhibit (d)(xxxix) of PEA
No. 75. |
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(6)(c)(1)
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Letter Agreement between Registrant, on behalf of certain of its funds
and the Schwab 1000 Fund, and the Investment Adviser dated February 24,
2009, is incorporated herein by reference to Exhibit (6)(c)(2) of
Post-Effective Amendment No. 1 to Registrants Registration Statement on
Form N-14 (File No. 33-157214), electronically filed with the SEC on
March 17, 2009. |
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(6)(c)(2)
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Letter Agreement between Registrant, on behalf of the Schwab Monthly
Income Funds, and the Investment Adviser, dated February 27, 2009, is
incorporated herein by reference to Exhibit (6)(c)(3) of Post-Effective
Amendment No. 1 to Registrants Registration Statement on Form N-14 (File
No. 33-157214), electronically filed with the SEC on March 17, 2009. |
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(7)(a)(1)
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Underwriting
Contracts
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Distribution Agreement between Registrant and Charles Schwab & Co., Inc.
(Schwab) dated July 21, 1993, is incorporated herein by reference to
Exhibit 6(a) of PEA No. 21. |
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(7)(a)(2)
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Amended Schedule A to the Distribution Agreement between Registrant and
Schwab is incorporated herein by reference to Exhibit (d)(ii) of PEA No.
96. |
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(8)
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Bonus or Profit
Sharing Contracts
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Not applicable. |
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(9)(a)(1)
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Custodian Agreements
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Custodian Agreement by and between Registrant and Brown Brothers Harriman
& Co. dated June 29, 2001, is incorporated herein by reference to Exhibit
(g)(vi) of Post-Effective Amendment No. 55 to Registrants Registration
Statement on Form N-1A (File No. 811-7704), electronically filed with the
SEC on June 30, 2003. |
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(9)(a)(2)
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Amended Schedule A to Custodian Agreement between Registrant and Brown
Brothers Harriman & Co., dated July 1, 2003, is incorporated herein by
reference to Exhibit (g)(viii) of Post-Effective Amendment No. 56 to
Registrants Registration Statement on Form N-1A (File No. 811-7704),
electronically filed with the SEC on July 16, 2003. |
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(9)(b)(1)
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Amended and Restated Master Custodian Agreement by and between Registrant
and State Street Bank and Trust Company, dated October 17, 2005, is
incorporated herein by reference to Exhibit (g)(ix) of Post-Effective
Amendment No. 79 to Registrants Registration Statement on Form N-1A
(File No. 811-7704), electronically filed with the SEC on February 27,
2006 (hereinafter referred to as PEA No. 79). |
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(10)
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Rule 12b-1 Plan
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Not applicable. |
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(11)
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Legal Opinion
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Opinion and Consent of Morgan, Lewis & Bockius LLP regarding the validity
of the shares to be issued by the Registrant is filed herewith. |
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(12)
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Tax Opinion
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Form of Opinion of Morgan, Lewis & Bockius LLP regarding certain tax
matters is filed herewith. |
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(13)(a)(1)
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Other material
contracts
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License Agreement between Registrant and Standard & Poors is
incorporated herein by reference to Exhibit (h) of Post-Effective
Amendment No. 32 to Registrants Registration Statement on Form N-1A
(File No. 811-7704), electronically filed with the SEC on February 26,
1999. |
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(13)(b)(1)
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Transfer Agency Agreement between Registrant and Schwab, dated July 21,
1993, is incorporated herein by reference to Exhibit 8(j) of PEA No. 21. |
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(13)(b)(2)
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Amended Schedules A and C to the Transfer Agency Agreement between
Registrant and Schwab are incorporated herein by reference to Exhibit
(d)(ii) of PEA No. 96. |
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(13)(c)(1)
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Shareholder Service Agreement between Registrant and Schwab, dated July
21, 1993 is incorporated herein by reference to Exhibit 8(l) of PEA No.
21. |
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(13)(c)(2)
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Amended Schedules A and C to the Shareholder Service Agreement between
Registrant and Schwab are incorporated herein by reference to Exhibit
(d)(ii) of PEA No. 96. |
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(13)(d)(1)
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Master Fund Accounting and Services Agreement between Registrant and
State Street Bank and Trust Company, dated October 1, 2005, is
incorporated herein by reference to Exhibit (g)(i) of PEA No. 79. |
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(14)(a)(1)
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Other opinions and
consent
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Consent of PricewaterhouseCoopers LLP is filed herewith. |
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(14)(a)(2)
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Consent of Morgan, Lewis & Bockius LLP is filed herewith. |
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(15)
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Omitted financial
statements
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Not applicable. |
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(16)(a)(1)
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Powers of attorney
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Power of Attorney executed by Mariann Byerwalter is filed herewith. |
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(16)(a)(2)
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Power of Attorney executed by William A. Hasler is filed herewith. |
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(16)(a)(3)
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Power of Attorney executed by Gerald B. Smith is filed herewith. |
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(16)(a)(4)
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Power of Attorney executed by Charles R. Schwab is filed herewith. |
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(16)(a)(5)
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Power of Attorney executed by Donald R. Stephens is filed herewith. |
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(16)(a)(6)
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Power of Attorney executed by Randall W. Merk is filed herewith. |
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(16)(a)(7)
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Power of Attorney executed by George Pereira is filed herewith. |
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(16)(a)(8)
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Power of Attorney executed by Walter W. Bettinger, II is filed herewith. |
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(16)(a)(9)
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Power of Attorney executed by Joseph Wender is filed herewith. |
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(16)(a)(10)
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Power of Attorney executed by John F. Cogan is filed herewith. |
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(17)(a)(1)
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Code of Ethics
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Registrant, Charles Schwab Investment Management Inc. and Charles Schwab
& Co., Inc. Code of Ethics, effective March 31, 2009, to be incorporated
herein by reference, by post-effective amendment, upon the filing of the
Registrants Post-Effective Amendment No. 100 to Registrants
Registration Statement on Form N-1A (File No. 811-7704). |
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(17)(b)(1)
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American Century Investment Management, Inc. Code of Ethics, dated
January 1, 2009, is incorporated by reference to Exhibit (q)(ii) of PEA
No. 98. |
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(17)(b)(2)
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Harris Associates LLP Code of Ethics, as amended October 17, 2008, is
incorporated herein by reference to Exhibit (q)(iii), of PEA No. 98. |
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(17)(b)(3)
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TAMRO Capital Partners, LLC Code of Ethics dated June 15, 2008 is
incorporated herein by reference to Exhibit (q)(v) of PEA No. 98. |
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(17)(b)(4)
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TCW Investment Management Company Code of Ethics, dated March 31, 2008,
is incorporated herein by reference to Exhibit (q)(vi) of PEA No. 98. |
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(17)(b)(5)
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Thornburg Investment Management, Inc. Code of Ethics, dated April 1,
2008, is incorporated herein by reference to Exhibit (q)(vii) of PEA No.
98. |
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(17)(b)(6)
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Tocqueville Asset Management, L.P. Code of Ethics, dated July 13, 2007 is
incorporated herein by reference to Exhibit (q)(viii) of PEA No. 93. |
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(17)(b)(7)
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William Blair Company, LLC Code of Ethics, dated May 9, 2007, is
incorporated herein by reference to Exhibit (q)(x) of PEA No. 93. |
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(17)(b)(8)
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Gardner Lewis Asset Management LP Code of Ethics, dated May 1, 2008, is
incorporated herein by reference to Exhibit (q)(xi) of PEA No. 98. |
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(17)(b)(9)
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Mondrian Investment Partners Limited Code of Ethics, effective January 1,
2007, is incorporated herein by reference to Exhibit (q)(xii) of PEA No.
83. |
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(17)(b)(10)
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Wentworth, Hauser & Violich Code of Ethics, dated December 31, 2008, is
incorporated herein by reference to Exhibit (q)(xii) of PEA No. 98. |
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(17)(b)(11)
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Neuberger Berman Code of Ethics, dated June 2008, is incorporated herein
by reference to Exhibit (q)(xiii) of PEA No. 98. |
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(17)(c)(1)
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Additional Materials
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Prospectus dated February 28, 2009, as amended April 20, 2009 with
respect to the Schwab Retirement Income Fund to be incorporated herein by
reference, by post-effective amendment, upon the Registrants filing of
definitive materials with the SEC pursuant to Rule 497 under the
Securities Act of 1933, as amended. |
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(17)(c)(2)
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Prospectus dated April 30, 2009, with respect to the Schwab Monthly
Income Fund Enhanced Payout to be incorporated herein by reference, by
post-effective amendment, upon the filing of the Registrants
Post-Effective Amendment No. 99 to Registrants Registration Statement on
Form N-1A (File No. 811-7704) (hereinafter defined as PEA No. 99). |
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(17)(c)(3)
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|
Statement of Additional Information dated February 28, 2009 with respect
to the Schwab Retirement Income Fund is incorporated herein by reference
to PEA No. 98. |
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(17)(c)(4)
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Statement of Additional Information dated April 30, 2009 with respect to
the Schwab Monthly Income Fund Enhanced Payout to be incorporated
herein by reference, by post-effective amendment, upon the filing of the
Registrants PEA No. 99. |
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(17)(c)(5)
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The Report of the Independent Registered Public Accounting Firm and
audited financial statements of the Schwab Retirement Income Fund
included in the Funds Annual Report to Shareholders for the period ended
October 31, 2008 are incorporated herein by reference to Registrants
Annual Report on Form N-CSR filed with the SEC on January 5, 2009 (SEC
Accession No. 0000950134-09-000049). |
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(17)(c)(6)
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The Report of the Independent Registered Public Accounting Firm and
audited financial statements of the Monthly Income Fund Enhanced
Payout included in the Funds Annual Report to Shareholders for the
period ended December 31, 2008 are incorporated herein by reference to
Registrants Annual Report on Form N-CSR filed with the SEC on February
26, 2009 (SEC Accession No. 0000950134-09-003740). |
Item 17 Undertakings
(1) The undersigned Registrant agrees that, prior to any public reoffering of the securities
registered through the use of a prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the information called for by the
applicable registration form for the reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above
will be filed as part of an amendment to the registration statement and will not be used until the
amendment is effective, and that, in determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed to be the initial
bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel
supporting the tax consequences of the Reorganization within a reasonably prompt time after receipt
of such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on this 27th day of March, 2009.
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SCHWAB CAPITAL TRUST
Registrant
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Charles R. Schwab*
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Charles R. Schwab, Chairman and Trustee |
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form N-14 has been signed by the following persons in the capacities indicated on this 27th day of March, 2009.
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Signature |
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Title |
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Charles R. Schwab*
Charles R. Schwab
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Chairman and Trustee |
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Walter W. Bettinger, II*
Walter W. Bettinger, II
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Trustee |
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Mariann Byerwalter*
Mariann Byerwalter
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Trustee |
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John F. Cogan*
John F. Cogan
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Trustee |
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William A. Hasler*
William A. Hasler
|
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Trustee |
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Gerald B. Smith*
Gerald B. Smith
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Trustee |
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Donald R. Stephens*
Donald R. Stephens
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Trustee |
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Joseph H. Wender*
Joseph H. Wender
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Trustee |
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Randall W. Merk*
Randall W. Merk
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President and Chief Executive Officer |
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George Pereira*
George Pereira
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Treasurer and Principal Financial Officer |
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*By: |
/s/ Timothy W. Levin
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Timothy W. Levin, Attorney-in-Fact |
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|
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Pursuant to Power of Attorney |
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|
|
Exhibit Index
|
|
|
(6)(b)(11)
|
|
Sub-advisory agreement with Neuberger Berman |
|
|
|
(11)
|
|
Opinion and Consent of Morgan, Lewis & Bockius LLP regarding the
validity of the shares to be issued by the Registrant |
|
|
|
(12)
|
|
Form of Opinion of Morgan, Lewis & Bockius LLP regarding tax matters |
|
|
|
(14)(a)(1)
|
|
Consent of PricewaterhouseCoopers LLP |
|
|
|
(14)(a)(2)
|
|
Consent of Morgan, Lewis & Bockius LLP |
|
|
|
(16)(a)(1)
|
|
Power of Attorney executed by Mariann Byerwalter |
|
|
|
(16)(a)(2)
|
|
Power of Attorney executed by William A. Hasler |
|
|
|
(16)(a)(3)
|
|
Power of Attorney executed by Gerald B. Smith |
|
|
|
(16)(a)(4)
|
|
Power of Attorney executed by Charles R. Schwab |
|
|
|
(16)(a)(5)
|
|
Power of Attorney executed by Donald R. Stephens |
|
|
|
(16)(a)(6)
|
|
Power of Attorney executed by Randall W. Merk |
|
|
|
(16)(a)(7)
|
|
Power of Attorney executed by George Pereira |
|
|
|
(16)(a)(8)
|
|
Power of Attorney executed by Walter W. Bettinger, II |
|
|
|
(16)(a)(9)
|
|
Power of Attorney executed by Joseph Wender |
|
|
|
(16)(a)(10)
|
|
Power of Attorney executed by John F. Cogan |