1701 Market Street Philadelphia, PA 19103-2921 215.963.5000 Fax: 215.963.5001 |
Morgan, Lewis & Bockius LLP Counselors at Law |
RE: | Response letter to comments on Schwab Capital Trust N-14 (File No. 333-158246) |
1. | Comment: Please state in your response letter whether Acquired Fund shareholders had notice of the fact that the Acquired Fund could be reorganized without a vote of shareholders. | |
Response: The Trusts Form N-1A Statement of Additional Information and Agreement and Declaration of Trust, which is an exhibit to the Trusts Form N-1A registration statements, provides Acquired Fund shareholders notice of the Trusts ability to reorganize the Acquired Fund without a vote of shareholders. | ||
2. | Comment: Please add disclosure informing Acquired Fund shareholders that, if they do not wish to participate in the Reorganization, they may redeem their shares at any time prior to the Reorganization. Please also inform shareholders that such redemption could have adverse tax consequences. | |
Response: We have added disclosure to the Prospectus/Information Statement consistent with your request. |
3. | Comment: Please add disclose to the Prospectus/Information Statement informing Acquired Fund shareholders that the Surviving Fund has more discretion than the Acquired Fund in determining its asset allocation. | |
Response: We have added disclosure to the Prospectus/Information Statement consistent with your request. | ||
4. | Comment: Please confirm in the response letter that the fee waiver agreements reflected in the fee table have been filed with the Commission. | |
Response: The Surviving Funds fee waiver agreement was filed as Exhibit (6)(c)(3) of Post-Effective Amendment No. 1 to the Trusts Registration Statement on Form N-14 (File No. 333-157214), filed with the Commission on March 17, 2009. The Acquired Funds fee waiver agreement was filed as Exhibit (6)(c)(2) of Post-Effective Amendment No. 1 to the Trusts Registration Statement on Form N-14 (File No. 333-157214), filed with the Commission on March 17, 2009. | ||
5. | Comment: Please explain in your response letter the difference in the amount of the Pro Forma Combined Monthly Income Funds Other Expenses and the Monthly Income Funds Other Expenses. | |
Response: The difference in the Other Expenses is attributable to the fact that the Reorganization is expected to result in an increase in the Surviving Funds assets, which, in turn, is expected to decrease the amount of Other Expenses as a percentage of the Surviving Funds annual fund operating expenses. In addition, this difference is also attributable to the expected elimination of certain duplicate expenses in connection with the Reorganization. | ||
6. | Comment: Please explain in your response letter your rationale for choosing the Monthly Income Fund as the accounting survivor to the Reorganization. | |
Response: When determining which fund in a mutual fund reorganization should be treated as the accounting survivor, Commission staff guidance, as set forth in the SEC staff no-action letter to North American Security Trust (pub. avail. August 5, 1994), indicates that funds should compare the attributes of each of the funds involved in the reorganization to determine which fund most closely resembles the surviving fund. The Commission staff has indicated that such a comparison should take into account the factors listed below, which are listed in order of their importance. |
1. | Portfolio Management |
2. | Portfolio Composition |
3. | Investment Objectives, Policies and Restrictions |
4. | Expense Structure and Expense Ratios |
5. | Asset Size |
7. | Comment: In the section entitled Principal Risk Factors, with respect to Structural Risk, if the Monthly Income Funds monthly income payments include a return of capital, please change the phrase income payments to periodic payments to make clear that the Monthly Income Fund may distribute more than just income. | |
Response: As indicated in the Prospectus/Information Statement, the Monthly Income Fund does not expect to make distributions that will be treated as a return of capital. Accordingly, we have not made the requested change. | ||
8. | Comment: Please include disclosure in the Prospectus/Information Statement informing shareholders that the amount of future monthly income payments an investor will receive from the Monthly Income Fund will be reduced by any investment losses experienced by the Fund and any return of capital distributions made by the Fund. | |
Response: In response to your comment, we have clarified the existing disclosure in the Prospectus/Information Statement to more clearly indicate that Monthly Income Fund investment losses may reduce the amount of future monthly income payments a shareholder may receive |
9. | Comment: In the section entitled Principal Risk Factors, with respect to Structural Risk, change throughout the year to for any period of time in the last sentence in that section. | |
Response: In response to your comment, we have revised the last sentence in the Structural Risk section to remove the reference to throughout the year. | ||
10. | Comment: In the section entitled Comparison of the Funds, with regards to the Monthly Income Funds anticipated annual payouts, please explain whether the 3% anticipated annual payout is the minimum annual payout established by the Fund. If the 3% is not an established minimum, please explain that the actual annual payout may be less than 3%. | |
Response: The Monthly Income Fund has not established 3% as the minimum annual payout percentage for the Fund. In response to your comment, we have clarified the existing disclosure in, and added new disclosure to, the Prospectus/Information Statement to more clearly indicate that: (a) there is no guarantee that the Monthly Income Fund will meet its annual payout goal; (b) the actual amount of the Monthly Income Funds annual payout will be affected by a number of factors; (c) amounts distributed to shareholders are not fixed and may not be the same each month; and (d) there is no guarantee that the Monthly Income Fund will make monthly income payments to its shareholders. | ||
11. | Comment: In the Pro Forma Statement of Assets and Liabilities, please include a footnote to the Shares Outstanding row of the Pro Forma Adjustments column describing the adjustment. | |
Response: We have revised the disclosure consistent with your request. | ||
12. | Comment: Please revise the Pro Forma Statement of Operations to reflect the operations of the Retirement Income Fund for the period from March 28, 2008 to December 31, 2008, which is the Monthly Income Funds period of operations. Please indicate, either in a separate column or by footnote, that the Retirement Income Funds information has been adjusted to reflect the operations of the Retirement Income Fund for the period from March 28, 2008 to December 31, 2008. | |
Response: We have revised the disclosure consistent with your request. | ||
13. | Comment: In Note 6 of the Notes to the Pro Forma Financial Statements, please disclose whether the expense limitation agreement permits previously waived fees and reimbursed expenses to be subsequently recouped by the Adviser or Schwab. | |
Response: Previously waived fees and reimbursed expenses are not permitted to be subsequently recouped by the Adviser or Schwab. |
/s/ Sofia A. Rosala
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Sofia A. Rosala |