Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07704
Schwab Capital Trust – Schwab Fundamental Global Real Estate Index Fund
(Exact name of registrant as specified in charter)
| 211 Main Street, San Francisco, California | 94105 | |
| (Address of principal executive offices) | (Zip code) |
Marie Chandoha
Schwab Capital Trust
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 636-7000
Date of fiscal year end: February 28
Date of reporting period: February 29, 2016
Table of Contents
Item 1: Report(s) to Shareholders.
Table of Contents
Annual report dated February 29, 2016, enclosed.
Schwab Fundamental Global Real Estate Index
Fund
Schwab Fundamental Global Real Estate Index
Fund
Annual Report
February 29, 2016
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM).
Distributor: Charles Schwab & Co., Inc.
(Schwab)
The Sector/Industry classifications in
this report use the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI
and S&P and has been licensed for use by Schwab. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
Performance at a Glance
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their
original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.csimfunds.com.
| Total Returns for the 12 Months Ended February 29, 2016 | |
| Schwab Fundamental Global Real Estate Index Fund (Ticker Symbol: SFREX) | -8.92% 1 |
| Russell Fundamental Global Select Real Estate Index (Net)2 | -9.20% |
| Fund Category: Morningstar Global Real Estate | -9.81% |
| Performance Details | pages 6-7 |
| Minimum Initial Investment3 | $100 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Performance data quoted does not reflect the non-recurring redemption fee of 2% that may be charged if shares are sold or exchanged within 30 days of the purchase date. If these fees were reflected, the performance quoted would be
lower.
For index definitions, please see the
Glossary.
Fund expenses may have been partially absorbed
by CSIM and its affiliates. Without these reductions, the fund’s total return would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund
shares.
Source for category information: Morningstar,
Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
Index ownership—“Russell Fundamental Global Select
Real Estate Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA.
Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes.
Schwab Fundamental Global Real Estate Index Fund is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.
| 1 | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semi-annual reports. |
| 2 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 3 | Please see the fund's prospectus for further detail and eligibility requirements. |
Schwab Fundamental Global Real Estate Index Fund1
Asset
Class Performance Comparison % returns during the 12 months ended 2/29/2016
Index figures
assume dividends and distributions were reinvested, and do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Past performance is not an indication of future
results.
For index definitions, please see the
Glossary.
Data source: Index provider websites
and CSIM.
Nothing in this report represents a
recommendation of a security by the investment adviser.
Management views and portfolio holdings may have
changed since the report date.
2Schwab Fundamental Global Real Estate Index Fund
From the President continued
Schwab Fundamental Global Real Estate Index Fund3
The Investment Environment
Over the 12-month reporting period ended February
29, 2016, many markets generated disappointing returns as heightened volatility continued around the globe. Low and sub-zero interest rates, stalling global economic growth, and sharp selloffs in oil and commodities were large drivers of markets
fluctuations, where volatility has become the new normal.
The S&P 500® Index, a bellwether for the overall U.S. stock market, returned -6.19% for the reporting period. Outside the U.S., the MSCI EAFE Index (Net), a broad
measure of developed international equity performance, and the MSCI Emerging Markets (Net) Index, returned -15.18% and -23.41%, respectively. In general, real estate securities also generated negative returns, but fared better than equities overall.
The Dow Jones U.S. Select REIT Index returned -3.32% for the reporting period, and the FTSE EPRA/NAREIT Global Index (Net), representing general trends in eligible real estate securities worldwide, returned -9.38%.
In the U.S., speculation surrounding a potential
rise in short-term interest rates was a significant contributor to investor uncertainty during 2015. After leaving rates in the target range of 0.00% to 0.25% at both its September and October meetings, the Federal Reserve (the Fed) raised the
federal funds rate to a range of 0.25% to 0.50% in December. Though inflation remained below the target of 2%, the Fed cited strengthening economic indicators and expanding economic activity as support for this rate increase. Concerns about when a
rate hike would occur, as well as the timing of subsequent rate hikes, weighed on U.S. real estate securities in the first part of the reporting period. Many investors feared this rate increase would cause borrowing costs to rise significantly for
both residential and commercial real estate. However, many U.S. real estate securities were able to rally slightly in early 2016 as the likelihood of additional interest rate hikes in the near future decreased.
As the U.S. took additional steps toward a tighter
monetary policy, many other central banks, including the People’s Bank of China, the European Central Bank (the ECB), and the Bank of Japan, took the opposite approach and increased their accommodative policy measures. This divergence in
monetary policies between the Fed and central banks outside the U.S. supported a strong U.S. dollar, which weighed on international stocks by reducing returns in U.S. dollar terms. And though U.S. economic growth remains unsteady by some standards,
these policy differences also highlighted the relative strength of the U.S. economy compared to other economies around the world.
With weak global growth, most real estate securities
lost ground over the reporting period. In Brazil, high inflation and unemployment negatively affected consumer confidence, leading to significant declines in property prices. In Europe, the ECB’s new easy monetary measures fell short of
expectations and did little to support eurozone real estate securities, while rising property prices in the United Kingdom were overshadowed by the threat of departure from the European Union. Most markets, not just those in Asia, were negatively
affected by China’s decelerating economy and currency devaluation in August, and volatility continued as a result.
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Nothing in this report represents a recommendation of a
security by the investment adviser.
Management views and
portfolio holdings may have changed since the report date.
4Schwab Fundamental Global Real Estate Index Fund
Fund Management
 |
Agnes Hong, CFA, Vice President and Head of Passive Equity Strategies, leads the portfolio management teams of Schwab's passive equity funds and ETFs, which comprise the Schwab Equity Index Funds, the Schwab Fundamental Index Funds, and the Schwab Equity ETFs. She also has overall responsibility for all aspects of the management of the fund. Prior to joining CSIM in 2009, Ms. Hong spent five years as a portfolio manager at Barclays Global Investors (subsequently acquired by BlackRock), where she managed institutional index funds and quantitative active funds. Prior to that, Ms. Hong worked in management consulting and product management, servicing global financial services clients. |
 |
Ferian Juwono, CFA, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and nearly two years as a senior business analyst. Prior to that, Mr. Juwono worked for over four years as a senior financial analyst with Union Bank of California. |
Schwab Fundamental Global Real Estate Index Fund5
Schwab Fundamental Global Real Estate Index Fund
The Schwab Fundamental Global Real Estate Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell Fundamental Global Select Real Estate Index (the index). The index measures the performance of
real estate companies, including real estate investment trusts (REITs), in U.S. and non-U.S. markets, including developed and emerging markets. To pursue its investment objective, the fund invests in a statistical sample of the securities included
in the index that collectively are expected to perform similarly to the index as a whole. Due to the use of statistical sampling, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment
objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights.
Global real estate securities produced negative returns for the reporting period as concerns lingered about China’s economic slowdown and weak global economic growth. Speculation about the timing of a Federal Reserve rate hike contributed to
increased market volatility, though generally improving economic indicators in the U.S. led the Federal Reserve to raise short-term interest rates in December. Meanwhile, central banks outside the U.S. stepped up accommodative monetary policy
measures to stimulate growth and combat threats of deflation. Diverging central bank policies contributed to a strong U.S. dollar, which generally reduced returns on overseas investments in U.S. dollar terms. Within the index, no country had
positive returns.
Performance. The fund closely tracked the index for the 12-month reporting period ended February 29, 2016. The fund returned -8.92%, while the index returned -9.20%1 for the reporting period.
Contributors and Detractors. Real estate securities from the U.S. were among the biggest detractors from the total return of both the index and the fund, in part due to the large average weight of this country. These securities represented an
average weight of approximately 44% of the fund’s investments and returned approximately -5%. One example from this market is HCP, Inc., a fully integrated REIT that invests primarily in real estate serving the U.S. healthcare industry. The
fund’s holdings of HCP, Inc. returned approximately -26% for the reporting period. Real estate securities from Hong Kong also performed poorly, representing an average weight of approximately 8% of the fund’s investments and returning
approximately -21% in U.S. dollar terms.
Swedish real estate securities detracted the least
from the total return of the fund. Real estate securities from Sweden represented an average weight of less than 1% of the fund’s investments and returned approximately -2% in U.S. dollar terms for the reporting period. One example from this
market is L E Lundbergforetagen publ AB, a Sweden-based investment company. The fund’s holdings of L E Lundbergforetagen publ AB returned approximately 6% in U.S. dollar terms. Real estate securities from Germany were also among the smallest
detractors from the total return of the fund. German real estate securities represented an average weight of less than 1% of the fund’s investments and returned approximately -7% in U.S. dollar terms.
As of 02/29/16:
Management views and portfolio holdings may have
changed since the report date.
An index is a
statistical composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S&P and
MSCI.
| 1 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
6Schwab Fundamental Global Real Estate Index Fund
Schwab Fundamental Global Real Estate Index Fund
Performance and Fund Facts as of 02/29/16
The performance data quoted represents past
performance. Past performance does not guarantee future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be
lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.csimfunds.com.
October 22, 2014 – February 29,
2016
Performance of Hypothetical
$10,000 Investment1
Performance of Hypothetical
$10,000 Investment1
Total Returns1,2
| Fund and Inception Date | 1 Year | Since Inception |
| Fund: Schwab Fundamental Global Real Estate Index Fund (10/22/14) | -8.92% 3 | -0.89% |
| Russell Fundamental Global Select Real Estate Index (Net)4 | -9.20% | -0.98% |
| FTSE EPRA/NAREIT Global Index (Net)4 | -9.38% | -1.09% |
| Fund Category: Morningstar Global Real Estate | -9.81% | -1.65% |
Fund Expense Ratios5: Net 0.49%; Gross 0.69%
Country Weightings % of Investments
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized. Performance
data quoted does not reflect the non-recurring redemption fee of 2% that may be charged if shares are sold or exchanged within 30 days of the purchase date. If these fees were reflected, the performance quoted would be lower.
For index definitions, please see the
Glossary.
The fund's performance relative to
the index may be affected by fair value pricing, see financial note 2 for more information.
Small-company stocks are subject to greater
volatility than many other asset classes.
International investing may involve risk of capital
loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
The fund is subject to risks associated with the
direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets.
Index ownership — “Russell Fundamental
Global Select Real Estate Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are
trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the
Russell Indexes. Schwab Fundamental Global Real Estate Index Fund is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.
| 1 | Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the fund’s returns may have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | Source for category information: Morningstar, Inc. |
| 3 | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semi-annual reports. |
| 4 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 5 | As stated in the fund's prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the reporting period, refer to the Financial Highlights section of the financial statements. |
Schwab Fundamental Global Real Estate Index Fund7
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio1 (Annualized) |
Beginning
Account Value at 9/1/15 |
Ending
Account Value (Net of Expenses) at 2/29/16 |
Expenses
Paid During Period2 9/1/15–2/29/16 | |
| Schwab Fundamental Global Real Estate Index Fund | ||||
| Actual Return | 0.49% | $1,000.00 | $1,011.30 | $ 2.45 |
| Hypothetical 5% Return | 0.49% | $1,000.00 | $1,022.46 | $2.46 |
| 1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period. |
| 2 | Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 182 days of the period, and divided by the 366 days of the fiscal year. |
8Schwab Fundamental Global Real Estate Index Fund
Schwab Fundamental Global Real Estate Index Fund
Financial Statements
Financial Highlights
| 3/1/15–
2/29/16 |
10/22/14
1– 2/28/15 |
|||||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $10.74 | $10.00 | ||||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.27 | 0.10 | ||||
| Net realized and unrealized gains (losses) | (1.21) | 0.75 | ||||
| Total from investment operations | (0.94) | 0.85 | ||||
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.11) | ||||
| Distributions from net realized gains | — | (0.00) 3 | ||||
| Total distributions | (0.27) | (0.11) | ||||
| Net asset value at end of period | $9.53 | $10.74 | ||||
| Total return | (8.91%) | 8.57% 4 | ||||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.50% 5 | 0.13% 6,7 | ||||
| Gross operating expenses | 0.89% | 2.58% 6 | ||||
| Net investment income (loss) | 2.65% | 2.62% 6 | ||||
| Portfolio turnover rate | 26% | 4% 4 | ||||
| Net assets, end of period (x 1,000,000) | $84 | $105 | ||||
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Amount is less than $0.005.
4
Not annualized.
5
The ratio of net operating expenses would have been 0.49%,
if certain non-routine expenses had not been incurred.
6
Annualized (except for offering costs on the gross
operating expenses ratio).
7
The ratio presented for period ended 2/28/15 is a blended
ratio.
See financial notes 9
Portfolio Holdings
as of February 29, 2016
10 See financial notes
Portfolio Holdings continued
See financial notes 11
Portfolio Holdings continued
12 See financial notes
Portfolio Holdings continued
See financial notes 13
Portfolio Holdings continued
The following is a summary of the
inputs used to value the fund's investments as of February 29, 2016 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||
| Common Stock1 | $— | $37,891,778 | $— | $37,891,778 | |||||
| Brazil 1 | 628,306 | — | — | 628,306 | |||||
| Canada 1 | 1,677,688 | — | — | 1,677,688 | |||||
| China | |||||||||
| Real Estate | 108,557 | 5,853,771 | — | 5,962,328 | |||||
| Switzerland | |||||||||
| Real Estate | 134,633 | 219,369 | — | 354,002 | |||||
| United States1 | 36,994,184 | — | — | 36,994,184 | |||||
| Other Investment Company | 269,340 | — | — | 269,340 | |||||
| Short-Term Investments1 | — | 171,620 | — | 171,620 | |||||
| Total | $39,812,708 | $44,136,538 | $— | $83,949,246 |
| 1 | As categorized in Portfolio Holdings. |
The fund's policy is to recognize
transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $1,316,260 and $184,901 from Level 1 to Level 2 and from Level 2 to Level 1, respectively, for the period ended
February 29, 2016. The transfers between Level 1 and Level 2 were primarily due to the use of international fair valuation by the fund. There were no transfers in or out of Level 3 during the period.
14 See financial notes
Statement of
Assets and Liabilities
As of February 29, 2016
| Assets | ||
| Investments, at value (cost $89,872,224) | $83,949,246 | |
| Foreign currency, at value (cost $10,806) | 10,904 | |
| Receivables: | ||
| Investments sold | 18 | |
| Dividends | 96,282 | |
| Fund shares sold | 22,525 | |
| Foreign tax reclaims | 8,248 | |
| Prepaid expenses | + | 10,665 |
| Total assets | 84,097,888 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser and administrator fees | 1,111 | |
| Shareholder service fees | 1,647 | |
| Independent trustees' fees | 535 | |
| Fund shares redeemed | 113,935 | |
| Accrued expenses | + | 91,681 |
| Total liabilities | 208,909 | |
| Net Assets | ||
| Total assets | 84,097,888 | |
| Total liabilities | – | 208,909 |
| Net assets | $83,888,979 | |
| Net Assets by Source | ||
| Capital received from investors | 90,528,396 | |
| Distributions in excess of net investment income | (28,957) | |
| Net realized capital losses | (688,117) | |
| Net unrealized capital depreciation | (5,922,343) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $83,888,979 | 8,804,846 | $9.53 | ||
See financial notes 15
Statement of
Operations
For the period March 1, 2015 through February 29, 2016
| Investment Income | ||
| Dividends (net of foreign withholding tax of $172,400) | $3,043,133 | |
| Interest | + | 177 |
| Total investment income | 3,043,310 | |
| Expenses | ||
| Investment adviser and administrator fees | 386,745 | |
| Shareholder service fees | 96,494 | |
| Index fees | 82,908 | |
| Offering costs | 65,847 | |
| Professional fees | 57,727 | |
| Portfolio accounting fees | 48,645 | |
| Custodian fees | 31,223 | |
| Shareholder reports | 24,781 | |
| Transfer agent fees | 22,357 | |
| Registration fees | 13,196 | |
| Independent trustees' fees | 8,372 | |
| Proxy fees | 6,573 | |
| Interest expense | 73 | |
| Other expenses | + | 12,376 |
| Total expenses | 857,317 | |
| Expense reduction by CSIM and its affiliates | – | 376,908 |
| Net expenses | – | 480,409 |
| Net investment income | 2,562,901 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments (net of foreign capital gain tax paid of $60) | (546,420) | |
| Net realized losses on futures contracts | (12,098) | |
| Net realized losses on foreign currency transactions | + | (10,799) |
| Net realized losses | (569,317) | |
| Net change in unrealized appreciation (depreciation) on investments | (11,237,270) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 1,334 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (984) |
| Net change in unrealized appreciation (depreciation) | + | (11,236,920) |
| Net realized and unrealized losses | (11,806,237) | |
| Decrease in net assets resulting from operations | ($9,243,336) | |
16 See financial notes
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | |||
| 3/1/15-2/29/16 | 10/22/14*-2/28/15 | ||
| Net investment income | $2,562,901 | $802,053 | |
| Net realized gains (losses) | (569,317) | 62,109 | |
| Net change in unrealized appreciation (depreciation) | + | (11,236,920) | 5,314,577 |
| Increase (decrease) in net assets from operations | (9,243,336) | 6,178,739 | |
| Distributions to Shareholders | |||
| Distributions from net investment income | (2,655,237) | (916,331) | |
| Distributions from net realized gains | + | — | (3,252) |
| Total distributions | ($2,655,237) | ($919,583) | |
| Transactions in Fund Shares | |||||
| 3/1/15-2/29/16 | 10/22/14*-2/28/15 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 1,918,394 | $19,727,219 | 10,123,658 | $103,354,738 | |
| Shares reinvested | 200,489 | 2,071,587 | 69,163 | 719,990 | |
| Shares redeemed | + | (3,121,007) | (31,289,328) | (385,851) | (4,055,810) |
| Net transactions in fund shares | (1,002,124) | ($9,490,522) | 9,806,970 | $100,018,918 | |
| Shares Outstanding and Net Assets | |||||
| 3/1/15-2/29/16 | 10/22/14*-2/28/15 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 9,806,970 | $105,278,074 | — | $— | |
| Total increase or decrease | + | (1,002,124) | (21,389,095) | 9,806,970 | 105,278,074 |
| End of period | 8,804,846 | $83,888,979 | 9,806,970 | $105,278,074 | |
| Distributions in excess of net investment income/Net investment income not yet distributed | ($28,957) | $17,433 | |||
| * | Commencement of operations. |
See financial notes 17
Financial Notes
1.
Business Structure of the Fund:
Schwab Fundamental Global Real Estate Index Fund
is a series of Schwab Capital Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the 1940 Act). The
list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:
| Schwab Capital Trust (organized May 7, 1993) | Schwab Large-Cap Growth Fund™ |
| Schwab Fundamental Global Real Estate Index Fund | Schwab Small-Cap Equity Fund™ |
| Schwab Fundamental US Large Company Index Fund | Schwab Hedged Equity Fund™ |
| Schwab Fundamental US Small Company Index Fund | Schwab Financial Services Fund™ |
| Schwab Fundamental International Large Company Index Fund | Schwab Health Care Fund™ |
| Schwab Fundamental International Small Company Index Fund | Schwab ® International Core Equity Fund |
| Schwab Fundamental Emerging Markets Large Company Index Fund | Schwab Target 2010 Fund |
| Schwab ® S&P 500 Index Fund | Schwab Target 2015 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2020 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2025 Fund |
| Schwab International Index Fund® | Schwab Target 2030 Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Target 2035 Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Target 2040 Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Target 2045 Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2050 Fund |
| Laudus Small-Cap MarketMasters Fund™ | Schwab Target 2055 Fund |
| Laudus International MarketMasters Fund™ | Schwab ® Monthly Income Fund — Moderate Payout |
| Schwab Balanced Fund™ | Schwab ® Monthly Income Fund — Enhanced Payout |
| Schwab Core Equity Fund™ | Schwab ® Monthly Income Fund — Maximum Payout |
| Schwab Dividend Equity Fund™ |
Schwab Fundamental Global Real Estate Index Fund
offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 9) at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. Each share has a par value of 1/1,000 of a
cent, and the fund's Board of Trustees (the Board) may authorize the issuance of as many shares as necessary.
The fund commenced operations on October 22,
2014.
The fund maintains its own account
for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is a summary of the significant
accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).
The fund may invest in certain other investment
companies (underlying funds). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission
(SEC).
(a) Security Valuation:
Under procedures approved by the Board, the
investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market
value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The fund values the securities in its portfolio
every business day. The fund uses the following policies to value various types of securities:
18
Financial Notes (continued)
2.
Significant Accounting Policies (continued):
•
Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at halfway between the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For
example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.
•
Foreign equity security fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the fund valuing its holdings. By fair valuing
securities whose prices may have been affected by events occurring after the close of trading, the fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to
deter “arbitrage” market timers, who seek to exploit delays between the change in the value of the fund’s portfolio holdings and the NAV of the fund’s shares, and seeks to help ensure that the prices at which the fund’s
shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between
the return of the fund and that of its comparative index or benchmark. The Board regularly reviews fair value determinations made by the fund pursuant to these procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
•
Short-term securities (60 days or less to maturity): A short-term security may be valued at its amortized cost when it approximates the security's market value.
•
Underlying funds: Mutual funds are valued at their respective NAVs. Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price that day or the official
closing price, if applicable.
In accordance
with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair
value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that
are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation.
If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with
orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are
as follows:
• Level
1—quoted prices in active markets for identical securities—Investments whose values
are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities, ETFs and futures contracts. Investments in mutual funds are valued daily at their NAVs, and investments
in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
19
Financial Notes (continued)
2.
Significant Accounting Policies (continued):
• Level
2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in
the U.S. markets occurring after the daily close of the foreign markets. The Board has approved a vendor that calculates fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the
U.S. markets.
• Level
3—significant unobservable inputs (including the fund's own assumptions in determining the fair value of investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund
uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or
assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or
non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the
fund's results of operations.
The inputs or
methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The levels associated with valuing the fund's
investments as of February 29, 2016 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date.
The fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or
received by the fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures
contracts are traded publicly on exchanges, and their market value may change daily.
Real Estate Investment Trusts: The fund may own shares of real estate investment trusts (REITs) which report information on the source of their distributions annually. Certain distributions received from U.S. REITs during the year, which are known to
be a return of capital or realized gains, are recorded as a reduction to the cost of the individual U.S. REITs or realized gains on investments, respectively.
Passive Foreign Investment Companies: The fund may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a passive foreign investment company (PFIC). The fund may elect for tax purposes to mark-to-market annually the
shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked-to-market gains (as well as any gains realized on sale).
(c) Security Transactions:
Security transactions are recorded as of the date
the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign
currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income
receipts and expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions and the differences between the recorded amounts of
20
Financial Notes (continued)
2.
Significant Accounting Policies (continued):
dividends, interest, and foreign withholding
taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than
investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations on the Statement of Operations. The fund does not isolate
the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
Gains realized by the
fund on the sale of securities in certain foreign countries may be subject to non-U.S. taxes. In those instances, the fund records a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these
securities.
When the fund closes out a
futures contract position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
(d) Investment Income:
Interest income is recorded as it accrues.
Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date.
Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
Income received from foreign sources may result
in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax
rate is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
(e) Expenses:
Expenses that are specific to the fund are
charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.
(f) Distributions to Shareholders:
The fund generally makes distributions from net
investment income, if any, quarterly and from net realized capital gains, if any, once a year.
(g) Accounting Estimates:
The accounting policies described in this report
conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s
possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The fund intends to meet federal income and
excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its respective shareholders each year. As long as the fund meets
the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The fund may be subject to foreign taxes (a
portion of which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign
markets in which the fund invests. These foreign taxes, if any, are paid by the fund and are disclosed in the Statement of Operations. Foreign taxes payable as of February 29, 2016, if any, are reflected in the fund’s Statement of Assets and
Liabilities.
21
Financial Notes (continued)
2.
Significant Accounting Policies (continued):
(j)
Indemnification:
Under the fund’s
organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors
and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of
loss attributable to these arrangements to be remote.
3. Risk Factors:
Investing in the fund may involve certain risks,
as discussed in the fund's prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk.
Equity markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose money.
Equity Risk. The
prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock
prices to fall over short or extended periods of time.
Investment Style Risk. The fund invests in global real estate companies, including REITs, as measured by the index. It follows those stocks during upturns as well as downturns. Because of its indexing strategy, the fund does not take steps to
reduce market exposure or to lessen the effects of a declining market. In addition, because of the fund's expenses, the fund's performance may be below that of the index.
Small- and Mid-Cap Risk. Even the larger REITs and other real estate companies may be small- to medium-sized companies in relation to the equity markets as a whole. Historically, small- and mid-cap stocks have been riskier than large-cap
stocks. Small- and mid-cap companies themselves may be more vulnerable to adverse business or economic events than larger, more established companies. Stock prices of smaller companies may be based in substantial part on future expectations rather
than current achievements and may move sharply, especially during market upturns and downturns. During a period when small- and mid-cap stocks fall behind other types of investments—bonds or large-cap stocks, for instance—the fund’s small- and mid-cap holdings could reduce performance.
Real Estate Investment Risk. Due to the composition of the index, the fund will concentrate its investments in real estate companies and companies related to the real estate industry. As such, the fund is subject to risks associated with the direct
ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets. These risks include, among others: declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.
REITs Risk. In
addition to the risks associated with investing in securities of real estate companies and real estate related companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in the value of the underlying
properties owned by the trusts. Further, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, or in a small geographic area or a single property type. Failure of a
company to qualify as a REIT under federal tax law may have adverse consequences to the fund. In addition, REITs have their own expenses, and the fund will bear a proportionate share of those expenses.
Foreign Investment Risk. The fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in
foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government
restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of the fund's
investments, and could impair the fund's ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. Foreign securities also include
American Depositary receipts (ADRs), Global Depository receipts (GDRs) and European Depository receipts (EDRs), which are receipts issued by U.S. and foreign banks that represent shares of foreign-based corporations. Investments in ADRs, GDRs, and
EDRs may be less liquid
22
Financial Notes (continued)
3.
Risk Factors (continued):
than the
underlying shares in their primary trading market and GDRs, many of which are issued by companies in emerging markets, may be more volatile. To the extent the fund's investments in a single country or a limited number of countries represent a large
percentage of the fund's assets, the fund's performance may be adversely affected by the economic, political and social conditions in those countries and it may be subject to increased price volatility.
Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and
reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result,
there will tend to be an increased risk of price volatility associated with the fund's investments in emerging market countries which may be magnified by currency fluctuations relative to the U.S. dollar and, at times, it may be difficult to value
such investments.
Sampling Index
Tracking Risk. The fund may not fully replicate the index and may hold securities not included in the index. As a result, the fund is subject to the risk that the investment adviser’s investment management
strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. Because the fund utilizes a sampling approach, it may not track the return of the index as well as it would if the fund purchased all
of the securities in the index.
Tracking Error Risk. As an index fund, the fund seeks to track the performance of the index, although it may not be successful in doing so. The divergence between the performance of the fund and the index, positive or negative, is called
“tracking error.” Tracking error can be caused by many factors and it may be significant.
Concentration Risk. To the extent that the fund’s or the index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector, country, or asset class (including the real
estate industry, as described above), the fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory
occurrences affecting that market, industry, group of industries, sector, country, or asset class.
Derivatives Risk.
The fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific
date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain
securities and a predetermined amount.
The fund’s use of derivative instruments
involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as market risk and liquidity risk, are discussed elsewhere in this
section. The fund’s use of derivatives is also subject to credit risk, leverage risk, lack-of-availability risk, valuation risk, correlation risk and tax risk. Lack-of-availability risk is the risk that suitable derivative transactions may not
be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested
in derivatives can have a disproportionately large impact on the fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate
perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gain. These risks could cause the fund to lose more than the initial amount
invested. The use of derivatives, subject to regulation by the Commodity Futures Trading Commission (CFTC), could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
Exchange-Traded Fund (ETF) Risk. The fund may purchase shares of ETFs to gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. When the fund invests in an ETF, in addition to directly bearing
the expenses associated with its own operation, it will bear a proportionate share of the ETF’s expenses. Therefore, it may be more costly to own an ETF than to own the underlying securities directly. In addition, while the risks of owning
shares of an ETF generally reflect the risks of owning the underlying securities the ETF is design to track, lack of liquidity in the market for an ETF's shares can result in its value being more volatile than the underlying portfolio of
securities.
Liquidity Risk. A particular investment may be difficult to purchase or sell. The fund may be unable to sell illiquid securities at an advantageous time or price.
Please refer to the fund’s prospectus for a
more complete description of the principal risks of investing in the fund.
23
Financial Notes (continued)
4. Affiliates and Affiliated
Transactions:
Charles Schwab Investment
Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund's investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between CSIM
and the trust.
For its advisory and
administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:
| % of Average Daily Net Assets | |
| First $500 million | 0.40% |
| $500 million to $5 billion | 0.38% |
| $5 billion to $10 billion | 0.36% |
| Over $10 billion | 0.34% |
The Board has adopted
a Shareholder Servicing Plan (the Plan) on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, Schwab), of
certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. Schwab serves as the fund's paying agent under the Plan for making payments of the shareholder service fee due to the service providers
(other than Schwab) under the Plan. All shareholder service fees paid by the fund to Schwab in its capacity as the fund's paying agent will be passed through to the service providers, and Schwab will not retain any portion of such fees.
Pursuant to the Plan, the fund’s shares are
subject to an annual shareholder servicing fee up to 0.10%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab (or, in the case of payments made to Schwab, pursuant to
Schwab’s written agreement with the fund). Payments under the Plan are made as described above regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the
Plan is less than the payment received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.
Although these agreements specify certain fees
for these services, CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total
annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses (expense limitation) to 0.49%.
Total offering costs of approximately $102,000
paid in connection with the offering of shares of the fund are amortized on a straight line basis over 12 months from the date the fund commenced operations. CSIM has agreed to reimburse the fund for all offering costs.
CSIM has a licensing agreement with the Frank
Russell Company to use certain Russell indices and trademarks in connection with the offering and operation of certain registered investment companies. The fund entered into a sublicense agreement with CSIM pursuant to which CSIM has agreed to
sublicense certain Russell indices and trademarks to the fund. Under the sublicense agreement, the fund pays all applicable licensing fees.
Pursuant to an exemptive order issued by the SEC,
the fund may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged
will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds/portfolios. The interfund
lending facility is subject to the oversight and periodic review by the Board. The fund had no interfund borrowing or lending activity during the period.
5. Board of Trustees:
At a Special Meeting of Shareholders on December
11, 2015, twelve individuals were elected to serve as trustees of all trusts constituting the Schwab Funds, Laudus Funds and Schwab ETFs effective January 1, 2016. The twelve individuals elected to the Board of Trustees consist of the former Schwab
Funds and Laudus Funds trustees, the former Schwab ETFs trustees and three new nominees. The trustees believe that combining the composition of the Board of Trustees and adding the new nominees will further align oversight of the Schwab Funds,
Laudus Funds and Schwab ETFs, among other benefits.
24
Financial Notes (continued)
5.
Board of Trustees (continued):
The
Board may include people who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with
these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations.
For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
6. Borrowing from Banks:
Prior to October 8, 2015, the fund had access to
a committed line of credit of $150 million with State Street Bank and Trust Company (State Street), an uncommitted line of credit of $100 million with Bank of America, N.A., and an uncommitted line of credit of $50 million with Brown Brothers
Harriman & Co. The fund paid an annual fee to State Street for the committed line of credit. Effective October 8, 2015, the previous lines of credit were terminated and the fund became a participant with other U.S. registered investment
companies managed by CSIM in a joint, syndicated, committed $530 million line of credit (the Credit Facility), with State Street as agent, which matures on October 6, 2016. Under the terms of the Credit Facility, in addition to the interest charged
on any borrowings by a fund, the fund pays a commitment fee of 0.125% per annum on its proportionate share of the unused portion of the Credit Facility. There were no borrowings from any of the lines of credit during the period.
The fund also has access to custodian overdraft
facilities. The fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current
Federal Funds Rate.
7.
Derivatives:
The fund entered into equity
index futures contracts during the report period. The fund invested in futures contracts to equitize available cash. The fair value and variation margin for futures contracts held at February 29, 2016 are presented on the Portfolio Holdings and
Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the fund’s accounting policies with
respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended February 29, 2016, the month-end average contract values of futures contracts held by the fund was
$95,546 and the month-end average number of contracts held was 1.
8. Purchases and Sales/Maturities of
Investment Securities:
For the period ended
February 29, 2016, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:
| Purchases of Securities | Sales/Maturities of Securities | |
| $25,138,299 | $33,570,126 |
9. Redemption
Fee:
The fund charges a 2.00% redemption
fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts are netted against redemption proceeds on the Statement of Changes in Net Assets. The redemption fees charged during the current period are:
| Current
Period (3/1/15-2/29/16) |
Prior
Period (10/22/14*-2/28/15) | |
| $2,652 | $5,119 |
| * | Commencement of operations. |
25
Financial Notes (continued)
10. Federal Income Taxes:
As of February 29, 2016, the components of
distributable earnings on a tax-basis were as follows:
| Undistributed ordinary income | $691,342 |
| Undistributed long-term capital gains | — |
| Unrealized appreciation on investments | 4,037,301 |
| Unrealized depreciation on investments | (11,096,513) |
| Other unrealized appreciation (depreciation) | 635 |
| Net unrealized appreciation (depreciation) | ($7,058,577) |
The primary
differences between book-basis and tax-basis unrealized appreciation or unrealized depreciation of investments are the tax deferral of losses on wash sales and PFICs.
Capital loss carryforwards may be used to offset
future realized capital gains for federal income tax purposes. As of February 29, 2016, the fund had capital loss carryforwards of $272,182 with no expiration*.
| * | As a result of the passage of the Regulated Investment Company Modernization Act of 2010, capital losses incurred after December 31, 2010 may now be carried forward indefinitely, but must retain the character of the original loss. |
For tax purposes, net realized capital losses and
late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended February 29, 2016, the fund had no capital losses deferred and no capital loss
carryforwards utilized.
The tax-basis
components of distributions paid during the current fiscal year were as follows:
| Current period distributions | |
| Ordinary income | $2,655,237 |
| Long-term capital gains | — |
| Return of capital | — |
| Prior period distributions | |
| Ordinary income | $915,589 |
| Long-term capital gains | 3,994 |
| Return of capital | — |
Distributions paid to
shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
Permanent book and tax basis differences may
result in reclassifications between components of net assets as required. The adjustments will have no impact on net assets or the results of operations. As of February 29, 2016, the fund made the following reclassifications:
| Capital shares | $— |
| Undistributed net investment income | 45,946 |
| Net realized capital gains (losses) | (45,946) |
As of February 29,
2016, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision
for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 29,
2016, the fund did not incur any interest or penalties.
11. Subsequent Events:
Management has determined there are no subsequent
events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
26
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of:
Schwab Fundamental Global Real Estate Index Fund
Schwab Fundamental Global Real Estate Index Fund
In our opinion, the accompanying statement of
assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Fundamental
Global Real Estate Index Fund (one of the funds constituting Schwab Capital Trust, hereafter referred to as the “Fund”) at February 29, 2016, the results of its operations for the year then ended, and the changes in its net assets and
the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial
statements”) are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of securities at February 29, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 15, 2016
San Francisco, California
April 15, 2016
27
Other Federal Tax Information (unaudited)
The fund may elect to pass on the benefits of
the foreign tax credit of $152,380 to its shareholders for the period ended February 29, 2016. The respective foreign source income of the fund is $2,039,849.
For the period ended February 29, 2016, the fund
designated $406,007 of the dividend distributions as qualified dividends for the purpose of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2017 via IRS form 1099 of the amounts for use
in preparing their 2016 income tax return.
For corporate shareholders, 0.06% of the fund's
dividend distributions paid during the fiscal year ended February 29, 2016, qualify for the corporate dividends received deduction.
28
Shareholder Vote Results (Unaudited)
A Special Meeting of Shareholders of Schwab
Capital Trust (the “Trust”) was held on December 11, 2015, for the purpose of seeking shareholder approval to elect the following individuals as trustees of the Trust: Walter W. Bettinger II, Marie A. Chandoha, Joseph R. Martinetto,
Robert W. Burns, John F. Cogan, Stephen T. Kochis, David L. Mahoney, Kiran M. Patel, Kimberly S. Patmore, Charles A. Ruffel, Gerald B. Smith, and Joseph H. Wender. The number of votes necessary to conduct the Special Meeting and approve the proposal
was obtained. The results of the shareholder vote are listed below:
| Proposal
– To elect each of the following individuals as trustees of the Trust: |
For | Withheld | ||
| Walter W. Bettinger II | 1,781,628,338.445 | 341,201,457.803 | ||
| Marie A. Chandoha | 2,069,741,484.184 | 53,088,312.064 | ||
| Joseph R. Martinetto | 2,070,394,888.403 | 52,434,907.845 | ||
| Robert W. Burns | 2,070,083,106.758 | 52,746,689.490 | ||
| John F. Cogan | 1,909,915,620.213 | 212,914,176.035 | ||
| Stephen T. Kochis | 2,067,778,859.342 | 55,050,936.906 | ||
| David L. Mahoney | 2,068,011,019.030 | 54,818,777.218 | ||
| Kiran M. Patel | 2,066,263,491.520 | 56,566,304.728 | ||
| Kimberly S. Patmore | 2,069,034,220.641 | 53,795,575.607 | ||
| Charles A. Ruffel | 2,070,448,922.775 | 52,380,873.473 | ||
| Gerald B. Smith | 2,069,060,923.296 | 53,768,872.952 | ||
| Joseph H. Wender | 2,065,502,834.216 | 57,326,962.032 |
29
Trustees and Officers
The tables below give information about the
trustees and officers of Schwab Capital Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab
Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 96 funds.
The address for all trustees and officers is 211
Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) and President, PIMCO Funds. | 96 | Director, PS Business Parks, Inc. (2005 – 2012). |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust and Laudus Institutional Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015). | 96 | Director,
Gilead Sciences, Inc. (2005 – present) |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012). | 96 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 96 | Director,
Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present) |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013). | 96 | Director, KLA-Tencor Corporation (2008 – present) |
30
| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, and Laudus Trust since 2016) |
Consultant, Patmore Management Consulting (management consulting) (2008 – present). | 96 | None |
| Charles
A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2015) |
Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015). | 96 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust and Laudus Institutional Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present). | 96 | Director,
Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012) |
| Joseph
H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust and Laudus Institutional Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present). | 96 | Board
Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present) |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust and Laudus Institutional Trust since 2010) |
Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); and Director, Schwab Holdings, Inc. (May 2008 – present). | 96 | Director, The Charles Schwab Corporation (2008 – present) |
31
| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Marie
A. Chandoha2 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, and Laudus Trust since 2016) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). | 96 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, and Laudus Trust since 2016) |
Senior Executive Vice President and Chief Financial Officer, The Charles Schwab Corporation and Charles Schwab & Co., Inc. (July 2015 – present); Executive Vice President and Chief Financial Officer of The Charles Schwab Corporation and Charles Schwab & Co., Inc. (May 2007 – July 2015); Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director, Executive Vice President and Chief Financial Officer, Schwab Holdings, Inc. (May 2007 – present). | 96 | None |
| Officers of the Trust | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Marie
A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust since 2010) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). |
| Mark
Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust since 2013) |
Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011). |
32
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| George
Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust and Laudus Institutional Trust since 2006; Schwab Strategic Trust since 2009) |
Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present). |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust since 2011) |
Senior Vice President and Chief Investment Officer – Equities, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009). |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust since 2011) |
Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (Apr. 2006 – Jan. 2008). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust since 2011) |
Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present). |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Ms. Chandoha, and Mr. Martinetto are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
33
34
35
36
Investment Adviser
Charles Schwab Investment Management, Inc.
211 Main Street, San Francisco, CA 94105
211 Main Street, San Francisco, CA 94105
Funds
Schwab Funds®
1-800-435-4000
1-800-435-4000
This report is not authorized for distribution to
prospective investors unless preceded or accompanied by a current prospectus.
© 2016 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC®
Printed on recycled paper.
© 2016 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC®
Printed on recycled paper.
MFR85263-01
00162649
00162649
Table of Contents
Item 2: Code of Ethics.
| (a) | Registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and any other persons who perform a similar function, regardless of whether these individuals are employed by Registrant or a third party. |
| (c) | During the period covered by the report, no amendments were made to the provisions of this code of ethics. |
| (d) | During the period covered by the report, Registrant did not grant any waivers, including implicit waivers, from the provisions of this code of ethics. |
| (f)(1) | Registrant has filed this code of ethics as an exhibit pursuant to Item 12(a)(1) of Form N-CSR. |
Item 3: Audit Committee Financial Expert.
Registrant’s Board of Trustees has determined that Kiran M. Patel, Robert W. Burns and Kimberly S. Patmore, each currently serving on its audit committee, are each an “audit committee financial expert,” as such term is defined in Item 3 of Form N-CSR. Each member of Registrant’s audit committee is “independent” under the standards set forth in Item 3 of Form N-CSR.
The designation of each of Mr. Patel, Mr. Burns and Ms. Patmore as an “audit committee financial expert” pursuant to Item 3 of Form N-CSR does not (i) impose upon such individual any duties, obligations, or liability that are greater than the duties, obligations and liability imposed upon such individual as a member of Registrant’s audit committee or Board of Trustees in the absence of such designation; and (ii) affect the duties, obligations or liability of any other member of Registrant’s audit committee or Board of Trustees.
Item 4: Principal Accountant Fees and Services.
Registrant is composed of thirty-eight series. One series has a fiscal year-end of February 28, whose annual financial statements are reported in Item 1, thirty-four series have a fiscal year-end of October 31, and three series have a fiscal year-end of December 31. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to the thirty-eight series live during 2016 and 2015, based on their respective 2015/2016 and 2014/2015 fiscal years, as applicable.
The following table presents fees billed by the principal accountant in each of the last two fiscal years for the services rendered to the Funds:
| (a) Audit Fees | (b) Audit-Related Fees1 | (c) Tax Fees2 | (d) All Other Fees3 | |||||||||||||||||||||||||||
| Fiscal Year 2015/2016 |
Fiscal Year 2014/2015 |
Fiscal Year 2015/2016 |
Fiscal Year 2014/2015 |
Fiscal Year 2015/2016 |
Fiscal Year 2014/2015 |
Fiscal Year 2015/2016 |
Fiscal Year 2014/2015 |
|||||||||||||||||||||||
| $ | 1,275,248 | $ | 1,419,234 | $ | 0 | $ | 0 | $ | 129,645 | $ | 101,456 | $ | 12,838 | $ | 19,357 | |||||||||||||||
Table of Contents
| 1 | The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. |
| 2 | The nature of the services includes tax compliance, tax advice and tax planning. |
| 3 | The nature of the services include agreed upon procedures relating to Charles Schwab Investment Management., Inc.’s, (“CSIM”) expenses for purposes of Section 15(c) of the Investment Company Act of 1940. |
| (e) | (1) | Registrant’s audit committee does not have pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. | ||
| (2) | There were no services described in each of paragraphs (b) through (d) above (including services required to be approved by Registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. | |||
(f) Not applicable.
(g) Below are the aggregate non-audit fees billed in each of the last two fiscal years by Registrant’s principal accountant for services rendered to Registrant, to Registrant’s investment adviser, and to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant.
| 2015/2016: $142,483 | 2014/2015: $120,813 |
Although not required to be included in the amounts disclosed under this paragraph (g) or any other paragraph of this Item 4, below are the aggregate fees billed in each of the last two fiscal years by Registrant’s principal accountant for tax compliance services rendered to U.S. Trust, an entity under common control with Registrant’s investment adviser that does not provide services to Registrant.
| (h) | During the past fiscal year, all non-audit services provided by Registrant’s principal accountant to either Registrant’s investment adviser or to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit committee’s pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant’s independence. |
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Schedule of Investments.
The schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form.
Table of Contents
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
| Item 9: | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
| (a) | Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Marie Chandoha and Registrant’s Principal Financial Officer, Mark Fischer, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. |
| (b) | During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting. |
Item 12: Exhibits.
| (a) | (1) | Registrant’s code of ethics (that is the subject of the disclosure required by Item 2(a)) is attached. | ||
| (2) | Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. | |||
| (3) | Not applicable. | |||
| (b) | A certification for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being | |||
Table of Contents
| furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission. | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) Schwab Capital Trust | ||
| By: | /s/ Marie Chandoha | |
| Marie Chandoha | ||
| Chief Executive Officer | ||
| Date: | 4/12/16 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Marie Chandoha | |
| Marie Chandoha | ||
| Chief Executive Officer | ||
| Date: | 4/12/16 | |
| By: | /s/ Mark Fischer | |
| Mark Fischer | ||
| Chief Financial Officer | ||
| Date: | 4/5/16 | |