0001193125-17-078443.txt : 20170310 0001193125-17-078443.hdr.sgml : 20170310 20170310140303 ACCESSION NUMBER: 0001193125-17-078443 CONFORMED SUBMISSION TYPE: DEF 14C PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20161213 FILED AS OF DATE: 20170310 DATE AS OF CHANGE: 20170310 EFFECTIVENESS DATE: 20170310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CAPITAL TRUST CENTRAL INDEX KEY: 0000904333 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: DEF 14C SEC ACT: 1934 Act SEC FILE NUMBER: 811-07704 FILM NUMBER: 17681432 BUSINESS ADDRESS: STREET 1: 211 MAIN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 1-415-667-7000 MAIL ADDRESS: STREET 1: 211 MAIN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 0000904333 S000006550 Laudus Small-Cap MarketMasters Fund C000017887 Investor Shares SWOSX C000017888 Select Shares SWMSX DEF 14C 1 d343041ddef14c.htm DEF 14C DEF 14C

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14C

INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE

SECURITIES EXCHANGE ACT OF 1934

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Schwab Capital Trust

(Name of Registrant as Specified in its Charter)

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  (1) Title of each class of securities to which transaction applies:
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LOGO

INFORMATION STATEMENT

Schwab Capital Trust

Laudus Small-Cap MarketMasters Fund™

211 Main Street

San Francisco, California 94105

March 10, 2017

Dear Shareholder,

We are pleased to inform you that Charles Schwab Investment Management, Inc. (CSIM) has entered into a new investment sub-advisory agreement on behalf of the Laudus Small-Cap MarketMasters Fund (the “Fund”), a series of Schwab Capital Trust (the “Trust”), with Voya Investment Management Co. LLC (Voya).

At the recommendation of CSIM, during a meeting held on December 13, 2016, the Trust’s Board of Trustees (the “Board” or “Trustees”) approved the appointment of Voya as a new investment manager to manage an allocated portion of the Fund’s assets. Voya began managing its allocated portion of the Fund’s assets on January 9, 2017.

This Information Statement is being provided to shareholders of the Fund in lieu of a proxy statement, pursuant to the terms of an exemptive order that the Fund received from the Securities and Exchange Commission (SEC). Please take a moment to read the enclosed Information Statement that describes the changes discussed above.

This Information Statement is for informational purposes only and no action is required on your part.

We Are Not Asking You for a Proxy and You Are Requested Not To Send Us a Proxy.


Background of Transaction

Subject to oversight by the Board, under the terms of the investment advisory agreement with the Fund, CSIM acts as “manager-of-managers” for the Fund and has overall responsibility for the management of the Fund. In connection with its duties as the manager-of-managers, CSIM may allocate portions of the Fund’s assets to several investment managers, who then manage their respective portions under the general supervision of CSIM. CSIM reviews and evaluates the Trust’s investment managers on an ongoing basis. Currently, the Fund operates with four investment managers.

As described in more detail under the “Additional Information about SEC Exemptive Order” section below, the Trust and CSIM have received exemptive relief from the SEC permitting CSIM to hire or terminate investment managers without shareholder approval, subject to certain conditions. At a meeting held on December 13, 2016, and pursuant to CSIM’s recommendation, the Board approved Voya as a new investment manager for the Fund and approved a corresponding investment sub-advisory agreement between CSIM and Voya (the “New Sub-Advisory Agreement”).

The following table identifies the Fund’s current investment managers, their areas of focus and approximate asset allocation as of February 28, 2017.

 

Investment Manager

   Investment Style    Allocation of
Net Assets (%)
 

The Boston Company Asset Management, LLC

   Small-/mid-cap core      25.5

Mellon Capital Management Corp.

   Small-cap blend      0.0

Voya Investment Management Co. LLC

   Small-cap growth      33.3 %* 

Wellington Management Company LLP

   Small-cap value      37.4

Cash and other assets

        3.7

 

  * Voya Investment Management Co. LLC began managing a portion of the Fund’s assets on January 9, 2017.

Investment Strategies of Voya

Voya’s investment strategy is based on fundamental research performed by its small cap research analysts, who specialize in specific sectors. The Voya U.S. Small Cap team identifies candidates in the Russell 2000 Growth plus companies outside the index, with market caps that fall within the parameters of the index. Sector valuation methodologies refine the universe by ranking each stock relative to stocks within its sector. Secular and cyclical themes likely to drive growth are then identified. Analysts “follow the cash flow” by evaluating cash flow, balance sheets and income statements to determine the company’s ability to fund expected growth and generate attractive returns. Analysts also analyze sector/industry fundamentals, competitive positioning and company management. Holdings typically have accelerating revenue, EPS and cash flow growth and attractive valuations based on price/sales, forward PE, cash flow yield and net cash/market capitalization, and are beneficiaries of a secular or cyclical theme. Portfolio construction is based on attractiveness of each stock, given benchmark weight, expected return, perceived risk and liquidity.

New Sub-Advisory Agreement

The Trustees approved the New Sub-Advisory Agreement after a thorough analysis of the proposed services to be provided by Voya. The material factors considered by the Trustees in approving the New Sub-Advisory Agreement are set forth below under the “Trustees’ Considerations” section. The terms of the New Sub-Advisory Agreement are substantially similar to those of each existing sub-advisory agreement with the Fund’s other investment managers. Some of the terms and conditions of the New Sub-Advisory Agreement are summarized below.

Duties of Voya. Subject to the supervision of the Trust, the Trustees and CSIM, Voya is responsible for managing the investment and reinvestment of the Managed Assets and for determining, in its discretion, the

 

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securities and other property to be purchased or sold and the portion of the Managed Assets to be retained in cash. For purposes of the New Sub-Advisory Agreement, “Managed Assets” refers to the portion of the Fund’s assets that may be allocated by CSIM for management by Voya from time to time, together with all income earned on those assets and all realized and unrealized capital appreciation related to those assets.

In performing its duties and obligations under the New Sub-Advisory Agreement, Voya is not permitted to consult with any other investment manager to the Fund concerning the Managed Assets, except to the extent permitted under the Investment Company Act of 1940, as amended (the “1940 Act”), or any rule, regulation or order thereunder. Voya is required to use the same reasonable skill and care in providing investment advisory services to the Fund as it utilizes in providing investment advisory services to other fiduciary accounts for which it has investment responsibilities.

Voya is not responsible for providing investment advice to any other portion of the Fund’s assets allocated to another investment manager, nor for reviewing the proxy solicitation materials and exercising voting rights associated with securities comprising the Managed Assets, unless CSIM provides written instructions to the contrary.

Voya is required to assist the Trust, the Fund’s distributor and CSIM, as may be reasonably requested by such parties, in connection with the offering, sale and marketing of Fund shares. Such assistance may include, but is not limited to, attendance and participation in meetings, conferences and educational events; review of materials relating to Voya included in Fund materials; and providing certain other materials or data to CSIM.

Voya will provide appropriate assistance for determining, in good faith, the fair value of securities comprising the Managed Assets, when requested by CSIM. However, the Fund is responsible for any fair value pricing determinations.

Voya must fulfill its duties pursuant to the New Sub-Advisory Agreement in compliance with (i) such policies as the Trust, the Trustees and CSIM may from time to time establish; (ii) the Fund’s prospectus and statement of additional information (SAI); (iii) the Trust’s Declaration of Trust and By-Laws; (iv) the provisions of the 1940 Act applicable to Voya; (v) the Investment Advisers Act of 1940, as amended (the “Advisers Act”); (vi) to the extent CSIM notifies Voya, any exemptive or other relief granted by the SEC; and (vii) certain other U.S. federal laws applicable to Voya.

Voya will perform these duties at its own expense, and will furnish all the office space, furnishings and equipment and the personnel that Voya requires to perform its duties under the New Sub-Advisory Agreement. Voya is not required to pay for the cost of securities, commodities, and other investments (including brokerage commissions and other transaction charges, if any) purchased or sold for the Fund.

Portfolio Transactions. Subject to certain conditions, Voya is authorized to select brokers or dealers to execute the purchases and sales of portfolio securities and other property for the Fund and to utilize the services of a broker or dealer that provides brokerage or research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended). In effecting transactions for the Fund and selecting brokers or dealers, Voya is required to use its best efforts to seek, on behalf of the Fund, the best overall terms available. Voya is permitted to aggregate orders for purchase or sale of Managed Assets with similar orders being made concurrently for other accounts managed by Voya.

Compensation of Voya. As compensation for its services to the Fund under the New Sub-Advisory Agreement and expenses incurred in performing such services, Voya is entitled to receive fees from CSIM (not the Fund), based on a percentage of the average daily value of the portion of Fund’s net assets allocated to Voya. Accordingly, the appointment of Voya to the Fund does not affect the management fees paid by the Fund or its shareholders.

 

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The following table shows the aggregate sub-advisory fees paid by CSIM to the Fund’s unaffiliated investment managers, in the aggregate, during the Fund’s most recent fiscal year ended October 31, 2016.

 

Fund

   Aggregate Sub-Advisory
Fees Paid by

CSIM to the Investment
Managers in Dollars
     Aggregate Sub-Advisory Fees Paid
by CSIM to the Investment
Managers as a % of Average Net
Assets of the Fund
 

Laudus Small-Cap MarketMasters Fund

   $ 868,770        0.55

Limitation of Liability of Voya. The New Sub-Advisory Agreement provides that Voya will not be liable for any claims, liabilities, damages, costs or losses (collectively, “Claims”) arising out of the New Sub-Advisory Agreement, except to the extent such Claims arise out of: (i) Voya’s negligence, bad faith or willful misfeasance; or (ii) Voya’s breach of the New Sub-Advisory Agreement.

Indemnification. The New Sub-Advisory Agreement provides that Voya will indemnify and hold harmless the Trust, the Trustees and CSIM, their affiliates and their respective employees, officers and directors from and against all Claims arising out of the New Sub-Advisory Agreement to the extent such Claims arise out of: (i) Voya’s negligence, bad faith or willful misfeasance; or (ii) Voya’s breach of the New Sub-Advisory Agreement.

The New Sub-Advisory Agreement also provides that CSIM will indemnify and hold harmless Voya, its affiliates and their respective employees, officers and directors from and against all Claims arising out of the New Sub-Advisory Agreement, except to the extent such Claims arise out of: (i) Voya’s negligence, bad faith or willful misfeasance; or (ii) Voya’s breach of the New Sub-Advisory Agreement.

Duration and Termination. The New Sub-Advisory Agreement initially continues in effect for a period of two years after its effective date and will continue thereafter for successive one-year periods, provided that its continuance is approved at least annually (i) by a vote of a majority of the Trustees who are not “interested persons” (as defined in the 1940 Act) of the Trust (Independent Trustees), cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Trustees or by vote of a majority of the outstanding voting securities of the Fund; provided, however, that in the event that the shareholders of the Fund fail to so approve the New Sub-Advisory Agreement, Voya may continue to serve in the manner and to the extent permitted by the 1940 Act.

The New Sub-Advisory Agreement provides for termination, without cause and without payment of any penalty by the Trust, the Trustees or CSIM, by vote of a majority of the Trustees or by vote of a majority of the outstanding voting securities of the Fund on not more than 60 days’ written notice to Voya, or by CSIM upon 90 days’ written notice to Voya. In addition, the New Sub-Advisory Agreement may be terminated, with cause, by CSIM at any time, without payment of any penalty by the Trust, the Trustees and CSIM, upon written notice to Voya. The New Sub-Advisory Agreement provides that it may not be terminated by Voya prior to December 13, 2017, unless mutually agreed upon by Voya and CSIM. Thereafter, the New Sub-Advisory Agreement may be terminated by Voya at any time, without cause and without payment of any penalty, upon 90 days’ written notice to CSIM.

The New Sub-Advisory Agreement terminates automatically in the event of its “assignment,” as defined in the 1940 Act, or in the event of the termination of the Investment Advisory and Administration Agreement between CSIM and the Trust (the “Management Agreement”).

Trustees’ Considerations

At a meeting of the Board held on December 13, 2016, CSIM recommended, and the Trustees, including a majority of the Independent Trustees, approved the New Sub-Advisory Agreement pursuant to which Voya is appointed as a sub-adviser (“investment manager” or “sub-adviser”) to the Fund.

The Board was provided with detailed materials related to Voya in advance of, and additional materials at the meeting. The materials and related discussions included, but were not limited to, information about Voya’s

 

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(a) quality of investment management and other services; (b) investment management personnel; (c) operations and financial condition; (d) brokerage practices (including any soft dollar arrangements) and other investment strategies; (e) compliance systems; (f) policies on, and compliance procedures for, personal securities transactions; (g) reputation, expertise and resources; (h) performance compared with similar advisers; and (i) performance with respect to similar accounts managed by Voya. In addition, the Board was provided with information about the level of the sub-advisory fees to be paid to Voya, and comparable fees paid to Voya for managing similar accounts. The Independent Trustees received advice from independent counsel to the Independent Trustees. The proposed appointment of Voya was first reviewed and discussed in the Investment Oversight Committee of the Board (the “Committee”) on December 12, 2016. Following such discussion, the Committee recommended the New Sub-Advisory Agreement to the Board for approval.

In its consideration of the approval of the New Sub-Advisory Agreement, the Board considered a variety of specific factors, including:

 

  1. the nature, extent and quality of the services to be provided to the Fund under the New Sub-Advisory Agreement, including the resources of Voya to be dedicated to the Fund;

 

  2. Voya’s investment performance in providing sub-advisory services with respect to similar accounts;

 

  3. the Fund’s expenses and how those expenses would be impacted by the hiring of Voya;

 

  4. the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (Schwab), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

 

  5. the extent to which economies of scale may be realized as the Fund grows and whether fee levels in the New Sub-Advisory Agreement with Voya reflect the economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the sub-advisory services to be provided by Voya to the Fund and the resources Voya will dedicate to the Fund. In this regard, the Trustees considered the information provided by Voya with respect to its history, reputation, expertise, qualifications of its personnel, and experience in managing the type of strategies for which Voya was being engaged. The Board also considered reports regarding the search process undertaken by CSIM that led to the identification of Voya by CSIM as a well-qualified sub-adviser to the Fund with an investment style consistent with the Fund’s investment objective and strategies, and CSIM’s desired risk/return profile. The Trustees also considered the Trust’s Chief Compliance Officer’s evaluation of Voya’s compliance program and the recommended compliance monitoring program for Voya. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services to be provided by Voya to the Fund and the resources of Voya to be dedicated to the Fund supported approval of the New Sub-Advisory Agreement with Voya.

Investment Performance. The Board considered Voya’s investment performance in determining whether to approve the New Sub-Advisory Agreement. Specifically, the Trustees considered Voya’s tracking error relative to appropriate benchmarks as well as its overall relative performance in providing investment advisory services to similar accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the investment performance of Voya supported approval of the New Sub-Advisory Agreement.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation to be paid under the New Sub-Advisory Agreement, and the Fund’s net operating expense ratio. When considering the fees to be paid to Voya, the Trustees took into account the fact that Voya will be compensated by CSIM, and not by the Fund directly, and that the fees paid to Voya would not impact the fees paid by the Fund to CSIM. The Trustees also considered fees charged by Voya to comparable sub-advised accounts. The Board considered CSIM’s statements that the fees to be paid to Voya are reasonable in light of the anticipated quality of services to be provided by Voya. Following such evaluation, the Board concluded, within the context of its full deliberations, that the fees to be paid to Voya are reasonable and supported approval of the New Sub-Advisory Agreement.

 

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Profitability. With respect to the profitability of CSIM, the Trustees considered projected profitability to CSIM before and after the appointment of Voya as a new sub-adviser. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the expected profitability of CSIM supported approval of the New Sub-Advisory Agreement. With respect to Voya, no historical information regarding the profitability of its relationship to the Fund was available. The Trustees took into account, however, the fact that Voya will be compensated by CSIM, and not by the Fund directly, and that the compensation paid to Voya reflects an arms-length negotiation between CSIM and Voya, which are unaffiliated with each other.

Economies of Scale. The Board considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In connection with its evaluation, the Board took into account the fact that the existing contractual investment advisory fee schedules relating to the Fund include lower fees at higher graduated asset levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including a majority of the Independent Trustees, approved the New Sub-Advisory Agreement for an initial two-year term and concluded that the compensation under the New Sub-Advisory Agreement is fair and reasonable in light of such services, and such other matters as the Trustees considered to be relevant in the exercise of their reasonable judgment.

Additional Information about SEC Exemptive Order

The Trust and CSIM have received exemptive relief from the SEC to permit CSIM to hire or terminate investment managers without shareholder approval, subject to certain conditions. One of the conditions requires approval by the Board before any such hiring is implemented. In addition, within 90 days of the hiring of any new investment manager, shareholders of the Fund must be furnished with an information statement describing the new investment manager. The exemptive order currently prohibits CSIM from entering into sub-advisory agreements with affiliates of the investment adviser without shareholder approval.

Additional Information about the Trust and CSIM

The Trust is an open-end investment management company organized as a Massachusetts business trust on May 7, 1993.

CSIM, a wholly owned subsidiary of The Charles Schwab Corporation, located at 211 Main Street, San Francisco, CA 94105, serves as the Fund’s investment adviser and administrator pursuant to the Management Agreement.

Schwab, an affiliate of CSIM, located at 211 Main Street, San Francisco, CA 94105, serves as distributor for the Fund.

Additional Information about Voya

Voya is a wholly-owned subsidiary of Voya Investment Management LLC, a registered investment adviser, which in turn is a wholly-owned subsidiary of Voya Holdings Inc., which in turn is a wholly-owned subsidiary of Voya Financial, Inc., a publicly traded company. Voya is headquartered in New York, New York. Its principal address is located at 230 Park Avenue, 13th Floor, New York, NY 10169.

Voya acts as an adviser to other funds whose investment objective is similar to the Fund, as shown in the table below.

 

Name of Fund

 

Investment Objective

  Size of Fund
as of
December 31, 2016
 

Sub-Advisory Fee

  Fee Waivers and
Reimbursements
Voya SmallCap Opportunities Fund   The fund seeks capital appreciation.   $830 Million  

0.405% on first $250 million

0.360% on next $250 million

0.3375% in excess of $500 million

  N/A

 

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The principal executive officers and directors of Voya, as of the date of this document, are set forth below. The address of each person below, as it relates to his or her duties with Voya, is the address of Voya listed above.

 

Name

  

Position and Principal Occupation with Voya and Principal Occupation, if Different from
Position(s) with Voya

Christine Hurtsellers, CFA

   Chief Executive Officer, Voya IM

Matt Toms, CFA

   Chief Investment Officer, Fixed Income

Shaun Mathews

   Head of Client Group

Kevin McMahon

   Senior Managing Director, Head of Technology and Operations

Michael Pratt

   Managing Director, Head of Human Resources

Michael Pytosh

   Chief Investment Officer, Equities

Amir Sahibzada

   Chief Risk Officer, Voya IM

Mark Weber, JD

   Senior Managing Director, Head of Structured Assets, Loans and Alternatives

Paul Zemsky, CFA

   Chief Investment Officer, Multi-Asset Strategies and Solutions

Jake Tuzza

   Managing Director, Head of Intermediary Distribution

Michael Bell, CFA, CPA

   Managing Director, Chief Financial Officer

No officer or Trustee of the Fund is a director, officer or employee of Voya. No officer or Trustee of the Fund, through the ownership of securities or otherwise, has any other material direct or indirect interest in Voya or any other person controlling, controlled by or under common control with Voya.

Since the beginning of the most recently completed fiscal year, none of the Trustees of the Fund has had any material interest, direct or indirect, in any material transactions, or in any material proposed transactions, to which Voya or any of its affiliates was or is to be a party.

Additional Information about the Fund’s Affiliates

During the Fund’s fiscal year ended October 31, 2016, the Fund paid the following in commissions to brokers affiliated with CSIM or any investment manager of the Fund.

 

Broker   Affiliation   Commissions     Percentage of Aggregate
Brokerage Commissions
 

BMO Capital Markets

Corp.

  BMO Asset Management Corp., a former investment manager of the Fund   $ 322.00       0.14%  

The Fund has entered into arms’ length, commercial agreements with affiliated persons of certain investment managers to provide services to the Fund. These arrangements and the services provided thereunder will continue to be provided following the approval of the New Sub-Advisory Agreement.

Householding

“Householding” means that we deliver a single set of proxy materials to households with multiple shareholders, provided such shareholders give their affirmative or implied consent and certain other conditions are met.

Some households with multiple shareholders already may have provided their affirmative consent or given a general consent to householding. We will provide only one set of these proxy materials to each such household, unless we receive contrary instructions.

We will promptly deliver separate copies of the proxy statement at the request of any shareholder who is in a household that participates in the householding of the Fund’s proxy materials. You may call 1-877-824-5615 and provide your Fund name.

If you currently receive multiple copies of your Fund’s proxy materials and would like to participate in householding, please contact your financial intermediary.

 

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Report to Shareholders

For a free copy of the Fund’s annual or semiannual report, call Schwab at 1-877-824-5615. In addition, you may visit the Laudus Funds’ web site at www.csimfunds.com/laudusfunds_prospectus for a free copy of the Fund’s prospectus, SAI or an annual or semiannual report.

 

 

 

 

Schwab Capital Trust 811-07704

REG96032-00

00191118

 

8

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