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Thursday, April 22, 1999

Schwab Grows Index Family

Reported by Jason Shank

Charles Schwab Investment Management launched another in its series of index funds, the Schwab Total Stock Market Index Fund, designed to track the performance of the Wilshire 5000 index, which contains almost all U.S. publicly traded stocks.

The fund will have a subscription period until May 28, 1999, with shares offered at $20 per share of each class -- Investor shares with a minimum investment of $1,000 will have expenses of 40 basis points and Select shares with a minimum investment of $50,000 will have expenses of 27 basis points.

"Although index mutual funds have become increasingly popular during the last several years, investors generally have confined their investments to those funds that seek to track the performance of the large-cap S&P 500 Index," said Bill Klipp, president and chief operating officer of Schwab Investment Management. "The Schwab Total Stock Market Index Fund offers investors many of the features of the S&P 500 index funds, but with two additional features, broader diversification into small-cap and mid-cap stocks and the potential for a higher degree of tax-efficiency."

Klipp noted that while the Wilshire has underperformed the S&P 500 in recent years, market cycles underscore the importance of diversification. "History tells us that there have been extended periods -- such as 1975-1981 -- when the Wilshire 5000 Index outperformed the S&P 500 Index because of its exposure to small and mid-cap stocks."

The fund's inclusion of almost all U.S. stocks could also offer greater tax-efficiency than other index funds. Since the fund won't have to sell stocks leaving the index due to changes in market cap, this will help minimize capital gain distributions to shareholders.

Schwab will also utilize a "sampling" strategy, purchasing a representative sample of stocks in the index rather than owning all 7,200, the costs of which would be prohibitive.

"Because the Index is capitalization weighted, with its 2,500 largest stocks representing about 98% of its value, owning all stocks in the index would provide little, if any, additional performance boost," said co-portfolio manager Larry Mano, who also manages Schwab's Institutional Select Funds. Co-managing with Mano is Geri Hom, who currently manages $10 billion for Schwab's four equity index funds.


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