Schwab Launches Core Equity Fund; First Actively Managed Fund To Leverage Schwab Equity Ratings

Business Wire, July 23, 2002

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--July 23, 2002

Charles Schwab & Co., Inc. today announced the Schwab Core Equity Fund(TM), a large-cap fund that harnesses Schwab Equity Ratings(TM), a sophisticated yet straightforward method of analyzing stocks.

The Schwab Core Equity Fund is the first investment product from Schwab to utilize Schwab Equity Ratings -- a key element of Schwab's new advice offering that was unveiled in May 2002. The ratings are designed to help easily compare more than 3,500 stocks from different industries and sectors, and provide investors an objective alternative to traditional Wall Street research.

Each equity is assigned a simple grade: A, B, C, D, or F. On average, A-rated stocks are expected to strongly outperform the overall market over the next 12 months, while F-rated stocks are expected to strongly under perform the market.

The Core Equity Fund portfolio managers will use Schwab Equity Ratings, in conjunction with other analytic tools, to create a diversified portfolio of stocks with the goal of outperforming the S&P 500 Index, with risk similar to the index.

"What makes this fund special is the way it blends broad market exposure with a disciplined approach to selecting stocks," said Jeff Lyons, Executive Vice President Asset Management Products & Services. "It is truly a value-added approach to mutual fund management because it provides investors with a methodology they can trust and the risk management they demand."

A Disciplined Approach to Fund Management

The starting universe for the Schwab Core Equity Fund includes stocks of companies that have market values of approximately $500 million or more. This screening criterion narrows the universe of stocks to about 1,500. From there, a three-step methodology is used to build and maintain the diversified portfolio.

-- Step One: Grade Eligible Stocks. The portfolio managers perform an initial ranking of all large cap stocks considered suitable for the fund using Schwab Equity Ratings. Only stocks with an A or B rating are considered for purchase by the fund.

-- Step Two: Secondary Screening. The large-cap "candidate" stocks are reviewed a second time using proprietary software that considers factors such as industry exposure and risk management. The combination of Schwab Equity Ratings and SchwabFunds optimization software allow the portfolio managers to analyze investment information quickly and comprehensively. Based on their findings, the managers select a broad range of equities -- approximately 150 stocks across 28 industries -- with a combined risk profile that is similar to the S&P 500 Index.

-- Step Three: Review and Revise. Screening stocks for the Core Equity Fund is a continuous process. Portfolio managers will regularly review the fund structure to rebalance it and take into consideration stocks whose ratings have changed. The fund's top 10 holdings are published monthly and the entire portfolio is published twice a year. Clients can look up the current rating for any of the stocks using the stock screener tools available on www.schwab.com.

Veteran Portfolio Managers Geri Hom and Larry Mano will oversee the Schwab Core Equity Fund. Ms. Hom is vice president and senior portfolio manager for Charles Schwab Investment Management, Inc. (CSIM), a subsidiary of The Charles Schwab Corporation. She has managed the Schwab 1000 Fund(R), the Schwab Small-Cap Index Fund(R) and the Schwab International Index Fund(R) since 1995. In 1996, she became portfolio manager for two additional funds -- the Schwab S&P 500 Fund and the Schwab Analytics Fund(R). In addition, she is responsible for the Schwab Focus Funds and the stock category of the four Schwab MarketTrack Portfolios(TM).

Mr. Mano is a director of the Equity Portfolio Management group within CSIM. He is responsible for the Schwab Total Stock Market Index Fund, the Schwab International Index Fund, the Technology Focus Fund and Financial Services Focus Fund.

In building the Core Equity Fund, Schwab converted the Schwab Analytics Fund from a sub-advised fund. CSIM assumed day-to-day management of the Schwab Analytics Fund from Symphony Asset Management LLC on June 1, 2002. The Fund has about $185 million in assets under management, as of June 30, 2002.

About Charles Schwab Investment Management, Inc.

Founded in 1991, Charles Schwab Investment Management, Inc., ranks as the nation's fifth largest money market fund manager and the 11th-largest mutual fund family, based on assets under management. It is also the country's second-largest provider of retail index funds. The fund family's 23 equity fund products, which consist primarily of index funds or asset allocation funds, have grown by more than 1,000 percent in assets since the beginning of 1996. CSIM also manages seven bond funds, including both taxable and tax-free funds and 14 money market funds, which include both taxable and tax-free (municipal) funds.

About Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc., member SIPC/NYSE, serves 8 million active accounts with $797 billion in customer assets (as of June 2002), including 4.3 million active online accounts with $308 billion in customer assets. Schwab provides a full-service investing experience to customers through a multi-dimensional offering of the Internet, 395 branch offices, speech recognition, touch-tone telephone, e-mail and wireless technologies, multilingual and international services, and access to professionals day or night. About 28% of Schwab's customer assets and 10% of its customer accounts are managed by the approximately 6,000 independent, fee-based investment advisors served through its Schwab Institutional division. Led by its customers, Schwab is creating a new model of full-service investing in which information flows freely, and investors make their own decisions with objective help and advice when they ask for it.