SECOND QUARTER 2015 Also available at schwab.com/selectlist Mutual Fund OneSource Select List ® and Income Mutual Fund Select List ® Analysis and Commentary on Actively Managed Mutual Funds by Charles Schwab Investment Advisory, Inc. With thousands of mutual funds available, finding the right funds for your portfolio can seem more time-consuming and difficult than ever. The Mutual Fund OneSource Select List, consisting only of OneSource funds available without a load or transaction fee, is a smart solution that can help you make confident investment decisions. Why Buy a Mutual Fund? Key points: • Investors have a number of choices when it comes to investment vehicles, but mutual funds offer many advantages, including built-in diversification, economies of scale, low minimums and liquidity. • Some mutual funds provide access to areas of the market otherwise difficult for individual investors to reach. • Investors can choose between passively managed index funds or actively managed funds that strive to outperform indexes • The ease and convenience of mutual funds can help investors avoid the risk that comes with inertia, getting and keeping them invested with a long-term focus. Since their emergence nearly a century ago, mutual funds have proven to be a popular investment vehicle. Their simplicity along with other recognized attributes provide a host of benefits to a wide range of investors, from the uninitiated to the sophisticated. Even given the wide range of alternatives available to investors—from individual stocks and bonds to ETFs—mutual funds have retained their appeal. Although some of the advantages of mutual fund investing are likely familiar to many investors, we chose to review them for the purpose of helping you determine when mutual funds may be the best choice for you. (continued on page 2) Why Buy a Mutual Fund? (continued) Diversification Diversification, a key tenet of investing, encourages investors to manage their risk by spreading their investments across a large number of securities. That way, weakness in one holding, sector or geographic region can typically be offset by strength in another. Diversification can be measured against a number of yardsticks, including industry, country or region, market cap (the number of shares outstanding multiplied by a company’s share price) and style characteristics, such as value or growth. Because mutual funds generally comprise a large number of individual securities, they provide inherent diversification, particularly for investors who may not have the means, knowledge or interest to buy and manage a portfolio of individual securities. With mutual funds, investors have the ability to build a diversified portfolio by purchasing a variety of funds that focus on different areas of the market, such as large-cap or small-cap U.S. stocks or bond funds. For example, International funds can be particularly useful, because international and domestic stocks tend to respond differently to various market cycles and events, so their movement is often uncorrelated, offering investors added portfolio diversification. In addition, international investing adds another layer of diversification and return potential in the form of currency exchange. Within international equities are further breakdowns, including funds that focus on large developed country markets, emerging markets or even smaller geographic areas such as a specific region or country. Mutual funds offer an easy way to access a range of market areas, particularly those that may not otherwise be readily accessible to individual investors. And, this example is replicated across any number of categories or investment strategies. Economies of Scale Buying a sufficient number of individual securities to provide a reasonable level of diversification can be costly, incurring transaction costs and commissions; and minimum purchases sometimes apply. Although all funds incur some type of cost, the costs of purchasing a mutual fund are generally much lower than those that would be incurred by buying each of the fund’s underlying securities individually— costs that would diminish future potential investment gains. And that doesn’t even take into consideration the ongoing buying and selling that typically occurs within actively managed funds. On top of that, many mutual funds are available without loads or transaction fees. Low Minimums Most mutual funds offer low investment minimums; often as low as $2,500. Low minimums allow investors to take advantage of what’s known as dollar-cost averaging— regular, periodic purchases on a monthly or quarterly basis that essentially results in more shares purchased when prices are low and fewer when they’re high. Low investment minimums provide investors a means to start investing as well as the ability to effortlessly grow their portfolio. Liquidity Mutual funds allow their investors to redeem their fund shares at any time. While frequent buying and selling is generally discouraged—sometimes by the imposition of a short-term redemption fee if shares are sold within a specified time frame—mutual fund investors are generally provided the ability to buy or sell shares with relative ease. Because funds are priced only once per trading day, after the close of trading—unlike stocks, which can be bought or sold throughout the trading day—investors’ mutual fund buy or sell orders are filled after the close of the trading day on which they were placed. Access While many funds are broadly diversified across large swaths of the market, other are more specialized, addressing a small niche or geographic area. Often, those specialized areas can be difficult for investors to reach—for instance, stocks that trade only on foreign exchanges or small, focused bond issuances. Mutual funds can often provide such access. In addition, some specialized funds offer access to institutional-quality investment managers who are otherwise inaccessible to individual investors. (continued on page 3) Mutual Fund OneSource Select List — Second Quarter 2015 2 Why Buy a Mutual Fund? (continued) Professional Management For all mutual funds, professional money managers bring their expertise to the investment process, providing research, analysis, portfolio construction and monitoring. Although some investors may relish the challenge of researching individual stocks and assembling a portfolio of diversified holdings, many do not. With mutual funds, investors can choose passively managed index funds or actively managed funds that seek to outperform indexes. The Risks of Not investing The ease of investing in mutual funds has another, less obvious benefit: getting and keeping investors in the market. Following the global financial crisis of 2007–2008, for example, many previously stalwart investors sold their investments following a long and disheartening decline in stock prices. Many of those who did missed out on significant subsequent gains since the market’s low in March 2009. For them and for others awaiting some signal that would urge them back into the market, it’s been a lost opportunity. Understanding that markets are unpredictable, getting and staying invested is critical for investors who are looking for long-term investment success. In addition, for investors who are interested in growing not only their net worth but also their knowledge, most mutual fund companies offer a wealth of information for their investors. Fund companies report at least twice a year to shareholders on their performance and how their strategy has held up through current market cycles—and many, more often than that. Mutual fund websites are often replete with insights, and engaged investors can learn a lot about markets, cycles, investment strategies and more by reading reports issued by their fund managers. Schwab recognized early on the value of mutual funds to individual investors. For decades, we have focused on making mutual funds not only accessible, but also making purchasing and owning them easy, convenient and costeffective. And with tools like the Mutual Fund OneSource Select List and a host of educational resources available at schwab.com, investors can easily determine whether mutual funds are the right investment vehicle for them. And There’s More Other reasons to invest in mutual funds include: • The option of automatic reinvestment of dividends and capital gains to take advantage of compounding • The transparency of publicly posted fund holdings that allows investors to know what underlying securities funds are purchasing • Audited track records to ensure that a fund follows its stated investment strategy • Governance by a board of directors acting in the interest of shareholders to provide oversight (0415-3208) Mutual Fund OneSource Select List — Second Quarter 2015 3 How Funds Are Selected To build the Schwab Mutual Fund OneSource Select List and the Schwab Income Mutual Fund Select List, Charles Schwab Investment Advisory, Inc. (CSIA) starts by analyzing the funds tracked by Morningstar using quantitative and qualitative selection criteria described below. Then, based on its analysis, CSIA builds the Mutual Fund OneSource Select List and Income Select list by selecting the most favorably evaluated OneSource funds, including Schwab Funds and Laudus Funds (“Schwab Affiliate Funds”), within each Morningstar category. Most of the funds on the List are actively managed OneSource funds. In addition, CSIA also includes up to one Schwab Affilate Fund that is a market-cap weighted index fund for each of the large-cap, small-cap, international and taxable bond asset classes, and one Schwab Affiliate Fund that is a fundamentally weighted index fund for each of the large cap, small cap, developed large cap international, developed small cap international and emerging market asset classes. Visit the OneSource Select List on schwab.com to view the Select List online and to learn more about how index funds are selected. Eligibility Requirements Each OneSource Select List and Income Select List fund must: Be no-load and open to new investors at Schwab in all 50 states. Have a minimum three-year performance track record (except funds that are listed below the “Leading Schwab Affiliate Funds” sections of the lists, which are eligible if they have a minimum 12 months performance track record under their current management and/or current investment objectives and strategy). Have at least $40 million in assets (except for small-cap value, high yield, multisector bond, world bond, emerging market equity and bond, diversified Pacific Asia, Pacific Asia ex-Japan, Europe, Japan, Latin America, convertibles, retirement income, target date and specialty funds, which require at least $20 million in assets). To meet this requirement, assets in multiple share classes of the same fund may be aggregated. Additionally, each Income Select List fund must: Demonstrate a track record of making income distributions in each of the prior five calendar years (or during every full calendar year since inception in the case of funds with less than a five-year track record, including Schwab Affiliate Funds which may have a 12-month track record). For fixed income funds, make income distributions on at least a quarterly basis; and—with the exception of the high-yield, multisector and emerging markets bond categories—not allocate in excess of 30% to issues rated below investment grade. For equity funds, offer a current yield in excess of their category average; and for equity funds with “dividend” or “income” in their name, make income distributions at least quarterly. With the exception of specialty sector (REITs) and fixed income funds, not allocate in excess of 33% to any single sector. Selection Criteria Actively Managed OneSource Funds, including Schwab Affiliate Funds, are evaluated by CSIA based on a quantitative analysis of risk, performance, expenses, active share (when meaningful), assets under management and asset flows. CSIA also may apply additional qualitative factors to its analysis to enhance its overall evaluation of a fund, including, for example, changes in a fund’s investment strategy or management structure, portfolio manager tenure, whether a fund’s investment style and portfolio holdings are representative of its investment category, portfolio composition and turnover rates, consistency of a fund’s performance and CSIA’s evaluation of the fund over time, and other risk and diversification considerations. In addition, for the Income Select List, those funds with the best capital preservation attributes and investment strategies that focus on selecting income-generating securities will receive preference when selecting from similarly rated funds with comparable yield characteristics. Mutual Fund OneSource Select List — Second Quarter 2015 “Leading Schwab Affiliate Funds” sections of the Select List and Income Select List feature eligible actively managed Schwab Affiliate Funds that generally fall into the top 35 percent of all CSIA-evaluated funds (including OneSource and non-OneSource funds) in their respective Morningstar categories. If two or more Schwab Affiliate Funds that fit this criteria also have similar investment styles, CSIA may determine that only the most favorably evaluated fund(s) be included in the list. Because Schwab Affiliate Funds included in the “Leading Schwab Affiliate Funds” section of the OneSource Select List and Income Select List are selected independently from other actively managed funds on the list, they may have a less favorable evaluation overall than the funds listed in the “Leading Third-Party Funds” section of the list. The Index Funds section of the Select List features only Schwab Affiliate Funds. It includes up to one market capitalization weighted index fund for each of the large-cap, small-cap, international and taxable bond asset classes and one fundamentally weighted index fund for each of the large cap, small cap, developed large cap international, developed small cap international and emerging market asset classes. A market capitalization weighted index fund is a fund that attempts to match the performance of an established list of securities, where the securities with the highest market capitalization (total market value of outstanding stock) get the most weight. A fundamentally weighted index fund is a fund that attempts to match the performance of an established list of securities, where the securities with the highest fundamental value (measured based on criteria such as sales, cash flow, dividends and stock buybacks) get the most weight. A Schwab Affiliate fund that is market capitalization weighted and a Schwab Affiliate Fund that is fundamentally weighted are included unless no funds meet Schwab’s quantitative and qualitative evaluation criteria. The Schwab affiliate index fund that receives the most favorable evaluation by CSIA in each asset class is included on the Select List. If two index funds receive equal evaluations, CSIA will generally include the fund that has the lower expense ratio. “Leading Third-Party Funds” sections of the OneSource Select List and Income Select List feature eligible actively managed third-party OneSource funds that generally fall within the top 35 percent of all CSIA-evaluated funds within a given Morningstar category and that receive the most favorable evaluations in their respective categories. For the OneSource Select List, CSIA generally includes the five most-favorably evaluated funds in each of the large-cap, small-cap, intermediate-term bond, municipal national intermediate and foreign large blend asset categories and the two most favorably evaluated funds in all other asset categories. If two or more of the most favorably evaluated funds within an asset category have similar investment styles, CSIA may substitute a less-favorably evaluated fund for one or more of those funds to provide a more diverse selection of fund investment strategies. (continued on page 14) 4 LARGE-CAP U.S. STOCK FUNDS Perspectives and First Quarter 2015 Summary In the near term, volatility is likely to continue as U.S. stocks contend with Fed rate hike uncertainty, dollar strength, soft economic data, oil volatility and earnings concerns. More sideways action could be in store for the U.S. equity market for Q2, with the possibility of a correction still lurking. However, we believe domestic economic data will start to rebound, helping push stocks higher in the second half of the year. Get, or stay, diversified and consider near-term opportunities overseas for your portfolio according to your risk tolerance. The Standard & Poor’s 500 Composite Index managed to hang onto a modest gain of 0.90%, closing out a volatile quarter with mixed domestic data. Domestic large-cap stocks faced pressure from a rising dollar, falling oil prices and uncertainty about the timing of an expected interest rate hike from the Federal Reserve. Large-cap U.S. stocks underperformed small- and mid-cap stocks. Large-cap Growth Category led the way returning gains of 3.45%, with Large-cap Blend and Large-cap Value close behind with returns of 1.13% and 0.18%, respectively. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 1 YEAR AVERAGE ANNUALIZED TOTAL RETURN UPSIDE DOWNSIDE GROSS NET 3 5 10 SINCE MARKET MARKET EXPENSE EXPENSE YEARS YEARS YEARS INCEPTION CAPTURE CAPTURE RATIOa RATIOa TOTAL ASSETS ($M) MORNINGSTAR CATEGORY QUOTE SYMBOL Schwab Core Equity Fund (07/01/96) Large Blend SWANX 14.89 16.29 13.78 7.91 8.57 100.97 100.80 0.72 0.72 Laudus U.S. Large-Cap Growth Fund (10/14/97) Large Growth LGILX 14.99 15.40 15.76 11.39 6.74 97.96 101.85 0.77 0.77 2,174 Schwab Dividend Equity Fund (09/02/03) Large Value SWDSX 10.09 15.28 13.44 7.69 9.21 98.86 105.71 0.89 0.89 2,022 Large Value SFLNX 9.94 16.30 13.97 — 7.65 102.09 103.80 0.39 0.35 5,021 Large Blend SWPPX 12.60 16.01 14.36 7.97 7.01 99.68 100.18 0.09 0.09 21,505 Janus Contrarian T (2/29/00) Large Blend JSVAX 12.71 20.78 11.90 9.32 8.09 101.03 54.30 0.89 0.89 4,572 Parnassus Core Equity Investor (9/1/92) Large Blend PRBLX 12.70 17.75 13.69 10.31 10.86 101.71 87.61 0.87 0.87 12,263 Glenmede Large Cap Core Port (2/27/04) Large Blend GTLOX 15.20 19.61 17.29 9.67 9.55 111.87 96.64 0.87 0.87 1,097 Oakmark I (8/5/91) Large Blend OAKMX 8.37 17.18 14.64 8.96 13.10 107.24 108.94 0.87 0.87 18,563 TIAA-CREF Social Choice Eq Retail (3/31/06) Large Blend TICRX 9.91 15.20 13.19 8.01 7.22 98.39 105.24 0.46 0.46 2,805 Parnassus (12/27/84) Large Growth PARNX 14.28 19.26 15.59 10.56 10.36 118.63 118.84 0.86 0.86 749 Janus Research T (5/3/93) Large Growth JAMRX 18.49 17.94 15.69 10.15 11.45 103.95 91.88 0.80 0.80 4,781 Janus Forty T (7/6/09) Large Growth JACTX 20.21 16.89 12.70 10.24 15.72 97.37 84.49 0.77 0.77 2,401 Glenmede Large Cap Growth (2/27/04) Large Growth GTLLX 21.00 20.01 18.38 10.50 10.06 113.47 96.99 0.88 0.88 1,608 Lord Abbett Growth Leaders A (6/30/11)e Large Growth LGLAX 6.47 14.97 — — 13.49 98.09 82.62 1.02 0.85 1,624 American Century Equity Income Inv (8/1/94) Large Value TWEIX 8.54 12.14 11.15 7.01 10.73 73.69 69.11 0.93 0.93 9,864 JPMorgan Equity Income A (2/18/92)e Large Value OIEIX 4.89 13.41 14.05 7.91 8.70 93.69 89.23 1.09 1.04 10,241 JPMorgan Intrepid Value A (2/18/05) FUND NAME (FUND INCEPTION DATE) LEADING SCHWAB AFFILIATE FUNDS d 2,380 FUNDAMENTAL INDEX FUNDS Schwab Fundamental U.S. Large Co Index Fund (04/02/07) MARKET CAP-WEIGHTED INDEX FUNDS Schwab® S&P 500 Index Fund (05/20/97) LEADING 3RD PARTY FUNDS Large Value JIVAX 5.04 15.18 12.65 7.20 7.10 106.11 104.83 1.10 0.84 1,805 Delaware Value® A (9/14/98)e Large Value DDVAX 5.97 15.24 14.99 7.37 7.31 93.39 66.59 0.98 0.98 8,353 Principal Equity Income A (5/31/39)e Large Value PQIAX 3.26 12.04 11.88 6.99 8.75 91.90 98.16 0.89 0.89 6,077 Schwab 1000 Index® (Dividends Reinvested) 12.68 16.29 14.64 8.41 — S&P 500 Index® (Dividends Reinvested) 12.73 16.11 14.47 8.01 — e PERFORMANCE BENCHMARKS New to the Select List this quarter Asset Class and Performance Benchmark Definitions Large-cap U.S. stock funds invest primarily in stocks that fall in the top 70% of the U.S. market capitalization range as defined by Morningstar, Inc. Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity. Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to “turnaround” or lower price-to-earnings or price-to-book ratios. Blend funds invest in a combination of value and growth stocks. The S&P 500® Index includes common stocks of 500 widely held companies. S&P 500 is a registered trademark of The McGraw-Hill Co., Inc. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Current performance may be lower or higher. Visit schwab.com for month’s end performance information. Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost. Mutual Fund OneSource Select List — Second Quarter 2015 5 MID- AND SMALL-CAP U.S. STOCK FUNDS Perspectives and First Quarter 2015 Summary Smaller, more domestically-oriented company earnings may be spared from the impact of the stronger dollar relative to their multinational peers, while likely benefitting from tailwinds forming for the U.S. consumer in form of lower energy costs and signs that long-stagnant wage growth may be finally on the way up. However, in the near term the likelihood of continued volatility in the U.S. equity markets amid Fed uncertainty could stymie performance until domestic economic data begins to rebound and we get some clarity regarding the timing and scope of the start of normalized monetary policy by the Fed. We do not recommend making market cap bets and encourage investors to stick to long-term asset allocation goals according to your risk tolerance. Small-cap U.S. stocks held onto gains with the Russell 2000 ® Index up 4.32%. The Small-cap Growth Category at 5.78% posted the highest relative return, followed by Small-cap Blend with a return of 3.61% and Small-cap Value at 2.28%. The Mid-cap U.S. Categories rose modestly with their performance being in line with Small-caps. Mid-cap Growth Category returned 5.35%, followed by Mid-cap Blend at 3.29% and Mid-cap Value at 2.58%. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 AVERAGE ANNUALIZED TOTAL RETURN UPSIDE DOWNSIDE GROSS NET 3 5 10 SINCE MARKET MARKET EXPENSE EXPENSE YEARS YEARS YEARS INCEPTION CAPTURE CAPTURE RATIOa RATIOa MORNINGSTAR CATEGORY QUOTE SYMBOL 1 YEAR Small Blend SWSCX 10.33 19.81 17.61 8.90 Small Blend SFSNX 9.50 17.21 14.91 Small Blend SWSSX 8.30 16.30 Parnassus Mid-Cap (4/29/05) Mid-Cap Blend PARMX 13.23 15.30 Hennessy Cornerstone Mid Cap 30 Inv (9/17/03) Mid-Cap Blend HFMDX 17.71 Janus Enterprise T (9/1/92) Mid-Cap Growth JAENX 17.30 Buffalo Discovery (4/16/01) Mid-Cap Growth BUFTX Lord Abbett Calibrated Mid Cap Value A (12/29/11)e Mid-Cap Value LVMAX TIAA-CREF Mid-Cap Value Retail (10/1/02) Mid-Cap Value Lazard US Small-Mid Cap Equity Open (1/30/97) Pax World Small Cap Individual Inv (3/27/08) FUND NAME (FUND INCEPTION DATE) TOTAL ASSETS ($M) LEADING SCHWAB AFFILIATE FUNDS d Schwab Small-Cap Equity Fund (07/01/03) 11.92 122.02 122.66 1.11 1.11 718 — 9.01 114.35 128.24 0.44 0.35 1,499 14.84 9.59 9.06 106.67 116.60 0.21 0.17 2,733 14.78 — 9.56 91.27 84.23 1.14 1.14 341 20.34 17.72 11.56 12.58 114.26 95.82 1.17 1.17 500 17.22 16.46 11.28 11.04 91.40 64.29 0.92 0.92 4,555 15.56 17.53 16.94 12.33 9.22 103.43 94.63 1.01 1.01 804 7.83 16.15 — — 19.11 104.12 86.82 1.09 0.85 927 TCMVX 11.15 16.58 14.35 9.22 12.96 97.58 88.35 0.72 0.72 5,424 Small Blend LZCOX 14.18 17.66 14.15 9.07 Small Blend PXSCX 9.34 18.11 15.40 — Hennessy Cornerstone Growth Investor (11/1/96) Small Blend HFCGX 17.23 19.68 14.56 Northern Small Cap Core (9/30/99) Small Blend NSGRX 10.33 17.46 15.83 CRM Small Cap Value Inv (9/29/95) Small Blend CRMSX 8.21 15.90 12.18 Janus Venture T (4/30/85) Small Growth JAVTX 18.41 18.90 18.06 ASTON/LMCG Small Cap Growth N (11/3/10) Small Growth ACWDX 16.50 21.27 — Driehaus Micro Cap Growth (1/2/03)b Small Growth DMCRX 8.64 24.00 17.54 Neuberger Berman Small Cap Growth A (5/27/09)e Small Growth NSNAX 3.14 13.81 13.15 8.53 Perkins Small Cap Value T (10/21/87) Small Value JSCVX 8.49 13.10 10.79 9.17 Columbia Small/Mid Cap Value A (2/14/02)e Small Value AMVAX 2.05 14.00 11.85 8.10 9.67 Wells Fargo Advantage Spec SmCp Val A (5/7/93)e Small Value ESPAX 1.38 13.69 12.69 7.97 11.57 8.21 16.27 14.57 8.82 — FUNDAMENTAL INDEX FUNDS Schwab Fundamental U.S. Small Co Index Fund (04/02/07) MARKET CAP-WEIGHTED INDEX FUNDS Schwab Small-Cap Index Fund (05/20/97) LEADING 3RD PARTY FUNDS 8.77 106.05 100.64 1.20 1.20 204 11.33 93.27 60.18 1.66 1.24 343 4.81 9.92 106.41 80.68 1.15 1.15 300 9.59 7.63 107.06 105.44 0.86 0.75 288 8.03 11.21 106.49 120.21 1.08 1.08 529 11.13 12.63 103.99 81.93 0.93 0.93 2,996 — 17.27 109.18 72.21 1.68 1.36 111 13.68 19.87 124.17 86.43 1.49 1.49 127 16.71 94.49 84.97 1.81 1.26 92 12.63 88.00 98.78 0.83 0.83 1,781 97.49 91.31 1.26 1.26 1,184 100.23 102.31 1.41 1.34 767 PERFORMANCE BENCHMARK Russell 2000 Index® (Dividends Reinvested) New to the Select List this quarter Asset Class and Performance Benchmark Definitions Mid-cap U.S. stock funds invest primarily in stocks that fall in the next 20% of the U.S. market capitalization range following large-cap stocks. Small-cap U.S. stock funds generally invest in stocks falling in the bottom 10% of the range. Definitions based on Morningstar, Inc. Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity. Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to “turnaround” or lower price-to-earnings or price-to-book ratios. Blend funds invest in a combination of value and growth stocks. The Russell 2000® Index consists of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 98% of the total market value of publicly available domestic equities. Small-cap funds are subject to greater volatility than those in other asset categories. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List — Second Quarter 2015 6 INTERNATIONAL STOCK FUNDS Perspectives and First Quarter 2015 Summary Relative to domestic stocks, better near-term opportunities may exist overseas. The eurozone economy is improving and Japan seems poised to rebound from soft data. We maintain a cautiously positive stance on Chinese stocks, which could continue to outperform the emerging market universe. Developed market non-U.S. equities, represented by the MSCI EAFE ® Index, rose 4.88% during the quarter, helped by improving economic data and stimulus measures. The Europe category returned 4.80%, bolstered by an overall positive outlook and the European Central Bank’s aggressive bond buying initiative. The Japan category turned in the best performance for the quarter returning 10.91% amid strong corporate earnings and expectations of rising dividends. The Emerging Markets continued their weak trend with the Diversified Emerging Markets Category returning 1.14%, amid the backdrop of a strong dollar and uncertainty about rising interest rates. The China Stock category delivered 5.48%, thanks to the continued monetary easing by the People’s Bank of China. The Latin America category turned in the worst showing, declining -8.59% amid concerns about political corruption in Brazil and a depreciating real. Foreign fund investors experienced positive returns across all categories, with Foreign SMID Growth and Foreign Large Growth recording the best performances at 5.28% and 5.07% respectively. Foreign Large Value and Foreign SMID Value had returns of 4.70% and 4.62% respectively. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 1 YEAR AVERAGE ANNUALIZED TOTAL RETURN UPSIDE DOWNSIDE GROSS NET 3 5 10 SINCE MARKET MARKET EXPENSE EXPENSE YEARS YEARS YEARS INCEPTION CAPTURE CAPTURE RATIOa RATIOa TOTAL ASSETS ($M) MORNINGSTAR CATEGORY QUOTE SYMBOL Foreign Large Blend SICNX -1.18 11.44 8.56 — 2.05 112.70 83.82 0.98 0.86 540 Laudus Mondrian International Equity Fund—Investor (6/17/08) Foreign Large Value LIEQX -0.02 8.87 6.02 — 0.43 110.75 98.35 1.19 1.19 98 FUND NAME (FUND INCEPTION DATE) LEADING SCHWAB AFFILIATE FUNDS d Schwab® International Core Equity (5/30/08) FUNDAMENTAL INDEX FUNDS Schwab Fundamental Emerg Mkts Lg Co Index (01/31/08) Diversified Emerging Mkts SFENX -8.36 -4.27 -1.77 — -0.92 74.40 141.29 0.85 0.49 369 Schwab Fundamental Intl Large Co Index (04/02/07) Foreign Large Value SFNNX -4.42 8.44 5.03 — 1.09 118.47 112.24 0.48 0.35 1,025 Schwab Fundamental Intl Small Co Index (01/31/08) Foreign Small/Mid Blend SFILX -1.16 9.13 7.70 — 5.15 99.86 81.04 0.82 0.51 367 Foreign Large Blend SWISX -1.29 8.82 6.10 4.99 4.41 110.77 98.72 0.23 0.19 2,713 Matthews China Dividend Investor (11/30/09) China Region MCDFX 13.14 11.04 9.83 — 10.10 81.08 40.88 1.24 1.24 190 Matthews China Small Companies (5/31/11) China Region MCSMX 0.29 8.67 — — -0.28 67.58 37.39 2.04 1.50 25 Seafarer Overseas Gr and Income Investor (2/15/12) Diversified Emerging Mkts SFGIX 7.35 8.08 — — 8.74 82.54 63.31 1.66 1.25 163 Janus Emerging Markets T (12/28/10) Diversified Emerging Mkts JMFTX 2.36 -0.05 — — -2.71 83.67 122.86 1.77 1.27 32 Matthews Asia Growth Investor (10/31/03) Diversified Pacific/Asia MPACX 10.83 10.71 9.38 9.06 10.11 86.77 51.39 1.12 1.12 1,001 Henderson European Focus A (8/31/01)e Europe Stock HFEAX -6.86 8.76 8.67 9.16 15.45 113.82 88.86 1.37 1.37 2,969 FMI International (12/31/10) Foreign Large Blend FMIJX 10.92 14.85 — — 12.26 83.08 18.28 1.03 1.00 1,815 Lazard International Strategic Eq Open (2/3/06) Foreign Large Blend LISOX 1.72 12.34 9.71 — 5.70 116.39 83.13 1.10 1.10 6,308 Henderson Intl Opportunities A (8/31/01)e Foreign Large Blend HFOAX -0.67 9.04 6.20 6.48 9.48 100.40 67.69 1.39 1.39 4,262 TIAA-CREF International Eq Retail (3/31/06) Foreign Large Blend TIERX -4.41 10.21 7.20 5.57 3.40 118.53 100.33 0.83 0.83 4,216 Federated International Leaders A (9/30/98)e Foreign Large Blend FGFAX -5.98 9.95 8.79 7.74 9.23 123.55 95.25 1.45 1.25 2,017 Artisan International Investor (12/28/95) Foreign Large Growth ARTIX 5.16 11.95 10.30 7.56 10.10 108.13 73.87 1.17 1.17 19,576 Buffalo International (9/27/07) Foreign Large Growth BUFIX 2.32 8.25 7.01 — 2.92 95.60 80.96 1.08 1.08 265 Henderson Global Equity Income A (11/30/06)e Foreign Large Value HFQAX -4.42 7.84 6.67 — 3.39 94.41 67.31 1.18 1.18 3,471 Oppenheimer International Small Co A (11/17/97)e Foreign Small/Mid Growth OSMAX -2.71 16.29 13.29 11.89 12.67 117.04 43.40 1.22 1.21 3,518 Lazard International Small Cap Eq Open (2/13/97) Foreign Small/Mid Growth LZSMX -1.29 12.18 10.18 4.66 6.73 103.28 65.37 1.48 1.43 86 Brandes International Small Cap Equity A (1/31/12)e Foreign Small/Mid Value BISAX -7.64 10.60 9.50 6.27 11.94 116.74 80.55 1.38 1.40 777 Pear Tree Polaris Fgn Val Sm Cap Ord (5/1/08) Foreign Small/Mid Value QUSOX 2.57 15.46 9.83 — 7.68 104.63 45.73 1.58 1.58 433 Deutsche Latin America Equity A (5/29/01)e Latin America Stock SLANX -23.93 -11.16 -7.43 5.94 7.81 102.76 220.45 1.84 1.74 316 Matthews Asia Small Companies Inv (9/15/08) Pacific/Asia ex-Japan Stk MSMLX 9.29 9.85 9.33 — 15.94 85.53 55.47 1.47 1.47 785 Janus Global Select T (6/30/00) World Stock JORNX 9.38 7.47 6.26 7.88 2.73 100.03 92.65 0.93 0.93 2,263 Perkins Global Value T (6/29/01) World Stock JGVAX 2.96 10.27 9.30 5.71 6.85 85.77 52.91 1.01 1.01 277 -0.92 9.02 6.16 4.95 — MARKET CAP-WEIGHTED INDEX FUNDS Schwab International Index Fund (05/20/97) LEADING 3RD PARTY FUNDS PERFORMANCE BENCHMARKS MSCI EAFE Index (Dividends Reinvested) New to the Select List this quarter Asset Class and Performance Benchmark Definitions Foreign stock funds typically have less than 20% of assets invested in the United States. Funds that do not have a specific growth or value orientation compared to a benchmark are classified as blend funds. World Stock funds invest primarily in equity securities of issuers located throughout the world and generally invest at least 20% of assets in the United States. Regional funds generally hold high concentrations of securities from one specific geographic region. Emerging markets funds generally invest in securities from less developed countries. International investments are subject to risks such as currency fluctuations and political instability. Investing in emerging markets can accentuate these risks. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List — Second Quarter 2015 7 SECTOR FUNDS Perspectives and First Quarter 2015 Summary We continue to favor technology and consumer staples stocks at the expense of telecom and utilities stocks. Although health care stocks continued their rally in Q1, we believe the group faces risks that are too great to justify boosting exposure in a diversified portfolio. Real estate could continue to find support from the improving U.S. labor market and current low rate environment, though the potential for Fed rate hikes later this year could foster some volatility. Finally, commodity-related stocks are likely to see elevated volatility with Fed rate hike expectations. The Sector categories were a mixed bunch for the quarter; Health Care (10.78%), Real Estate (4.38%) and Technology (2.99%) sectors were the strongest performers. The Health Care sector experienced a boost due to rising M&A activity, and strong showing by health insurers and managed care providers. Real Estate also experienced a strong quarter; interest rates remained low and increased demand coupled with limited supply is allowing property managers to raise rents. The Precious Metals and Energy categories were the worst performing at -3.99% and -1.35% respectively, mainly due to a strengthening dollar and depressed crude oil prices. Utilities returned -2.30%, hurt by the potential for higher interest rates in the coming year. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 AVERAGE ANNUALIZED TOTAL RETURN FUND NAME (FUND INCEPTION DATE) MORNINGSTAR CATEGORY QUOTE SYMBOL Financial SWFFX Health SWHFX Equity Energy Equity Energy MDGRX CGAEX 1 YEAR 3 YEARS 5 YEARS 10 YEARS 3.39 10.20 32.38 26.92 13.95 16.09 30.30 26.82 8.65 10.50 22.35 21.25 3.04 4.19 14.24 12.68 -19.92 -22.76 -11.85 2.68 -1.75 3.39 2.07 1.82 32.38 42.40 27.49 -15.69 2.61 -21.37 -22.89 -19.59 -21.15 12.94 12.53 22.53 24.77 14.29 13.10 13.35 15.17 6.79 6.40 -1.10 -3.50 5.21 9.82 12.36 13.95 17.62 13.81 30.30 37.04 27.70 -2.91 10.64 -4.30 -25.65 -22.10 -24.24 11.21 12.57 13.07 13.93 12.57 13.73 15.04 15.85 12.51 12.21 1.10 0.28 -5.10 9.47 — 8.65 8.83 9.56 22.35 26.97 19.72 0.74 10.41 -0.83 -14.50 -10.87 -11.44 10.19 10.37 15.05 14.97 12.64 13.54 14.31 11.56 11.94 12.15 4.76 4.84 — — — 3.04 5.96 2.22 14.24 15.75 15.76 4.87 8.60 2.77 0.75 2.64 3.45 5.89 — 8.76 10.12 — 9.79 11.24 10.51 8.45 8.36 UPSIDE DOWNSIDE GROSS NET SINCE MARKET MARKET EXPENSE EXPENSE INCEPTION CAPTURE CAPTURE RATIOa RATIOa TOTAL ASSETS ($M) LEADING SCHWAB AFFILIATE FUNDSd FINANCIAL FUNDS (CATEGORY AVERAGE) † Schwab Financial Services Fund (7/3/00) HEALTH FUNDS (CATEGORY AVERAGE) † Schwab Health Care Fund (7/3/00) 5.36 110.92 75.19 0.90 0.90 80 10.25 128.00 21.28 0.80 0.80 1,171 7.72 -9.39 65.75 99.93 149.54 134.07 1.06 2.13 1.06 1.85 423 102 14.60 100.00 66.38 1.25 1.25 2,141 12.11 7.03 90.83 100.07 5.21 56.48 1.81 1.75 1.80 1.51 91 30 13.16 16.42 137.88 129.67 -36.92 -0.36 0.93 1.19 0.93 1.19 4,313 5,793 5.25 6.57 96.11 74.65 93.33 173.25 1.36 1.19 1.36 1.19 92 221 4.78 10.18 -39.12 -41.87 149.63 187.43 1.32 1.38 1.32 1.38 1,066 1,204 16.44 93.32 70.79 1.18 1.18 295 12.63 13.12 79.87 69.02 32.06 22.29 0.97 1.24 0.97 1.24 6,542 150 6.91 2.85 110.30 110.52 82.94 76.40 0.95 1.18 0.95 1.18 1,122 206 LEADING 3RD PARTY FUNDS EQUITY ENERGY FUNDS (CATEGORY AVERAGE) † BlackRock Natural Resources Inv A (10/21/94)e Calvert Global Energy Solutions A (5/31/07)e ENERGY LIMITED PARTNERSHIP FUNDS (CATEGORY AVERAGE) † Tortoise MLP & Pipeline Investor (5/31/11)e Energy Limited Partnership TORTX FINANCIAL FUNDS (CATEGORY AVERAGE) † Burnham Financial Services A (6/7/99)e Diamond Hill Financial Long-Short A (8/1/97)e Financial Financial BURKX BANCX Health Health JAGLX SHSAX Natural Resources Natural Resources ICBMX EBERX Equity Precious Metals Equity Precious Metals SGGDX TGLDX Global Real Estate JERTX Real Estate Real Estate CSRSX LRIOX Technology Technology JAGTX MATFX HEALTH FUNDS (CATEGORY AVERAGE) † Janus Global Life Sciences T (12/31/98) BlackRock Health Sciences Opps Inv A (12/21/99)e NATURAL RESOURCES FUNDS (CATEGORY AVERAGE) † ICON Materials S (5/6/97) Putnam Global Natural Resources A (7/24/80)e PRECIOUS METALS FUNDS (CATEGORY AVERAGE) † First Eagle Gold A (8/31/93)e Tocqueville Gold (6/29/98) GLOBAL REAL ESTATE FUNDS (CATEGORY AVERAGE) † Janus Global Real Estate T (7/6/09) REAL ESTATE FUNDS (CATEGORY AVERAGE) † Cohen & Steers Realty Shares (7/2/91)b Lazard US Realty Income Open (7/30/08) TECHNOLOGY FUNDS (CATEGORY AVERAGE) † Janus Global Technology T (12/31/98) Matthews Asia Science and Tech Inv (12/27/99) UTILITY FUNDS (CATEGORY AVERAGE) † American Century Utilities Inv (3/1/93) Utilities BULIX 8.05 80.55 48.59 0.67 0.67 385 New to the Select List this quarter † Reflects load-adjusted returns Asset Class and Performance Benchmark Definitions Sector funds concentrate investments in firms that fall into specific industries that produce related products or services. Sector funds, in general, have a low correlation to market indices, such as the S&P 500 Index, so they tend to perform differently than broader market measures. Because of their unique investment objectives, it’s unfair to compare sector funds with broader market indices as they will seldom correlate. When evaluating sector fund performance, it’s more appropriate to compare an individual fund’s returns with the average performance of funds in its category. Due to the concentrated nature of sector funds, they can be more volatile than broadly diversified equity funds. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. MLP funds invest in the equity securities of master limited partnerships (“MLPs”). Investments in securities of MLPs involve risks that differ from investments in common stock, including risks related to cash flow, dilution and voting rights. MLP funds also may carry heightened risks including industry concentration, volatility, limited liquidity, issuer-specific risks, valuation and taxation. Many MLP funds are classified for federal tax purposes as a taxable regular corporation (“C corporation”), and are subject to US federal income tax on taxable income at corporate income tax rates, as well as state and local income taxes. These corporate taxes and accruals for deferred tax liabilities could substantially reduce a fund’s net assets (reflected in the fund’s NAV), the amount of income available for distribution and the amount of a fund’s distributions. If an MLP fund is classified for tax purposes as a C corporation, all distributions from a fund’s current or accumulated earnings and profits will be taxable to shareholders as ordinary income. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List — Second Quarter 2015 8 TAXABLE BOND FUNDS Perspectives and First Quarter 2015 Summary Most Treasury bond yields fell in the first quarter, even as the Fed prepares to raise their target rate for the first time since 2006. Short-term rates are likely to rise more than long-term yields, resulting in a flatter yield curve, as subdued inflation and foreign demand should keep longer-term Treasury bond prices supported. As the Fed begins to drain liquidity from the market, we expect volatility to continue, especially in the riskier parts of the fixed income market. Despite intra-quarter volatility, longer-term yields bucked the consensus view and continued to trend downward. This appreciation helped long-duration taxable fixed income funds outperform. The Long Government category was the leader with a return of 3.49% and followed up by the Long-Term Bond category at 2.77%. As credit spreads tightened, riskier sectors benefited more than government bonds. High Yield Bond funds (2.23%), Corporate Bond funds (2.17%) and Bank Loan funds (1.92%) all outperformed the government-heavy Barclays U.S. Aggregate Bond Index (1.61%). Shorter-term categories were some of the lowest returning for the first quarter, yet they still generated positive returns. By contrast, international categories struggled to keep pace with domestic ones in the face of a strengthening dollar as Emerging Markets Bond funds (-0.46%) and World Bond funds (-0.54%) were the only categories with negative performance. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 AVG. UPSIDE DOWNSIDE GROSS NET WEIGHTED SINCE MARKET MARKET EXPENSE EXPENSE MATURITY a a INCEPTION CAPTURE CAPTURE RATIO RATIO (YRS) AVERAGE ANNUALIZED TOTAL RETURN QUOTE SYMBOL 1 YEAR 3 YEARS Schwab GNMA Fund (03/03/03) Intermediate Gov’t SWGSX 4.84 1.88 3.47 4.52 4.11 74.60 91.20 0.66 0.57 5.32 300 Schwab Intermediate-Term Bond Fund (10/31/07) Intermediate-Term SWIIX 3.97 2.16 3.51 — 4.69 71.74 74.12 0.64 0.45 4.34 353 Intermediate-Term SWLBX 5.52 2.80 4.06 3.39 5.00 97.07 105.04 0.55 0.29 6.96 1,297 RidgeWorth Seix Floating Rate Hi Inc I (3/1/06) Bank Loan SAMBX 2.17 4.64 5.16 — 4.47 65.18 -33.90 0.61 0.61 4.92 6,312 Lord Abbett Floating Rate A (12/31/07)e Bank Loan LFRAX -0.36 4.10 4.56 — 4.12 63.33 -47.43 0.80 0.80 — 6,837 Lord Abbett Income A (12/31/81)e Corporate Bond LAGVX 2.90 5.08 6.59 6.49 8.15 139.18 82.14 0.88 0.78 — 2,265 BMO TCH Corporate Income Y (12/22/08) Corporate Bond MCIYX 5.23 5.79 7.07 — 9.65 137.52 81.90 0.75 0.60 10.30 Western Asset Global Government Bond I (7/15/98)b,* Emerging Markets Bond WAFIX 7.32 2.42 3.03 3.92 5.53 112.10 152.07 1.26 0.65 8.37 21 DoubleLine Emerging Markets Fixed Inc N (4/6/10) Emerging Markets Bond DLENX 2.64 3.66 — — 5.97 102.00 83.41 1.17 1.17 8.47 805 RidgeWorth Seix High Yield I (12/29/00) High Yield Bond SAMHX 1.53 6.90 7.81 6.50 7.32 124.29 12.25 0.56 0.56 6.87 717 TIAA-CREF High-Yield Retail (3/31/06) High Yield Bond TIYRX 1.97 6.73 8.11 — 7.57 132.62 36.63 0.65 0.65 6.90 3,048 American Century Short Dur Inf PrBd Inv (5/31/05) Inflation-Protected Bond APOIX -1.13 -0.63 2.75 — 3.43 22.09 73.06 0.57 0.57 3.27 1,178 American Century Infl-Adj Bond Inv (2/10/97) Inflation-Protected Bond ACITX 2.14 -0.04 3.69 4.14 5.31 109.65 240.51 0.47 0.47 9.08 3,195 Columbia US Government Mortgage A (2/14/02)e Intermediate Government AUGAX 2.22 2.32 4.95 4.82 4.73 76.54 38.94 0.94 0.88 6.76 1,908 American Century Ginnie Mae Inv (9/23/85) Intermediate Government BGNMX 4.29 1.78 3.46 4.51 6.50 68.24 80.88 0.55 0.55 6.62 1,413 Western Asset Core Bond I (9/4/90)b,* Intermediate-Term Bond WATFX 6.84 4.25 5.84 5.47 7.24 114.69 88.88 0.49 0.45 9.41 3,911 Metropolitan West Total Return Bond M (3/31/97)b Intermediate-Term Bond MWTRX 5.38 5.24 6.22 6.61 7.02 123.45 71.42 0.68 0.68 8.58 65,296 Baird Core Plus Bond Inv (9/29/00) Intermediate-Term Bond BCOSX 5.75 4.09 5.56 5.76 6.28 116.64 99.20 0.55 0.55 6.90 8,297 USAA Income (3/4/74)b Intermediate-Term Bond USAIX 5.14 4.27 5.30 5.47 8.28 111.34 80.91 0.59 0.59 6.33 5,962 RidgeWorth Total Return Bond I (12/30/97) Intermediate-Term Bond SAMFX 5.47 3.03 4.75 5.32 5.46 98.92 100.58 0.41 0.41 8.08 1,153 PIMCO Income D (3/30/07) Multisector Bond PONDX 5.68 9.64 10.92 — 9.57 159.82 -8.98 0.79 0.79 4.78 43,625 Western Asset Global Strategic Income I (10/10/95)b,* Multisector Bond SDSYX 2.59 5.48 7.09 5.96 5.95 122.68 60.80 0.90 0.85 9.73 441 Federated Adjustable Rate Secs Instl (12/3/85)b,* Short Government FEUGX 0.77 0.44 0.84 2.46 4.55 9.96 4.84 1.00 0.64 — 636 Loomis Sayles Ltd Term Govt and Agency A (1/3/89)e Short Government NEFLX -1.39 0.21 1.39 3.21 4.94 39.57 39.21 0.81 0.80 3.24 Lord Abbett Short Duration Income A (11/4/93)e Short-Term Bond LALDX -0.50 2.03 3.15 4.38 4.36 52.82 7.95 0.59 0.59 — 36,049 Metropolitan West Low Duration Bond M (3/31/97)b Short-Term Bond MWLDX 1.12 2.71 3.83 3.12 4.15 46.40 -2.49 0.63 0.63 3.66 3,651 RidgeWorth US Gov Sec Ultra-Short Bd I (4/11/02) Ultrashort Bond SIGVX 0.77 0.67 1.07 2.72 2.52 11.98 0.46 0.38 0.38 4.59 1,638 Putnam Short Duration Income A (10/17/11) Ultrashort Bond PSDTX 0.39 0.64 — — 0.62 10.11 -2.68 0.52 0.40 — 2,183 PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 10.76 7.32 7.08 6.36 6.19 137.10 24.99 0.92 0.90 9.85 8,960 Dreyfus/Standish Global Fixed Income A (12/2/09)e World Bond DHGAX 3.20 4.10 4.17 5.89 4.39 117.42 40.82 0.88 0.88 8.91 1,276 5.72 3.10 4.41 4.93 — FUND NAME (FUND INCEPTION DATE) 5 YEARS 10 YEARS TOTAL ASSETS ($M) MORNINGSTAR CATEGORY LEADING SCHWAB AFFILIATE FUNDS e MARKET CAP-WEIGHTED INDEX FUNDS Schwab Total Bond Market Fund (03/05/93) LEADING 3RD PARTY FUNDS 315 760 PERFORMANCE BENCHMARKS Barclays U.S. Aggregate Bond Index (Dividends Reinvested) New to the Select List this quarter *$1,000,000 initial minimum investment Asset Class and Performance Benchmark Definitions Bond funds invest in corporate, municipal or government debt obligations of different maturities and interest rates. Taxable bond funds generally invest in the debt obligations issued by the U.S. Treasury, other U.S. government agencies and U.S. corporations. They also may invest in high-yield and foreign (non-U.S.) bonds. The Barclays U.S. Aggregate Bond Index tracks the total U.S. bond market, which includes U.S. Treasury, government agency, investment-grade corporate bond and mortgage-backed securities with maturities of at least one year. The index includes reinvestment of interest. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List — Second Quarter 2015 9 TAX-FREE BOND FUNDS Perspectives and First Quarter 2015 Summary Yields on municipal bonds declined during the first quarter of the year largely as the result of falling treasury yields. Although yields moved lower, we believe that municipal bonds are still attractive compared to treasuries and corporate bonds of similar maturity and credit quality. For investors who can afford some price volatility, intermediate-term bonds appear attractively priced. Even though they were the best performing muni category to being the year, we would suggest caution with high yield municipal bonds as they contain additional risks such as greater volatility and greater chance of default compared to higher rated munis. Municipal bond funds were the overall top performers for fixed income in 2014 with every municipal category still generating positive returns for the first quarter of 2015. High Yield Muni funds led the way for a third quarter in a row with a return of 1.47%. Similar to the taxable bond market, longer-term categories – Muni California Long (1.20%), Muni New York Long (1.08%) and Muni National Long (1.05%) – outperformed the broad Barclays Municipal Index (1.01%). The shorter-term categories were challenged the most in Q1 as Muni Single State Short funds only earned 0.51% and Muni National Short gained just 0.23%. All perspectives are as of April 19, 2015 For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH 31, 2015 AVG. UPSIDE DOWNSIDE GROSS NET WEIGHTED SINCE MARKET MARKET EXPENSE EXPENSE MATURITY a a INCEPTION CAPTURE CAPTURE RATIO RATIO (YRS) AVERAGE ANNUALIZED TOTAL RETURN MORNINGSTAR CATEGORY QUOTE SYMBOL Muni National Interm SWNTX American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b Muni National Interm USAA Tax Exempt Intermediate-Term (3/19/82) FUND NAME (FUND INCEPTION DATE) 1 YEAR TOTAL ASSETS ($M) 3 YEARS 5 YEARS 10 YEARS 5.42 3.45 4.60 4.43 5.24 81.29 76.51 0.58 0.49 5.66 663 TWTIX 4.21 2.72 3.97 4.13 5.05 75.79 86.07 0.47 0.47 9.72 3,390 LEADING SCHWAB AFFILIATE FUNDSd Schwab Tax-Free Bond Fund (09/11/92) LEADING 3RD PARTY FUNDS Muni National Interm USATX 5.29 4.12 5.14 4.62 6.87 88.53 72.57 0.55 0.55 8.44 3,946 Northern Intermediate Tax-Exempt (3/31/94) Muni National Interm NOITX 4.89 3.14 4.08 4.00 4.47 89.50 103.87 0.50 0.46 9.50 3,140 BMO Intermediate Tax-Free Y (2/1/94) Muni National Interm MITFX 5.87 3.81 4.79 4.82 4.67 86.63 77.45 0.62 0.56 5.04 1,712 Baird Intermediate Muni Bd Inv (3/30/01) Muni National Interm BMBSX 3.27 2.10 3.26 3.88 4.26 62.28 74.80 0.55 0.55 5.40 1,154 Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 7.14 4.39 5.20 4.77 5.32 116.55 126.57 0.50 0.46 17.89 866 USAA Tax Exempt Long-Term (3/19/82) b Muni National Long USTEX 6.79 4.87 6.01 4.74 7.55 115.11 109.31 0.54 0.54 16.67 2,394 Federated Shrt-Interm Dur Muni Instl (9/4/81)b,* Muni National Short FSHIX 1.82 1.65 2.27 2.68 4.33 32.70 22.64 0.80 0.47 — 1,186 Wells Fargo Advantage S/T Muni Bd Inv (12/31/91) Muni National Short STSMX 0.86 1.18 1.87 2.88 3.76 16.90 1.39 0.78 0.63 1.84 6,366 American Century High-Yield Muni Inv (3/31/98)b High Yield Muni ABHYX 8.95 5.70 6.63 4.16 4.89 132.40 123.03 0.60 0.60 20.42 385 Nuveen High Yield Municipal Bond A (6/7/99) High Yield Muni NHMAX 8.00 7.50 8.27 3.63 5.08 186.31 145.39 0.85 0.79 22.30 11,038 6.62 4.05 5.11 4.85 — b b,e PERFORMANCE BENCHMARKS Barclays Municipal Bond Index (Dividends Reinvested) New to the Select List this quarter *$1,000,000 initial minimum investment Asset Class and Performance Benchmark Definitions Tax-exempt bond funds primarily invest in municipal bonds generally issued by state and local governments to fund general expenditures and public projects. Investment income may be subject to certain state and local income taxes and a portion of income may be subject to the alternative minimum tax (AMT). Capital gains are not exempt from federal income tax. The Barclays Municipal Bond Index is a total-return performance benchmark for the investment-grade tax-exempt bond market. The index includes reinvestment of interest. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. NOTES: ALL DATA SHOWN IS AS OF MARCH 31, 2015 a.Definitions: Gross Expense Ratio—actual expense as stated in the fund’s prospectus. Net Expense Ratio—net amount after any expenses are waived and/or partially absorbed by fund management. b.Fund has an initial minimum investment greater than $2,500. c.Investor Shares™ are available at a lower minimum but with higher operating expenses than Select Shares®. d.Schwab Affiliate Funds include Schwab Funds and Laudus Funds. Schwab Funds and Laudus Funds are advised by Charles Schwab Investment Management, Inc. Schwab Funds and the Laudus MarketMasters Funds are distributed by Charles Schwab & Co., Inc. Laudus Funds, except the Laudus MarketMasters Funds, are distributed by ALPS Distributors, Inc. e.This fund is available without a load through Schwab. The performance figures shown reflect the performance with the load. Please see the Fund Summary on schwab.com for performance without load. Mutual Fund OneSource Select List — Second Quarter 2015 10 ADDITIONAL FUND CATEGORIES FOR THE QUARTER ENDED MARCH 31, 2015 AVERAGE ANNUALIZED TOTAL RETURN FUND NAME (FUND INCEPTION DATE) UPSIDE DOWNSIDE GROSS NET SINCE MARKET MARKET EXPENSE EXPENSE INCEPTION CAPTURE CAPTURE RATIOa RATIOa TOTAL ASSETS ($M) MORNINGSTAR CATEGORY QUOTE SYMBOL 1 YEAR 3 YEARS 5 YEARS 10 YEARS Conservative Allocation Conservative Allocation Conservative Allocation Moderate Allocation SWLRX SWKRX SWJRX SWOBX 5.29 5.67 6.14 10.16 3.85 5.43 6.96 10.43 4.50 6.06 7.25 10.04 — — — 6.12 4.04 4.93 5.47 6.80 36.81 58.26 77.94 107.07 21.10 45.18 66.15 78.30 0.66 0.71 0.96 0.71 0.45 0.56 0.66 0.62 52 101 52 237 Aggressive Allocation Aggressive Allocation Conservative Allocation Conservative Allocation Moderate Allocation Moderate Allocation World Allocation World Allocation Retirement Income VLAAX PAEAX AONIX JNBAX OAKBX JABAX SGENX MBAAX ARTOX 8.39 3.87 4.42 -0.86 6.02 8.57 -2.79 -4.34 5.44 11.20 11.41 4.62 6.58 10.65 10.71 6.14 6.34 7.35 12.47 10.14 5.47 7.22 9.00 9.40 7.90 7.76 7.83 7.66 6.76 4.86 — 8.18 8.58 8.17 6.12 5.87 9.96 7.71 4.93 5.17 10.89 10.04 11.84 6.30 6.01 114.54 145.96 52.38 97.73 116.94 108.38 109.60 97.35 82.28 83.57 118.55 44.88 91.80 97.79 76.90 123.66 90.33 69.96 1.19 1.07 0.66 1.11 0.74 0.83 1.11 1.14 0.76 1.09 1.07 0.66 0.75 0.74 0.83 1.11 1.09 0.76 276 2,082 372 12,728 20,909 13,020 51,460 448 1,994 Target Date 2011-2015 Target Date 2016-2020 Target Date 2021-2025 Target Date 2026-2030 Target Date 2031-2035 Target Date 2036-2040 Target Date 2041-2045 Target Date 2046-2050 SWGRX SWCRX SWHRX SWDRX SWIRX SWERX SWMRX SWNRX 5.88 6.54 7.06 7.44 7.71 8.05 8.20 8.23 7.68 9.29 10.40 11.31 12.13 12.78 — — 8.01 9.25 10.11 10.70 11.28 11.73 — — — — — — — — — — 5.64 6.29 7.58 7.15 8.23 7.75 14.17 14.54 85.28 104.85 118.64 129.37 139.42 146.90 — — 71.63 91.36 105.73 116.24 126.66 133.81 — — 0.64 0.65 0.73 0.75 0.82 0.82 1.12 1.20 0.53 0.61 0.67 0.72 0.75 0.78 0.80 0.81 114 526 384 775 312 821 53 43 Target Date 2011-2015 Target Date 2016-2020 Target Date 2016-2020 Target Date 2021-2025 Target Date 2021-2025 Target Date 2026-2030 Target Date 2026-2030 Target Date 2031-2035 Target Date 2031-2035 Target Date 2036-2040 Target Date 2036-2040 Target Date 2041-2045 Target Date 2041-2045 Target Date 2046-2050 Target Date 2046-2050 Target Date 2051+ Target Date 2051+ JSFAX ARBVX JTTAX ARWIX JNSAX ARCVX MTPKX ARYIX SRJAX ARDVX SMTAX AROIX JSAAX ARFVX JTSAX AREVX JFFAX 1.53 6.13 2.93 6.67 3.69 7.33 3.12 8.06 4.44 8.71 4.62 9.13 4.62 9.27 4.56 9.58 4.53 5.88 8.12 7.53 8.73 8.79 9.53 10.49 10.37 10.53 11.15 10.82 11.71 10.86 11.93 10.79 12.22 10.98 6.93 8.55 8.14 9.03 8.95 9.58 9.16 10.24 9.99 10.80 10.19 11.21 10.17 11.38 10.22 — — — — — 6.67 — — — 7.14 — — — 7.52 — — — — — 5.08 5.66 5.63 7.09 5.17 5.84 6.52 7.69 5.44 6.41 6.43 8.12 5.73 6.32 5.74 10.49 12.43 85.86 91.16 103.79 98.72 119.51 106.61 127.08 115.38 142.07 124.18 146.40 131.36 146.23 134.32 146.16 136.94 146.12 75.65 78.28 90.40 86.12 106.50 91.60 123.88 98.62 131.03 106.69 136.35 114.47 135.31 117.97 136.28 119.53 133.29 1.09 0.79 1.13 0.82 1.16 0.84 1.15 0.87 1.20 0.90 1.24 0.94 1.27 0.95 1.34 0.96 1.41 0.82 0.79 0.86 0.82 0.89 0.84 1.12 0.87 0.93 0.90 0.94 0.94 0.94 0.95 0.94 0.96 0.96 2,574 1,661 5,735 2,558 4,852 1,658 173 2,025 3,723 1,239 4,060 1,449 2,194 706 1,732 207 286 Long/Short Equity SWHEX 8.37 9.49 7.63 5.14 6.97 63.70 70.45 2.02 1.33 207 Convertibles Long/Short Equity Long/Short Equity Commodities Broad Basket Market Neutral Market Neutral PACIX GATEX GTTMX GSCAX ACVVX MERFX 1.32 -2.04 11.27 -39.61 4.10 2.34 10.26 2.73 17.78 -17.39 2.80 2.99 9.94 3.49 15.32 -8.32 — 2.67 6.36 3.16 — — — 3.60 10.09 7.51 6.37 -8.95 3.40 6.59 117.66 32.86 111.83 87.54 34.45 43.25 71.08 36.94 115.32 110.01 -31.95 -19.71 1.35 1.03 2.23 1.10 4.42 1.70 1.13 0.94 1.25 0.97 1.63 1.27 1,383 8,145 93 992 73 5,263 12.73 5.72 16.11 3.10 14.47 4.41 8.01 4.93 — — BALANCED FUNDS—LEADING SCHWAB AFFILIATE FUNDSd Schwab® Monthly Income Fund—Max Payout (3/28/08) Schwab® Monthly Income Fund—Enhanced Payout (3/28/08) Schwab® Monthly Income Fund—Moderate Payout (3/28/08) Schwab Balanced Fund (11/18/96) BALANCED FUNDS—LEADING 3RD PARTY FUNDS Value Line Asset Allocation (8/24/93) Putnam Dynamic Asset Allocation Gr A (2/8/94)e American Century One Choice VryCnsrv Inv (9/30/04) JPMorgan Income Builder A (5/31/07)e Oakmark Equity & Income I (11/1/95) Janus Balanced T (9/1/92) First Eagle Global A (4/28/70)e Morgan Stanley Inst Global Strat A (11/1/96)e American Century One Choice In Ret Inv (8/31/04) TARGET DATE FUNDS—LEADING SCHWAB AFFILIATE FUNDSd Schwab Target 2015 Fund (03/12/08) Schwab Target 2020 Fund (07/01/05) Schwab Target 2025 Fund (03/12/08) Schwab Target 2030 Fund (07/01/05) Schwab Target 2035 Fund (03/12/08) Schwab Target 2040 Fund (07/01/05) Schwab Target 2045 Fund (01/23/13) Schwab Target 2050 Fund (01/23/13) TARGET DATE FUNDS—LEADING 3RD PARTY FUNDS JPMorgan SmartRetirement ® 2015 A (5/15/06)e American Century One Choice 2020 Inv (5/30/08) JPMorgan SmartRetirement ® 2020 A (5/15/06)e American Century One Choice 2025 Inv (8/31/04) JPMorgan SmartRetirement ® 2025 A (7/31/07)e American Century One Choice 2030 Inv (5/30/08) Manning & Napier Target 2030 K (3/28/08) American Century One Choice 2035 Inv (8/31/04) JPMorgan SmartRetirement ® 2035 A (7/31/07)e American Century One Choice 2040 Inv (5/30/08) JPMorgan SmartRetirement ® 2040 A (5/15/06)e American Century One Choice 2045 Inv (8/31/04) JPMorgan SmartRetirement ® 2045 A (7/31/07)e American Century One Choice 2050 Inv (5/30/08) JPMorgan SmartRetirement ® 2050 A (7/31/07)e American Century One Choice 2055 Inv (3/31/11) JPMorgan SmartRetirement ® 2055 A (1/31/12)e ALTERNATIVE FUNDS—LEADING SCHWAB AFFILIATE FUNDSd Schwab Hedged Equity Fund (09/03/02) ALTERNATIVE FUNDS—LEADING 3RD PARTY FUNDS Columbia Convertible Securities A (9/25/87)e Gateway A (12/7/77)e Glenmede Total Market (12/21/06) Goldman Sachs Commodity Strategy A (3/30/07)e American Century Mkt Neutral Val Inv (10/31/11) Merger Investor (1/31/89) PERFORMANCE BENCHMARKS S&P 500 Index® (Dividends Reinvested) Barclays U.S. Aggregate Bond Index (Dividends Reinvested) New to the Select List this quarter Asset Class Definitions Balanced funds invest in a mix of stocks, bonds and cash within one fund and are classified into two categories. Conservative Allocation funds may invest 20% to 50% of assets in equities and 50% to 80% of assets in fixed income and cash. Moderate Allocation funds may invest 50% to 70% of assets in equities, with the balance invested in fixed income and cash. Convertible funds invest primarily in bonds and preferred stocks that can be converted into common stocks. Target maturity or “Lifecycle” funds are managed for investors planning to retire (or to begin withdrawing substantial portions of their investments) in a particular year. These funds provide both asset allocation and rebalancing for investors following an investment strategy that grows more conservative as the target date approaches. Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Investments in commodity-related products may subject the fund to significantly greater volatility than investments in traditional securities and involve substantial risks, including risk of loss of a significant portion of their principal value. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Data provided by Morningstar, Inc. ©2015 by Morningstar, Inc. All rights reserved. The information contained herein is the proprietary information of Morningstar, Inc., and may not be copied or redistributed for any purpose and may only be used for noncommercial, personal purposes. The information contained herein is not represented or warranted to be accurate, correct, complete or timely. Morningstar, Inc., shall not be responsible for investment decisions, damages or other losses resulting from use of this information. Morningstar, Inc., has not granted consent for it to be considered or deemed an “expert” under the Securities Act of 1933. Mutual Fund OneSource Select List — Second Quarter 2015 11 INCOME MUTUAL FUND SELECT LIST ® Schwab’s Income Mutual Fund Select List was developed and is managed by the Charles Schwab Investment Advisory, Inc. (CSIA) experts and includes mutual funds that have met their rigorous criteria, including both quantitative and qualitative factors. All are no-load and no-transaction fee and are selected based on their ability to generate income in their respective asset classes. The list is designed to help you achieve income and growth. For more information on how funds are selected, see pages 4 and 14. AVERAGE ANNUALIZED TOTAL RETURN 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION DOWNSIDE MARKET CAPTURE QUOTE SYMBOL Schwab Core Equity Fund (7/1/96) Large Blend SWANX 14.89 16.29 13.78 7.91 8.57 100.97 100.80 Schwab Dividend Equity Fund (9/2/03) Large Value SWDSX 10.09 15.28 13.44 7.69 9.21 98.86 105.71 Laudus Mondrian International Equity Fund—Investor (6/17/08) Foreign Large Value LIEQX -0.02 8.87 6.02 — 0.43 110.75 98.35 Schwab GNMA Fund (3/3/03) Intermediate Government SWGSX 4.84 1.88 3.47 4.52 4.11 74.60 91.20 Schwab Intermediate-Term Bond Fund (10/31/07) Intermediate-Term Bond SWIIX 3.97 2.16 3.51 — 4.69 71.74 74.12 Schwab Tax-Free Bond Fund (9/11/92) Muni National Interm SWNTX 5.42 3.45 4.60 4.43 5.24 81.29 76.51 Schwab® Monthly Income Fund—Max Payout (3/28/08) Conservative Allocation SWLRX 5.29 3.85 4.50 — 4.04 36.81 21.10 Schwab® Monthly Income Fund—Enhanced Payout (3/28/08) Conservative Allocation SWKRX 5.67 5.43 6.06 — 4.93 58.26 45.18 Schwab Balanced Fund (11/18/96) Moderate Allocation SWOBX 10.16 10.43 10.04 6.12 6.80 107.07 78.30 Parnassus Core Equity Investor (9/1/92) Large Blend PRBLX 12.70 17.75 13.69 10.31 10.86 101.71 87.61 TIAA-CREF Social Choice Eq Retail (3/31/06) Large Blend TICRX 9.91 15.20 13.19 8.01 7.22 98.39 105.24 JPMorgan Equity Income A (2/18/92)e Large Value OIEIX 4.89 13.41 14.05 7.91 8.70 93.69 89.23 Principal Equity Income A (5/31/39)e Large Value PQIAX 3.26 12.04 11.88 6.99 8.75 91.90 98.16 Tocqueville International Value (8/1/94) Foreign Large Blend TIVFX 0.64 10.11 7.68 6.44 5.97 103.10 79.05 Henderson Global Equity Income A (11/30/06)e Foreign Large Value HFQAX -4.42 7.84 6.67 — 3.39 94.41 67.31 Perkins Global Value T (6/29/01) World Stock JGVAX 2.96 10.27 9.30 5.71 6.85 85.77 52.91 Tortoise MLP & Pipeline Investor (5/31/11)e Energy Limited Partnership TORTX -1.75 12.36 — — 14.60 100.00 66.38 Janus Global Real Estate T (7/6/09) Global Real Estate JERTX 12.53 12.57 10.37 — 16.44 93.32 70.79 Cohen & Steers Real Estate Securities A (9/2/97)e Real Estate CSEIX 21.62 13.84 14.70 8.57 9.85 85.72 29.30 RidgeWorth Seix Floating Rate Hi Inc I (3/1/06) Bank Loan SAMBX 2.17 4.64 5.16 — 4.47 65.18 -33.90 Lord Abbett Income A (12/31/81)e Corporate Bond LAGVX 2.90 5.08 6.59 6.49 8.15 139.18 82.14 TCW Emerging Markets Income N (3/1/04) Emerging Markets Bond TGINX -2.08 2.40 5.62 8.00 8.30 100.11 126.92 RidgeWorth Seix High Yield I (12/29/00) High Yield Bond SAMHX 1.53 6.90 7.81 6.50 7.32 124.29 12.25 BlackRock Inflation Protected Bond Inv A (6/28/04)e Inflation-Protected Bond BPRAX -2.17 -1.27 2.67 4.00 4.42 102.00 219.43 American Century Ginnie Mae Inv (9/23/85) Intermediate Government BGNMX 4.29 1.78 3.46 4.51 6.50 68.24 80.88 USAA Income (3/4/74)b Intermediate-Term Bond USAIX 5.14 4.27 5.30 5.47 8.28 111.34 80.91 DoubleLine Total Return Bond N (4/6/10) Intermediate-Term Bond DLTNX 5.76 4.55 — — 8.39 105.57 58.06 PIMCO Income D (3/30/07) Multisector Bond PONDX 5.68 9.64 10.92 — 9.57 159.82 -8.98 Loomis Sayles Ltd Term Govt and Agency A (1/3/89)e Short Government NEFLX -1.39 0.21 1.39 3.21 4.94 39.57 39.21 Lord Abbett Short Duration Income A (11/4/93)e Short-Term Bond LALDX -0.50 2.03 3.15 4.38 4.36 52.82 7.95 PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 10.76 7.32 7.08 6.36 6.19 137.10 24.99 Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 7.14 4.39 5.20 4.77 5.32 116.55 126.57 American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b Muni National Interm TWTIX 4.21 2.72 3.97 4.13 5.05 75.79 86.07 USAA Tax Exempt Intermediate-Term (3/19/82)b Muni National Interm USATX 5.29 4.12 5.14 4.62 6.87 88.53 72.57 Federated Shrt-Interm Dur Muni Instl (9/4/81)b,* Muni National Short FSHIX 1.82 1.65 2.27 2.68 4.33 32.70 22.64 American Century One Choice VryCnsrv Inv (9/30/04) Conservative Allocation AONIX 4.42 4.62 5.47 4.86 4.93 52.38 44.88 Oakmark Equity & Income I (11/1/95) Moderate Allocation OAKBX 6.02 10.65 9.00 8.18 10.89 116.94 97.79 First Eagle Global A (4/28/70)e World Allocation SGENX -2.79 6.14 7.90 8.17 11.84 109.60 123.66 American Century One Choice In Ret Inv (8/31/04) Retirement Income ARTOX 5.44 7.35 7.83 5.87 6.01 82.28 69.96 PACIX 1.32 10.26 9.94 6.36 10.09 117.66 71.08 FUND NAME (FUND INCEPTION DATE) 1 YEAR UPSIDE MARKET CAPTURE MORNINGSTAR CATEGORY LEADING SCHWAB AFFILIATE FUNDSd LEADING 3RD PARTY FUNDS DOMESTIC INTERNATIONAL SECTOR TAXABLE BOND TAX-FREE BOND BALANCED FUNDS CONVERTIBLES Columbia Convertible Securities A (9/25/87)e Convertibles New to the Select List this quarter *$1,000,000 initial minimum investment Definitions 30-day SEC Yield: Based on a fund’s most recently reported portfolio holdings, this measure shows the income an investor would earn if invested in that fund for the subsequent 12 months. Although a fund’s holdings are likely to change over that time, the SEC yield provides a yardstick for comparing the income potential across funds within the same category. Annual Dividend Return: This measure looks back at the actual payouts of an equity fund over the past 12 months. It provides an accurate picture of the fund’s recent short-term distributions without any forward anticipation. The Income Select List shows the 12-month dividend return for each equity fund in the form of a percentage of its share price (also known as “payout ratio”). Mutual Fund OneSource Select List — First Quarter 2015 Whether you need income monthly, quarterly or annually, you have a number of fund choices. The funds on the Income Select List provide different types of income: fixed-income funds generally pay interest measured by yield; equity funds pay dividends measured by dividend return or payout ratio. FOR THE QUARTER ENDED MARCH 31, 2015 GROSS EXPENSE RATIOa NET EXPENSE RATIOa AVG. WEIGHTED MATURITY (YRS) TOTAL ASSETS ($M) PAYMENT DATE FREQUENCY ANNUAL DIVIDEND RETURN MOST RECENT DIVIDEND PAYMENT 30-DAY SEC YIELD — 0.72 0.72 — 2,380 12/9/14 Annually 1.26 0.33 0.89 0.89 — 2,022 3/31/15 Quarterly 1.47 0.09 1.40 1.19 1.19 — 98 12/16/14 Annually 11.38 0.88 — 0.66 0.57 5.32 300 3/31/15 Monthly 2.54 0.02 2.03 0.64 0.45 4.34 353 3/31/15 Monthly 1.89 0.02 1.82 0.58 0.49 5.66 663 3/31/15 Monthly 2.25 0.02 1.32 0.66 0.45 5.97 52 4/15/15 Monthly 2.24 0.02 2.01 0.71 0.56 5.96 101 4/15/15 Monthly 2.44 0.02 2.00 0.71 0.62 6.17 237 12/30/14 Annually 2.13 0.34 — 0.87 0.87 — 12,263 3/31/15 Quarterly 1.41 0.08 — 0.46 0.46 — 2,805 12/12/14 Annually 1.36 0.21 — 1.09 1.04 — 10,241 3/27/15 Monthly 1.78 0.03 1.37 0.89 0.89 — 6,077 3/31/15 Quarterly 1.75 0.13 2.10 1.54 1.25 — 258 12/17/14 Annually 2.12 0.32 — 1.18 1.18 — 3,471 3/30/15 Monthly 6.03 0.05 2.79 1.01 1.01 — 277 12/19/14 Annually 1.88 0.28 0.00 1.25 1.25 — 2,141 11/25/14 Annually 1.07 0.09 — 1.18 1.18 — 295 3/31/15 Annually 1.97 0.03 1.04 1.23 1.23 — 1,333 3/31/15 Quarterly 1.98 0.07 — 0.61 0.61 4.92 6,312 3/31/15 Monthly 4.42 0.04 4.61 0.88 0.78 — 2,265 3/31/15 Monthly 4.66 0.01 3.77 1.13 1.13 8.92 4,470 3/31/15 Monthly 4.99 0.04 7.29 0.56 0.56 6.87 717 3/31/15 Monthly 5.71 0.04 5.00 1.06 0.76 10.75 2,596 3/31/15 Monthly 1.76 0.00 7.32 0.55 0.55 6.62 1,413 3/31/15 Monthly 2.42 0.02 1.57 0.59 0.59 6.33 5,962 3/27/15 Monthly 3.61 0.04 2.66 0.72 0.72 4.93 46,104 3/31/15 Monthly 4.22 0.04 3.50 0.79 0.79 4.78 43,625 3/31/15 Monthly 5.92 0.05 3.49 0.81 0.80 3.24 760 3/31/15 Monthly 1.82 0.01 1.00 0.59 0.59 — 36,049 3/31/15 Monthly 3.82 0.01 2.76 0.92 0.90 9.85 8,960 3/31/15 Monthly 7.18 0.01 0.41 0.50 0.46 17.89 866 3/24/15 Monthly 3.50 0.03 3.04 0.47 0.47 9.72 3,390 3/31/15 Monthly 2.63 0.03 1.38 0.55 0.55 8.44 3,946 3/31/15 Monthly 3.45 0.03 1.54 0.80 0.47 — 1,186 3/31/15 Monthly 1.42 0.01 0.90 0.66 0.66 6.72 372 3/24/15 Quarterly 1.84 0.03 1.60 0.74 0.74 — 20,909 12/18/14 Annually 0.77 0.27 — 1.11 1.11 — 51,460 12/16/14 Annually 0.53 0.30 — 0.76 0.76 6.71 1,994 3/24/15 Quarterly 2.14 0.02 1.55 1.35 1.13 — 1,383 3/20/15 Quarterly 2.34 0.13 1.91 If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. A smart approach to help you generate income from your investments Schwab developed the Income Mutual Fund Select List to help investors in or approaching retirement build or modify an investment portfolio that addresses their growth and income needs. Here are some things to consider as you develop or fine-tune your portfolio: Asset Allocation: As always, your portfolio’s asset allocation should be driven by your investment goals, time horizon and risk tolerance. As your goals shift from accumulation to income, you can use the funds on this list to help address your income and growth needs from both bond and equity funds. Diversification: Investors in or nearing retirement often believe that they should be exclusively in bonds and other fixed income assets. While for some investors this might be an appropriate strategy, you may want to consider keeping some percentage of your portfolio in equities for the capital appreciation potential they provide. Risk vs. Return: Evaluate yields within the context of risk: different categories or asset classes will reflect differing risk/reward trade-offs. Consider a mix of bond funds: government, municipal and corporate. Also, a fund’s exposure to below-investment grade bonds is important to keep in mind. One of the selection criteria for fixed-income funds on the Income Select List is relatively low exposure to these types of securities, except for the high yield, multisector and emerging bond categories. (To see a fixed-income fund’s credit rating, click on the fund name, then the Portfolio tab.) Maturity: Bond funds with longer maturities can leave investors exposed to greater inflation and credit risk, so consider a balance of maturities, from ultrashort to long. Distribution Frequency: Different funds provide payouts on different schedules. Check the frequency of distributions to determine when you’ll receive income, if any, from the fund. Taxes: Remember tax implications. Income on investments in nonretirement accounts is generally taxable; in tax-protected retirement accounts, such as IRAs and 401(k)s, it’s less of a concern. Where appropriate, consider tax-free bond funds. Schwab provides a range of easy-to-use tools, resources and guidance at schwab.com for investors in or nearing retirement. Performance quoted is past performance and is no guarantee of future results. For asset class and performance benchmark definitions, please see footnotes on pages 5–11. Please see page 10 for information on items a–e cited above. 13 (continued from page 4) For the Income Select List, CSIA generally includes no more than the two most favorably evaluated funds in each asset category, except for the intermediate-term bond category, which may feature up to five funds. Upside and downside capture ratios: a measure of how much a fund moves in comparison to the broad market when the market goes up or down. Upside capture ratio: For the months in which the market return was positive, what was the ratio of the fund’s returns to the market’s returns? Upside capture of 110% means that in up markets, the fund went up 10% more than the market did. For investors who are concerned with growth in rising markets, looking for a fund with a high upside capture ratio (above 100%) can be useful. Downside capture ratio: For the months in which the market return was negative, what was the ratio of the fund’s returns to the market’s returns? Downside capture of 110% means that in down markets, the fund went down 10% more than the market did. For investors who are concerned with minimizing losses, looking for a fund with a low downside capture ratio (below 100%) can be helpful. Generally speaking, it’s good for a fund to have an upside capture ratio at least as high as its downside capture ratio, and preferably higher. A fund delivering 110% of the market’s positive returns but only 105% of the negative returns means that the fund has delivered more of the market’s upside than downside (which is desirable). The “holy grail” for many investors is a fund with a low downside capture ratio that has an upside capture ratio of 100% or more. The absolute level of upside capture and downside capture can be important as well, providing an overall indication of the fund’s risk relative to the market. If both ratios are around 120%, it means that the fund has been more volatile than the market (even if upside is higher than downside). If both ratios are around 80%, it means that the fund has been less volatile than the market. As with most metrics, these ratios are backward looking (in this case, over the past three years). Just because a fund has delivered a certain percentage of the market’s returns in past up markets and down markets doesn’t mean that it is guaranteed to do the same in future up or down markets. In a three-year period with very few up months or very few down months, the upside or downside capture ratio can be hard to measure. These ratios provide no information about the fund’s overall returns and are simply a measure of performance relative to the market in up periods and in down periods. Additional Important Information More than 3,500 funds participate in the Mutual Fund OneSource® service. Only these funds, including Schwab Affiliate Funds, are eligible for the Select Lists. Schwab receives remuneration from fund companies, and/or their affiliates, in the Mutual Fund OneSource service, including Schwab Affiliate Funds, for record keeping, shareholder services and other administrative services. Schwab and its affiliates also receive fees from Schwab Affiliate Funds for investment advisory and fund administration services. The aggregate fees Schwab or its affiliates receive from Schwab Affiliate Funds (see fund prospectuses for more details) are greater than the remuneration Schwab receives from other fund companies participating in Schwab’s Mutual Fund OneSource service. The amount of fees Schwab or its affiliates receive from funds participating in the Mutual Fund OneSource service is not considered in the Select Lists selection, nor does any fund pay Schwab to be included in the Select Lists. Eligible funds are selected based solely on the quantitative and qualitative criteria described on pages 4 and 14. Schwab Affiliate Funds include Schwab Funds and Laudus Funds. Schwab Funds and Laudus Funds are advised by Charles Schwab Investment Management, Inc. Schwab Funds and the Laudus MarketMasters Funds are distributed by Charles Schwab & Co., Inc. and Laudus Funds (except Laudus MarketMasters Funds) are distributed by ALPS Distributors, Inc. Investing in Mutual Funds at Schwab Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can obtain a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing. Investment value will fluctuate and shares, when redeemed, may be worth more or less than original cost. Trades in no-load mutual funds participating in the Mutual Fund OneSource service (including Schwab Funds), as well as certain other funds, are available without loads or transaction fees when placed through schwab.com or one of our automated phone channels. However, for each of these trades placed through a broker, a $25 service charge applies. Additionally, Schwab will charge a short-term redemption fee (STR) if you sell shares of OneSource funds held for 90 days or less. Schwab reserves the right to exempt some funds from the STR fee, including certain Schwab Funds, which may charge a separate redemption fee, and funds that accommodate short-term trading. Certain funds may charge a redemption fee separate, and in addition to, the OneSource STR. All other funds available at Schwab are subject to a transaction fee when bought and sold and may be subject to fees assessed by the fund itself. Schwab reserves the right to change the funds it makes available without transaction fees and reinstate fees on any funds. Information on the Mutual Fund OneSource Select List® No mention of particular funds or fund families here should be construed as a recommendation, or considered an offer to sell, or a solicitation to buy any securities. This information is provided for general information purposes only and should not be considered an individualized recommendation or personalized investment advice. The securities listed may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Schwab or its employees may sometimes hold positions in the securities listed here. Charles Schwab & Co. Inc. is the underwriter and distributor of Schwab Funds®. Except as noted below, all data provided by Morningstar, Inc. ©2015 by Morningstar, Inc. All rights reserved. The information contained herein is the proprietary information of Morningstar, Inc., and may not be copied or redistributed for any purpose and may only be used for noncommercial, personal purposes. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. Morningstar, Inc., shall not be responsible for investment decisions, damages, or other losses resulting from use of the information. Morningstar, Inc., has not granted consent for it to be considered or deemed an “expert” under the Securities Act of 1933. With respect to SchwabFunds, Charles Schwab Investment Management, Inc. provides the following data: total net assets, actual and average annual total returns, after-tax returns, annualized quarter-end performance, top ten holdings, portfolio breakdowns, expense ratios, and, for Schwab bond funds, credit ratings, average maturity, and 30-day SEC yield. Charles Schwab Investment Advisory (CSIA) is a separately registered investment advisor and an affiliate of Charles Schwab & Co., Inc. Among other functions, CSIA oversees the selection of investments and ongoing monitoring of the Select List and produces market commentary and other investment advice for Schwab clients and financial consultants. (0114-0381) Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value ©2015 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. REF (0115-0934) MKT10884FM-90 (05/15) Mutual Fund OneSource Select List — Second Quarter 2015 14
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