Mutual Fund OneSource - Charles Schwab Corporation · PDF fileIn just over two decades,...

FOURTH QUARTER

2017Also available at schwab.com/selectlist

What You Should Know About Target-Date FundsKey points:

• Target-datefundsofferinvestorsmanybenefits,includingassetallocation,

diversification,rebalancingand—perhapsmostimportant—thedisciplineto

stay invested.

• Investors should understand that two funds with the same target date can differ

significantlyfromoneanotherintheirallocationsandothercharacteristics.

• Differentiatorsincludeafund’sglidepathdesign,“to”versus“through”

approach,abilitytomaketacticaladjustments,andfees.

Investors seeking to simplify the management of their retirement portfolio often look to a

single mutual fund or Exchange Traded Fund (ETF) that spreads their investments across

multiple asset classes. One increasingly popular vehicle for doing so is a target-date

fund—an age-appropriate portfolio that shifts its allocations over time to become

gradually more conservative as the fund approaches its target date, relieving investors

from the necessity of doing so themselves but keeping them invested to assist in potentially

securing a successful retirement.

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.

(continued on page 2)

Mutual FundOneSourceSelect List& Income Select List

HIGHLIGHTS

What You Should Know About Target-Date Funds (Pages 1–3)

Fund Selection Considerations (Page 4)

Third Quarter Perspectives and Summaries (Pages 5–11)

Mutual Fund OneSource Select List (Pages 5–11)

Income Mutual Fund Select List (Pages 12–13)

Additional Important Information (Page 14)

In just over two decades, target-date funds have amassed more

than one trillion dollars in assets as of September 30, 2017,

according to Morningstar Inc. It’s easy to see why. Target-date

funds provide investors broad diversification. They relieve

investors of having to make asset allocation decisions, and they

rebalance regularly. They offer an alternative to the sub-optimal

choices investors can be prone to make, such as putting the

bulk of one’s retirement assets in a money market fund, or being

too heavily weighted in one’s own company stock. Perhaps most

important, target-date funds help investors avoid the urge to

try to time the market, which more often than not can lead to

disappointing outcomes. And fees are generally low, depending

on the nature of the fund’s underlying holdings.

Having become a default option in many company 401(k) plans,

target-date funds typically appeal to investors looking toward

retirement, although they can be used for other goals earmarked

for the future, such as funding a college education or saving for

a home purchase. In any event, the premise behind the funds is

simple: Investors select a fund closest to their expected retire-

ment date (or other anticipated goal) based upon risk tolerance

and personal financial conditions; the fund adjusts its mix of

stocks, bonds and cash to become more conservative over time,

as determined by its glide path. However, two funds with the same

target date can differ significantly in their asset allocations and

other characteristics. Here we highlight some key factors inves-

tors should take into account when evaluating target-date funds.

KEY DIFFERENTIATORS AMONG TARGET-DATE FUNDS

Glide Path Design—A target-date fund’s glide path is the

blueprint for its reallocation of fund assets as the target date

approaches—and beyond, in some cases. While seemingly

straightforward, glide paths can vary significantly across similarly

dated funds. One may start out with higher allocations to riskier

assets—albeit with the potential for greater gains—early on it its

glide path and ultimately evolve to being more conservative at its

target date. Investors can gain an understanding of such differences

by reviewing each fund’s prospectus: Their glide paths will be

graphically depicted, showing how each fund transitions from

equities to fixed income investments over time. Such variations

have the potential to significantly affect ending values.

“To” versus “Through”—Although perceived as relatively safe due

to their broad and ever-more-conservative asset allocations over

time, target-date funds can sometimes be more aggressive than

investors expect. This became particularly evident during the

2008 financial crisis, when many investors in 2010 target-date

funds were shocked to suffer serious losses just two years prior

to their goal year. This can be partially attributed to whether a

fund applies a “to” or “through” methodology. Those applying a

“to” approach generally reach their most conservative allocation

at their target date, with no further shifts in allocations beyond

that date. Those taking a “through” approach, on the other hand,

continue to adjust their allocations beyond the target date, which

often means they’ll still maintain a significant equity exposure

even as they near their target date.

Tactical Adjustments—Because most target-date funds are actively

managed, in addition to simply rebalancing their asset allocations

annually, many fund managers seek to adjust their balance of risk

and reward as market conditions or outlooks change. By main-

taining exposure to a broad range of complementary investment

strategies, these managers can make tactical shifts across

sub–asset class exposures to address macro-or micro-economic

impacts as they arise in an effort to achieve improved perfor-

mance. In addition, some take expected investor behavior into

consideration to mitigate potential risks at various life stages.

Fees—Fees should be an important consideration for target-date

fund investors, because once they’ve opted into a fund in a com-

pany retirement plan, they are as likely as not to stick with it for

a long time—possibly decades—over which time those fees can

have a considerable impact on compounded returns. And fees

can vary widely: from 0.08% to more than 1% each year.

OTHER CONSIDERATIONS

Investors should understand that target-date funds are not

guaranteed to return a profit, and investors are subject to

losses—even at or after the target date. Although some have

wider latitude than others to adjust their glide paths based on

changes to economic and market expectations, most won’t

preclude losses during down markets. During the 2008 financial

crisis, for instance, most such funds would have kept a 30-year-

old aggressively invested, resulting in substantial losses; and in

What You Should Know About Target-Date Funds (continued)

(continued on page 3)

Mutual Fund OneSource Select List — Fourth Quarter 2017 2

(1117-71L2)

Investors should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read it carefully before investing.Target date funds asset allocations are subject to change over time. The principal value of the funds is not guaranteed at any time, and will continue to fluctuate up to and at times after the target date. There is no guarantee target date funds will provide adequate income at or through retirement. The funds are built for investors who expect to start gradual withdrawals of fund assets on the target date, to begin covering expenses in retirement.Target date funds asset allocations are subject to change over time in accordance with each fund’s prospectus.The investment risks of target date funds will change as asset allocations change. Investors should consider risk tolerance and personal financial conditions along with age and retirement date when investing in the Funds.The Funds are subject to market volatility and risks associated with the underlying investments. Risks include exposure to international and emerging markets, small company and sector equity securities, and fixed income securities subject to changes in inflation, market valuations, liquidity, prepayments, and early redemption

What You Should Know About Target-Date Funds (continued)

2009 and 2013, kept a retiree mostly in bonds, missing out on

two banner years for the stock market. In addition, most target-

date funds rely on the assumption that fixed income investments

are indeed safe, which is not always the case. And with today’s

bond yields unusually low, it’s inevitable that interest rates will

eventually rise, which could drive bond prices down and increase

the potential for losses. However, their broad diversification and

mix of asset classes, along with an expected long time horizon,

are intended to minimize the chance of losses over the long term

as well as ensure that investors are able to outpace inflation.

Investors should also understand that in most cases, target-date

funds are constructed and managed as if they represent the

entirety of an investor’s retirement funds, which is often not the

case. In combination with other potential holdings, therefore,

it’s possible that the assessed risk and portfolio allocation of

a target-date fund may not fully meet an investor’s investment

objective or retirement goals, engendering a potentially false

sense of security.

And last, many investors are likely to adopt a “set and forget”

mentality, assuming all is well with their retirement nest egg. This

is never a good tactic. Instead, investors should keep a regular eye

on their target-date funds. As the 2008 financial crisis taught us,

things can go wrong in the market, and those paying attention have

the greatest potential to make adjustments to avoid large losses.

DIGGING DEEPER

Schwab offers resources to help investors research target-date

funds. The Schwab Mutual Fund OneSource Select List® includes

a number of target-date funds from multiple providers, including

Schwab’s own family of funds. Schwab clients can also explore

alternative target-date funds in detail by logging into schwab.

com/research, clicking on the Mutual Funds tab and selecting

Fund Screener. Enter “target” in the Keyword Search box. Mouse

over a ticker, and you’ll see a snapshot of the fund; click on it

to learn more the fund, including its investment strategy and

fund profile (under “Fund Facts & Fees”); asset allocation (under

“Portfolio”); and, of course, performance.


Eligibility RequirementsEach 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 CriteriaActively 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.

“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.

How Funds Are SelectedTo 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 Affiliate 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.

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LARGE-CAP U.S. STOCK FUNDS

Perspectives and Third Quarter 2017 SummaryWiththeglobaleconomicpicturegettingbrightertosuggestearningsgrowthwillpersist,we

remainrelativelyoptimisticthatdomesticstockswillcontinuetotrendhigher.However,investors

shouldstayvigilantaswebelievethemarketcouldbeenteringthelatterinnings,asweareseeing

signsthatthecharacteristicsoftheeconomyandmarketmaybechanging.Thiscouldprovide

bothopportunitiesandrisk.Wesuggestmakingsureallocationsareappropriateforriskprofilesas

wellaslong-termgoalsandmakeadjustmentsasneeded,whilealsopreparingforthepotentialto

makesometacticalportfolioadjustmentsinthenot-too-distantfuture.

The S&P 500 Index returned 4.5% for the 3rd quarter leading to a solid YTD return of 14.2%.

Technologystockscontinuedtodominate2017withtheNASDAQpostingaQ3returnof6.1%and

YTDtotalof21.7%.TheDowJonesIndustrialAveragereturned5.6%forthequarter,15.5%YTD.

Large-capgrowthfundshadanothersolidquarterofperformancereturning5.3%foranYTD

totalof19.9%asdecentcorporateearningsgrowthcontinuedwithlittlesignofnear-term

recessionrisk.Large-capblendreturned4.2%inQ3foratotalYTDof13.2%.Large-capvalue

lagged a bit with 3.8% for the quarter and 9.4% YTD.

All perspectives are as of October 16, 2017. For the latest up-to-date perspectives, please visit schwab.comFORTHEQUARTERENDEDSEPTEMBER30,2017

FUND NAME (FUND INCEPTION DATE)MORNINGSTARCATEGORY

QUOTESYMBOL

AVERAGE ANNUALIZED TOTAL RETURN UPSIDE MARKET CAPTURE

DOWNSIDE MARKET CAPTURE

GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION

LEADING SCHWAB AFFILIATE FUNDSd

Laudus US Large Cap Growth (10/14/97) Large Growth LGILX 20.97 12.01 14.61 9.77 7.22 118.46 127.69 0.76 0.76 1,741

FUNDAMENTAL INDEX FUNDS

Schwab Fundamental U.S. Large Company Index Fund (4/2/07) Large Value SFLNX 15.76 8.87 13.59 7.74 7.95 88.98 97.09 0.25 0.25 5,365

MARKET CAP-WEIGHTED INDEX FUNDS

Schwab® S&P 500 Index Fund (5/19/97) Large Blend SWPPX 18.54 10.71 14.12 7.39 7.48 99.48 99.94 0.03 0.03 29,184

LEADING 3RD PARTY FUNDS

Janus Henderson US Managed Volatility T (7/6/09)b Large Blend JRSTX 15.80 9.98 13.82 6.49 15.13 72.25 47.09 0.86 0.86 1,044

American Funds Fundamental Invs F1 (3/15/01) Large Blend AFIFX 20.23 11.40 14.49 7.21 8.20 104.10 102.59 0.68 0.68 92,506

FMI Large Cap (12/31/01) Large Blend FMIHX 17.86 9.62 13.02 8.21 9.07 91.12 93.54 0.84 0.84 6,392

MFS® Massachusetts Investors Tr A (7/15/24)e Large Blend MITTX 12.47 7.98 12.00 6.82 9.10 98.00 103.11 0.73 0.73 6,462

American Funds Invmt Co of Amer F1 (3/15/01) Large Blend AICFX 16.14 9.21 13.68 6.51 6.99 96.25 109.44 0.69 0.69 89,763

T. Rowe Price Blue Chip Growth (6/30/93) Large Growth TRBCX 27.15 14.31 17.05 9.57 10.77 118.58 103.19 0.72 0.72 42,335

American Funds Growth Fund of Amer F1 (3/15/01) Large Growth GFAFX 19.79 11.41 15.01 7.29 7.61 106.37 107.59 0.71 0.71 171,333

Prudential Jennison Growth Z (4/15/96) Large Growth PJFZX 25.07 13.12 15.90 9.46 8.69 117.70 113.99 0.68 0.68 4,479

Jensen Quality Growth J (8/3/92) Large Growth JENSX 15.68 12.39 14.46 8.27 8.84 96.03 73.78 0.88 0.88 6,420

Parnassus (12/27/84) Large Growth PARNX 17.34 10.83 15.03 9.46 10.22 103.72 108.04 0.86 0.86 1,062

JPMorgan Large Cap Value A (2/18/92)e Large Value OLVAX 17.96 9.67 14.55 5.93 7.62 98.41 87.16 1.13 0.93 1,249

American Funds American Mutual F1 (3/15/01) Large Value AMFFX 15.40 9.40 12.42 7.02 7.53 89.47 92.29 0.67 0.67 47,140

T. Rowe Price Equity Income (10/31/85) Large Value PRFDX 18.25 8.11 11.76 6.01 10.88 89.81 107.48 0.66 0.66 21,789

Pioneer Equity Income Y (7/2/98)b Large Value PYEQX 17.05 12.04 14.05 7.15 7.28 95.19 75.78 0.77 0.77 2,231

PERFORMANCE BENCHMARKS

Schwab 1000 Index® (Dividends Reinvested) 18.48 10.62 14.18 7.54 —

S&P 500 Index® (Dividends Reinvested) 18.61 10.81 14.22 7.44 —

New to the Select List this quarter

Asset Class and Performance Benchmark DefinitionsLarge-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.


MID- AND SMALL-CAP U.S. STOCK FUNDS

FORTHEQUARTERENDEDSEPTEMBER30,2017


QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION



Schwab Fundamental U.S. Small Co Index Fund (4/2/07) Small Blend SFSNX 18.17 10.90 14.14 9.10 8.76 100.49 100.08 0.25 0.25 1,720


Schwab Small-Cap Index Fund (5/19/97) Small Blend SWSSX 20.75 12.20 13.80 8.59 9.06 114.95 117.92 0.05 0.05 3,489


Scout Mid Cap (10/31/06) Mid-Cap Blend UMBMX 24.15 11.95 14.91 10.52 11.63 97.17 81.18 1.04 1.04 1,630

Parnassus Mid-Cap (4/29/05) Mid-Cap Blend PARMX 13.70 11.02 13.37 9.13 9.57 90.00 75.37 1.01 0.99 2,684

Ave Maria Growth (5/1/03) Mid-Cap Growth AVEGX 20.11 11.90 12.94 8.76 10.91 99.41 86.76 1.07 1.07 450

Buffalo Discovery (4/16/01) Mid-Cap Growth BUFTX 19.59 12.30 14.90 10.18 9.21 101.95 87.97 1.03 1.03 1,569

Prudential QMA Mid-Cap Value Z (11/29/05) Mid-Cap Value SPVZX 16.87 8.20 14.36 8.40 8.47 82.63 90.49 1.04 0.95 935

T. Rowe Price Small-Cap Value (6/30/88) Small Blend PRSVX 23.70 12.97 13.36 8.57 11.90 101.97 80.80 0.93 0.93 10,196

AMG River Road Small Cap Value N (6/28/05) Small Blend ARSVX 21.54 12.85 12.62 6.32 8.25 93.04 62.07 1.41 1.41 316

CRM Small Cap Value Inv (9/29/95) Small Blend CRMSX 22.59 13.64 14.62 7.76 11.17 114.69 101.77 1.13 1.13 452

BlackRock Advantage Small Cap Core Inv A (3/14/13)e Small Blend BDSAX 13.57 9.05 — — 11.06 101.12 100.06 1.29 0.75 214

Perritt MicroCap Opportunities Investor (5/2/88) Small Blend PRCGX 17.59 9.37 13.33 5.88 9.75 86.34 85.58 1.23 1.23 224

Thrivent Small Cap Stock S (12/29/97) Small Growth TSCSX 27.69 15.06 15.17 6.72 8.71 117.00 91.63 0.81 0.81 590

Wasatch Micro Cap Value (7/28/03) Small Growth WAMVX 23.29 14.96 16.00 8.91 12.46 103.88 63.50 1.84 1.84 222

Boston Trust Small Cap (12/16/05) Small Growth BOSOX 15.99 11.08 11.06 7.82 8.82 93.31 82.10 1.06 1.00 356

Eaton Vance Tx-Mgd Small-Cap A (9/25/97)e Small Growth ETMGX 13.40 8.08 11.36 6.61 5.47 90.40 85.04 1.22 1.22 117

Neuberger Berman Genesis Inv (9/27/88) Small Growth NBGNX 17.26 11.03 12.61 8.18 12.29 96.05 88.81 1.03 1.03 10,822

Heartland Value Plus Investor (10/26/93) Small Value HRVIX 22.47 4.05 7.67 6.55 10.16 89.47 153.23 1.19 1.19 420

Guggenheim Mid Cap Value P (5/1/15) Small Value SEVPX 20.57 9.00 11.99 7.68 10.21 86.96 91.21 1.23 1.23 502

Columbia Small Cap Value Fund I A (7/25/86)b,e Small Value CSMIX 18.60 10.96 12.87 7.11 9.45 115.11 107.77 1.38 1.32 632

PERFORMANCE BENCHMARK

Russell 2000 Index® (Dividends Reinvested) 20.74 12.18 13.79 7.85 —


Asset Class and Performance Benchmark DefinitionsMid-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.

Perspectives and Third Quarter 2017 SummaryThetightU.S.labormarketandsignsthatwagegrowthmaybesolidifyingbolstersourviewthattheall-importantU.S.consumerremainshealthy.Thisshouldhelpsmallermoredomestically-focusedstockstackontosolidyear-to-dategains.Theprospectofamorefavorableregulatoryenvironmentandtaxreform,alongwiththepotentialfortheU.S.dollartostabilizeormovehigherastheFedcontinuesthepathofpolicynormalizationcouldalsolendsupport.However,anescalationofgeopoliticaltensions,politicalfailuresandinternationalpoliticalturmoilcouldcauseriskaversionand/orvolatilitytoflarebackuptothedetrimentofthegroup.Wedonotrecommendmakingmarketcapbetsandwanttoremindinvestorsaboutthepowerofdisciplinedrebalancingaroundanddiversificationwithinstrategicallocation.

TheRussellMidcapIndexreturned3.5%forthequarter,11.7%YTD.Mid-capgrowthhadthestrongestreturnsdelivering4.5%thisquarter,16.7%YTD.Mid-capblendfollowedwith3.7%forQ3,10.2%YTD.Mid-capvaluetrailedslightlywith3.1%forQ3,7.6%YTD.

TheRussell2000Indexreturned5.7%inQ3.Onceagainsmall-capgrowthperformedparticularlywell,returning5.6%forthequartercomparedtosmall-capblend(5.1%)andvalue(4.7%).

S&P600Energy(11.6%),Utilities(8.6%)andIndustrials(8.1%)indiceswerethetopperformersforsmall-capforthe3rdquarter.TheweakestsectorsoftheS&P600forQ3wereTelecommunicationServices(0.6%),RealEstate(2.8%)andConsumerDiscretionary(3.7%).

All perspectives are as of October 16, 2017. For the latest up-to-date perspectives, please visit schwab.com


INTERNATIONAL STOCK FUNDS

Perspectives and Third Quarter 2017 SummaryWhilepullbacksarenormalandcanhappenatanytime,thefundamentaltrendsthatpoweredthesteadyriseinglobalstocksthisyearremainintact.Globalleadingeconomicindicatorspointtocontinuedeconomicstrengththatisliftingearningsandsupportingthebullmarket.Webelieveagloballydiversifiedportfoliocanhelpinsulateinvestorsfromthevolatility.

InternationaldevelopedmarketsonceagainoutperformeddomesticmarketswiththeMSCIEAFEdelivering5.4%forQ3.Europeanequitiesreturned5.7%forthe3rdquarter.EuropeancountryhighsforQ3camefromNorway(19.2%),Italy(13.7%)andPortugal(13.2%)whileSwitzerland(2.0%),Finland(3.3%)andSpain(4.3%)lagged.WithindevelopedAsianmarketsHongKong(5.1%)andJapan(4.0%)hadrelativelystrongQ3performancewhileNewZealand(-0.1%)andSingapore(3.1%)trailed.

EmergingMarkets(7.9%)onceagainoutpaceddevelopedmarketsforthe3rdquarter.InLatinAmerica,Brazil(23.0%)andChile(17.0%)shinedforQ3andMexico(1.4%)andColumbia(6.5%)paledincomparison.InEurope,MiddleEastandAfricanemergingmarketsRussia(17.6%)andtheCzechRepublic(10.0%)faroutpacedQatar(-6.9%)andGreece(-12.2%)forthequarter.China(14.7%)andThailand(10.5%)weretheQ3winnersinAsianemergingmarkets,farsurpassingPakistan(-16.5%)andIndonesia(-1.1%).

ForeignLargeGrowth(6.5%)continuedtheglobalgrowthchargebeatingForeignLargeBlend(5.3%)andForeignLargeValue(5.3%)forQ3.ForeignSmall/MidGrowth(7.9%)outperformedForeignSmall/MidBlend(7.0%)andForeignSmall/MidValue(6.9%)forthe3rdquarter.



QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION


Schwab® International Core Equity Fund (5/30/08) Foreign Large Blend SICNX 21.99 7.03 10.40 — 3.67 92.03 74.53 0.91 0.86 1,182

Laudus Mondrian International Equity Fund—Instl (6/16/08) Foreign Large Value LIEIX 15.26 4.50 8.17 — 1.81 82.39 78.63 0.96 0.90 115


Schwab Fundamental International Large Co Index (4/2/07) Foreign Large Value SFNNX 21.26 4.82 9.09 1.67 2.37 97.76 96.33 0.25 0.25 1,344

Schwab Fundamental International Small Co Index (1/31/08) Foreign Small/Mid Blend SFILX 21.08 10.76 12.33 — 7.08 97.46 57.82 0.39 0.39 715

Schwab Fundamental Emerging Mkts Large Co Idx (1/31/08) Diversified Emerging Mkts SFENX 22.93 4.60 2.95 — 1.74 120.55 126.88 0.39 0.39 520


Schwab International Index Fund (5/19/97) Foreign Large Blend SWISX 18.91 5.08 8.34 1.41 4.59 92.41 87.78 0.06 0.06 4,010


Matthews China Dividend Investor (11/30/09) China Region MCDFX 21.23 13.33 13.15 — 11.18 118.84 69.55 1.22 1.22 288

Matthews China Investor (2/19/98) China Region MCHFX 36.51 12.98 9.46 3.16 10.29 136.71 94.53 1.18 1.18 840

AllianzGI NFJ Emerging Markets Value A (12/18/12)e Diversified Emerging Mkts AZMAX 16.22 5.07 — — 5.06 112.80 101.00 7.79 1.14 69

TCW Emerg Mkts Multi-Asst Opps N (6/28/13) Diversified Emerging Mkts TGMEX 15.05 4.87 — — 5.35 67.15 56.30 2.15 1.23 81

Matthews Asia Dividend Investor (10/31/06) Diversified Pacific/Asia MAPIX 14.68 8.94 9.27 8.24 9.81 82.12 49.34 1.06 1.06 6,611

Franklin Mutual European A (7/3/96)e Europe Stock TEMIX 9.66 1.66 6.53 2.14 — 70.19 68.16 1.31 1.31 2,613

T. Rowe Price European Stock (2/28/90) Europe Stock PRESX 17.35 3.89 8.69 2.92 7.49 94.09 97.78 0.96 0.96 1,175

Oakmark International Investor (9/30/92)b Foreign Large Blend OAKIX 34.88 9.40 12.87 6.18 10.40 126.67 103.92 1.05 1.00 41,173

T. Rowe Price Overseas Stock (12/29/06) Foreign Large Blend TROSX 22.34 6.21 8.81 2.23 3.12 95.18 83.93 0.84 0.84 15,437

T. Rowe Price Spectrum International (12/31/96) Foreign Large Blend PSILX 17.98 6.08 8.24 2.75 5.84 92.91 81.85 0.94 0.94 1,474

Janus Henderson Overseas T (5/2/94)b Foreign Large Blend JAOSX 21.71 -1.01 2.49 -2.34 8.04 112.83 154.70 0.66 0.66 1,705

American Funds Intl Gr and Inc F1 (10/1/08) Foreign Large Blend IGIFX 17.43 2.96 6.82 — 7.54 84.62 91.77 0.97 0.97 13,644

American Funds Europacific Growth F1 (3/15/01) Foreign Large Growth AEGFX 20.18 7.17 9.10 3.29 7.10 94.73 77.17 0.87 0.87 158,945

T. Rowe Price International Stock (5/9/80) Foreign Large Growth PRITX 18.72 7.40 8.49 3.00 9.17 96.75 78.28 0.84 0.84 15,806

Janus Henderson Global Equity Income T (6/5/17)b Foreign Large Value HFQTX 15.70 5.99 7.98 3.28 3.33 75.55 59.89 1.08 1.08 5,059

AMG TimesSquare International SmallCap N (1/2/13) Foreign Small/Mid Growth TCMPX 23.07 13.94 — — 14.31 104.16 46.82 1.44 1.30 521

Harding Loevner Intl Small Coms Inv (3/26/07)b Foreign Small/Mid Growth HLMSX 23.03 8.62 10.78 5.81 6.77 86.99 57.79 1.80 1.40 193

Pear Tree Polaris Fgn Val Sm Cap Ord (5/1/08) Foreign Small/Mid Value QUSOX 26.32 9.03 13.18 — 7.97 104.06 77.30 1.55 1.45 824

T. Rowe Price Japan (12/30/91) Japan Stock PRJPX 16.93 13.80 14.23 3.65 2.88 77.43 12.59 1.02 1.02 649

Matthews Asia Innovators Investor (12/27/99) Pacific/Asia ex-Japan Stk MATFX 25.10 9.81 14.55 6.55 3.80 114.25 85.45 1.24 1.24 177

Matthews Pacific Tiger Investor (9/12/94) Pacific/Asia ex-Japan Stk MAPTX 13.87 7.00 8.54 6.41 8.92 87.72 69.11 1.09 1.08 8,936

Janus Henderson Global Inc Mgd Volatil T (12/15/11)b World Large Stock JDGTX 9.34 8.21 9.73 — 10.46 42.87 2.12 1.31 0.75 217

American Funds New Perspective F1 (3/15/01) World Large Stock NPFFX 20.76 10.32 12.43 6.36 8.16 92.45 54.07 0.84 0.84 75,020


MSCI EAFE Index (Dividends Reinvested) 19.10 5.04 8.38 1.34 —New to the Select List this quarter

Asset Class and Performance Benchmark DefinitionsForeign 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.



SECTOR FUNDS

Perspectives and Third Quarter 2017 Summary

Amidthebackdropofwidespreadglobalgrowth,improvedbusinessconfidence,thepotentialfor

higherinterestratesastheFednormalizespolicy,wefeeloutperformratingsareappropriatefor

thefinancials,healthcareandinformationtechnologysectors.However,giventhisenvironment,we

seerealestate,utilitiesandtelecomstocksunderperforming.Althoughtheprolongedcommodity

pricedeclinesmaybeending,theU.S.consumerappearssolid,andoilpriceshavereboundedas

oflate,wearemaintainingneutralratingsfortheconsumerstaplesanddiscretionarysectors,

alongwithonmaterials,industrialsandenergyissues.

Thelargest3rdquartersectorreturnscamefromTechnology(8.1%),Energy(7.2%)and

Industrials(6.4%).ConsumerDefensive(0.7%),RealEstate(0.8%)andConsumerCyclical(2.2%)

lagged during Q3.

InrealassetsNaturalResources(8.4%)outpacedPreciousMetals(3.8%)andBroadBasket

Commodities(3.6%).




QUOTESYMBOL

AVERAGE ANNUALIZED TOTAL RETURNUPSIDE MARKET CAPTURE


GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION


HEALTH FUNDS (CATEGORY AVERAGE)† 15.49 9.35 16.79 11.83

Schwab Health Care Fund (7/3/00) Health SWHFX 15.26 9.53 16.36 10.84 9.52 100.13 81.27 0.80 0.80 885 GLOBAL REAL ESTATE (CATEGORY AVERAGE)† 3.66 5.62 6.66 1.49

Schwab Global Real Estate Fund (5/31/07) Global Real Estate SWASX 6.63 8.62 7.79 2.53 2.09 73.52 44.44 1.14 1.05 283


EQUITY ENERGY FUNDS (CATEGORY AVERAGE)† -3.79 -13.66 -4.71 -2.80

Cavanal Hill World Energy Investor (2/4/14) Equity Energy APWEX -2.83 -6.36 — — -2.73 34.02 123.41 1.45 1.20 54

ICON Energy S (11/5/97) Equity Energy ICENX -0.44 -10.13 -2.43 -1.19 8.01 47.00 184.89 1.44 1.44 230 ENERGY LIMITED PARTNERSHIP FUNDS (CATEGORY AVERAGE)† -2.53 -11.10 -0.40 9.82

Center Coast MLP Focus A (12/31/10)e Energy Limited Partnership CCCAX -7.19 -8.73 0.11 — 2.12 54.51 163.46 7.07 1.50 2,712

Oppenheimer SteelPath MLP Select 40 A (3/31/10)e Energy Limited Partnership MLPFX -6.31 -8.82 1.13 — 4.05 48.67 154.69 5.03 4.91 3,223 FINANCIAL FUNDS (CATEGORY AVERAGE)† 29.65 11.67 15.05 3.66

Hennessy Small Cap Financial Investor (1/3/97) Financial HSFNX 24.50 16.94 15.31 9.16 11.23 112.92 38.09 1.55 1.55 214

T. Rowe Price Financial Services (9/30/96) Financial PRISX 30.82 12.17 15.73 5.36 9.62 134.05 114.46 0.93 0.93 751 HEALTH FUNDS (CATEGORY AVERAGE)† 15.49 9.35 16.79 11.83

Janus Henderson Global Life Sciences T (12/31/98)b Health JAGLX 14.71 9.41 19.96 12.86 11.58 114.34 106.07 0.94 0.94 3,746 NATURAL RESOURCES FUNDS (CATEGORY AVERAGE)† 15.26 -0.52 1.75 0.25

T. Rowe Price Real Assets (7/28/10) Natural Resources PRAFX 3.45 1.39 2.05 — 3.43 54.39 80.00 0.84 0.84 3,236

ICON Natural Resources S (5/5/97) Natural Resources ICBMX 20.21 3.55 8.99 3.28 5.09 101.76 138.81 1.62 1.53 81 PRECIOUS METALS FUNDS (CATEGORY AVERAGE)† -11.41 3.24 -12.75 -4.66

Oppenheimer Gold & Special Minerals A (7/19/83)e Equity Precious Metals OPGSX -16.23 3.22 -13.91 -4.54 5.48 -2.77 -56.81 1.17 1.17 1,102

First Eagle Gold A (8/31/93)e Equity Precious Metals SGGDX -15.91 1.36 -11.94 -1.82 5.13 -26.25 -77.49 1.27 1.27 1,233 GLOBAL REAL ESTATE FUNDS (CATEGORY AVERAGE)† 3.66 5.62 6.66 1.49

Cohen & Steers International Realty A (3/31/05)e Global Real Estate IRFAX 1.67 3.25 5.12 -0.55 4.21 78.62 88.03 1.47 1.35 618

Prudential Global Real Estate Z (5/5/98) Global Real Estate PURZX 1.54 5.06 6.43 2.62 8.61 53.84 43.96 0.94 0.94 2,728 REAL ESTATE FUNDS (CATEGORY AVERAGE)† 1.78 8.76 8.73 5.13

Cohen & Steers Realty Shares (7/2/91) Real Estate CSRSX 0.24 9.77 9.57 5.98 11.76 57.40 6.37 0.96 0.96 4,616

Davis Real Estate A (1/3/94)e Real Estate RPFRX -2.51 8.15 7.30 3.09 9.48 61.06 11.31 0.93 0.93 207 TECHNOLOGY FUNDS (CATEGORY AVERAGE)† 27.03 16.22 17.88 9.64

USAA Science & Technology (8/1/97)b Technology USSCX 24.74 16.70 19.69 10.69 6.78 137.45 81.26 1.17 1.17 1,311

Janus Henderson Global Technology T (12/31/98)b Technology JAGTX 31.99 19.01 19.18 11.21 8.45 153.58 88.78 0.95 0.95 2,114

New to the Select List this quarter † Reflects load-adjusted returns

Asset Class and Performance Benchmark DefinitionsSector 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.



TAXABLE BOND FUNDS

Perspectives and Third Quarter 2017 SummaryShort-termTreasuryyieldsroseinthirdquarterlargelyduetoexpectationsthatthegradualpace

ofFedratehikeswillcontinue.However,long-termTreasuryyieldsweregenerallyunchangedfor

thequarterasmostinflationindicatorsremainlow.TheFederalReserveannouncedthestartofits

balancesheetnormalizationprocess,butwedon’texpectittoleadtosharplyhigheryieldsasit

hasbeenclearlycommunicatedanddemandforhighqualitybondsislikelytoremainstronggiven

theyieldadvantagethatU.S.Treasuriesofferrelativetootherdevelopedmarkets.IftheFeddoes

continuetohikeratesbutinflationremainslow,theyieldcurve,orthedifferencebetweenshort-

andlong-termrates,maycontinuetoflatten.

TheBloombergBarclaysU.S.AggregateBondIndexpostedapositive0.9%returnforthe

quarter.Alltaxablebondcategorypostedpositivereturnsforthequarter.

RiskierfundslargelyperformedbetterinthequarterwithEmergingMarketsBondandHighYield

Bondfundsreturning2.9%and1.8%,respectively.Long-TermBond(1.5%),MultisectorBond

(1.5%)andCorporateBond(1.2%)fundsalsogeneratedsolidreturns.ShortGovernmentand

UltrashortBondfundshadthelowest,butstillpositivereturnsat0.2%and0.4%,respectively.



QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

AVG. WEIGHTED MATURITY

(YRS)

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION



Schwab U.S. Aggregate Bond Index (2/23/17) Intermediate-Term Bond SWAGX — — — — 2.39 — — 0.04 0.04 8.04 1,494


Virtus Seix Floating Rate High Inc I (3/1/06) Bank Loan SAMBX 5.26 3.93 4.07 4.30 4.38 62.84 -25.78 0.75 0.63 4.81 6,318

Lord Abbett Floating Rate A (12/31/07)e Bank Loan LFRAX 2.29 3.17 3.74 — 4.13 56.00 -41.16 0.80 0.80 — 12,031

USAA Intermediate-Term Bond (8/2/99)b Corporate Bond USIBX 3.18 3.32 3.75 5.84 5.77 105.09 86.48 0.63 0.63 7.47 4,024

PIMCO Investment Grade Corp Bd D (7/30/04) Corporate Bond PBDDX 3.78 4.90 4.24 7.29 6.58 145.94 109.79 0.91 0.90 10.54 11,636

T. Rowe Price Emerging Markets Bond (12/30/94) Emerging Markets Bond PREMX 6.60 7.12 4.63 6.68 10.59 154.39 41.75 0.92 0.92 10.72 6,735

DoubleLine Low Dur Emerg Mkts Fxd Inc N (4/7/14) Emerging Markets Bond DELNX 3.14 2.59 — — 3.03 53.84 8.44 1.00 0.84 3.10 206

TCW Emerging Markets Local Ccy Inc N (12/14/10) EM Local-Currency Bond TGWNX 9.13 1.66 -0.15 — 1.74 132.44 209.25 1.31 0.99 8.15 184

Prudential High-Yield Z (3/1/96) High Yield Bond PHYZX 8.83 6.23 6.48 7.66 6.69 122.30 8.78 0.57 0.57 — 6,524

TIAA-CREF High-Yield Retail (3/31/06) High Yield Bond TIYRX 7.37 5.01 5.43 7.06 7.05 96.69 2.69 0.63 0.63 7.21 4,083

T. Rowe Price Ltd Dur Infl Focus Bd (9/29/06) Inflation-Protected Bond TRBFX -0.09 0.23 -0.07 1.66 1.87 14.91 21.82 0.50 0.41 3.10 8,332

American Century Inflation Adjs Bond Inv (2/10/97)b Inflation-Protected Bond ACITX -0.81 1.29 -0.44 3.57 4.81 82.10 119.52 0.47 0.47 8.84 3,182

American Funds Mortgage F1 (11/1/10) Intermediate Government MFAEX 0.81 2.28 1.68 — 2.30 62.69 39.34 0.67 0.67 — 3,800

T. Rowe Price GNMA (11/26/85) Intermediate Government PRGMX 0.32 1.76 1.36 3.75 5.81 49.14 31.94 0.59 0.59 6.69 1,404

Prudential Total Return Bond Z (9/16/96) Intermediate-Term Bond PDBZX 2.34 4.01 3.57 6.09 5.93 127.97 107.13 0.55 0.51 — 28,041

Western Asset Core Bond I (9/4/90) Intermediate-Term Bond WATFX 1.59 3.81 3.13 5.13 6.84 113.23 84.25 0.54 0.45 13.09 9,025

T. Rowe Price US Bond Enhanced Index (11/30/00) Intermediate-Term Bond PBDIX 0.08 2.70 2.04 4.32 4.76 102.03 104.94 0.30 0.30 8.32 669

USAA Income (3/4/74)b Intermediate-Term Bond USAIX 2.02 3.47 3.24 5.21 8.05 114.94 101.31 0.51 0.51 8.75 7,621

Baird Core Plus Bond Inv (9/29/00) Intermediate-Term Bond BCOSX 1.45 3.26 2.74 5.20 5.73 106.69 92.42 0.55 0.55 7.59 15,700

PIMCO Income D (3/30/07) Multisector Bond PONDX 8.54 5.84 6.62 9.02 8.79 84.42 -55.24 0.93 0.90 6.07 99,018

JPMorgan Income A (6/2/14)e Multisector Bond JGIAX 0.03 2.86 — — 2.59 94.64 30.97 1.59 0.65 7.06 148

Putnam Absolute Return 300 A (12/23/08)e Nontraditional Bond PTRNX 5.08 0.88 2.19 — 2.46 -2.98 -56.00 0.70 0.70 6.11 462

Pioneer Dynamic Credit Y (4/29/11)b Nontraditional Bond RCRYX 6.23 3.71 4.06 — 4.14 81.09 21.03 0.99 0.88 5.79 321

Eaton Vance Short Duration Gov Inc A (9/30/02)e Short Government EALDX -0.12 0.64 0.59 2.22 2.28 8.59 -39.18 0.96 0.90 — 534

Lord Abbett Short Duration Income A (11/4/93)e Short-Term Bond LALDX -0.15 1.34 1.75 4.08 4.14 39.80 -1.90 0.60 0.60 — 42,449

Prudential Short-Term Corporate Bd Z (12/16/96) Short-Term Bond PIFZX 1.54 2.15 1.90 3.92 4.56 52.57 23.41 0.52 0.52 — 10,619

BBH Limited Duration N (7/20/00) Ultrashort Bond BBBMX 2.76 1.51 1.40 2.62 3.90 17.57 -24.59 0.49 0.35 2.11 6,377

T. Rowe Price Ultra Short-Term Bond (12/3/12) Ultrashort Bond TRBUX 1.73 1.26 — — 0.90 18.40 -12.69 0.44 0.35 2.07 401

Prudential Global Total Return Z (3/17/97) World Bond PZTRX 2.73 3.33 2.91 5.83 5.29 140.60 159.99 0.80 0.63 — 1,048

PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 1.22 3.98 4.29 6.21 5.70 122.43 96.57 0.95 0.90 9.49 8,454


Bloomberg Barclays U.S. Aggregate Bond Index (Dividends Reinvested) 0.07 2.71 2.06 4.27 —


Asset Class and Performance Benchmark DefinitionsBond 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 Bloomberg 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.



NOTES: ALL DATA SHOWN IS AS OF SEPTEMBER 30, 2017a. 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 $100.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.

TAX-FREE BOND FUNDS

Perspectives and Third Quarter 2017 SummaryReturnsforallmunicipalfundcategoriestrackedbyMorningstarwerepositiveforthethird

quarterdespitetheimpactfromHurricanesHarvey,Irma,andMaria.Inourview,thedamage

fromthestormsfurthercomplicatesPuertoRico’srecoveryeffortsbuttheyareunlikelytohave

ameaningfulimpactonthebroadmunimarket.PuertoRico’sproblemsarenotrepresentativeof

othermuniissuersinourview.Wegenerallyhaveapositiveviewofthecreditcharacteristicsfor

mostmunicipalissuers.Weliketheintermediatepartoftheyieldcurveforanattractivebalance

ofriskandrewardinourview.Forinvestorswhoneedthemoneyinthenear-term,wegenerally

suggest short-term bonds.

TheBloombergBarclaysMunicipalBondIndex,abroadmuniindex,generatedapositive1.1%

returnforthequarter.HighYieldMuniwasthebestperformingcategorywithapositivereturnof

1.5%.MuniNationalLong(1.2%)andMuniNationalIntermediate(1.0%)alsopostedstrongreturns

for the quarter. The Muni Single State Intermediate and Muni Single State Long categories

generatedapositivereturnof0.6%and0.5%,respectively.Forsinglestatecategories,MuniNew

Jersey(1.1%)andMuniCaliforniaLong(0.9%)hadthehighestreturns.




QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

AVG. WEIGHTED MATURITY

(YRS)

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION


Schwab Tax-Free Bond Fund (9/11/92) Muni National Interm SWNTX 0.62 2.43 2.33 4.24 4.93 82.58 89.79 0.57 0.49 5.32 664


American Century High-Yield Muni Inv (3/31/98)b High Yield Muni ABHYX 1.48 4.94 4.21 4.08 4.83 129.73 101.92 0.60 0.60 18.48 555

Nuveen High Yield Municipal Bond A (6/7/99)e High Yield Muni NHMAX -1.94 4.68 5.29 3.75 5.13 156.61 115.66 0.88 0.76 21.24 16,098

T. Rowe Price Summit Municipal Intm (10/29/93) Muni National Interm PRSMX 0.65 2.58 2.57 4.08 4.62 83.89 87.00 0.50 0.50 8.72 4,963

American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b Muni National Interm TWTIX 0.68 2.37 2.00 3.76 4.82 80.29 87.12 0.47 0.47 9.60 3,296

Northern Intermediate Tax-Exempt (3/31/94) Muni National Interm NOITX 0.26 2.46 2.18 3.71 4.23 87.22 98.75 0.49 0.46 7.99 2,753

USAA Tax Exempt Intermediate-Term (3/19/82)b Muni National Interm USATX 0.38 2.67 2.82 4.27 6.55 88.04 92.93 0.52 0.52 9.61 4,503

Baird Quality Intermediate Muni Bd Inv (3/30/01) Muni National Interm BMBSX 0.38 1.66 1.47 3.43 3.85 65.25 80.30 0.55 0.55 4.90 1,054

USAA Tax Exempt Long-Term (3/19/82)b Muni National Long USTEX 1.01 3.35 3.40 4.56 7.22 91.61 76.30 0.48 0.48 15.21 2,418

Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 0.50 3.12 2.98 4.50 5.05 100.16 102.68 0.61 0.48 12.28 1,060

T. Rowe Price Tax-Free Shrt-Interm (12/23/83) Muni National Short PRFSX 0.65 1.10 1.08 2.56 4.25 40.96 48.29 0.49 0.49 3.33 2,045

Federated Shrt-Interm Dur Muni Trust Ins (8/20/81) Muni National Short FSHIX 1.21 0.98 1.10 2.19 4.09 29.09 27.02 0.79 0.47 2.70 1,063


Bloomberg Barclays Municipal Bond Index (Dividends Reinvested) 0.87 3.19 3.01 4.52 —


Asset Class and Performance Benchmark DefinitionsTax-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 Bloomberg 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.



ADDITIONAL FUND CATEGORIES FORTHEQUARTERENDEDSEPTEMBER30,2017


QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

TOTAL ASSETS

($M) 1

YEAR3

YEARS5

YEARS10

YEARSSINCE

INCEPTION

BALANCED FUNDS—LEADING SCHWAB AFFILIATE FUNDSd

Schwab® Monthly Income Fund — Max Payout (3/28/08) Allocation—15% to 30% Eq SWLRX 2.64 3.14 2.96 — 3.62 36.68 19.40 0.64 0.46 50 Schwab® Monthly Income Fund — Enhanced Payout (3/28/08) Allocation—30% to 50% Eq SWKRX 5.28 4.04 4.35 — 4.51 55.92 43.55 0.66 0.56 96 Schwab® Monthly Income Fund — Moderate Payout (3/28/08) Allocation—30% to 50% Eq SWJRX 7.96 4.91 5.72 — 5.12 73.89 65.74 0.83 0.65 47 Schwab Balanced Fund (11/18/96) Allocation—50% to 70% Eq SWOBX 11.96 7.11 8.68 5.59 6.68 103.87 89.18 0.68 0.62 374 BALANCED FUNDS—LEADING 3RD PARTY FUNDS

Columbia Income Builder A (2/16/06)b,e Allocation—15% to 30% Eq RBBAX 1.83 3.11 4.27 4.83 5.32 76.53 73.19 1.01 1.01 1,254 American Funds TxAdvtg Inc F1 (5/18/12) Allocation—30% to 50% Eq TAIFX 9.67 6.32 8.05 — 8.95 84.55 62.97 0.76 0.76 1,679 JPMorgan Income Builder A (5/31/07)e Allocation—30% to 50% Eq JNBAX 4.24 3.49 5.33 5.45 5.15 85.34 86.25 1.06 0.75 12,815 American Funds American Balanced F1 (3/15/01) Allocation—50% to 70% Eq BALFX 12.34 7.90 10.31 6.66 7.26 110.59 89.41 0.66 0.66 118,624 Oakmark Equity And Income Investor (11/1/95)b Allocation—50% to 70% Eq OAKBX 15.30 6.45 9.39 6.54 10.30 110.40 114.25 0.89 0.79 16,314 American Funds Income Fund of Amer F1 (3/15/01) Allocation—70% to 85% Eq IFAFX 11.29 6.66 9.09 5.59 7.34 109.95 109.72 0.65 0.65 109,971 American Funds Growth and Inc Port F1 (5/18/12) Allocation—70% to 85% Eq GAIFX 13.31 7.16 9.85 — 11.13 126.62 135.34 0.76 0.76 7,513 Thrivent Aggressive Allocation S (6/30/05) Allocation—85%+ Equity TAAIX 19.22 9.00 11.63 5.79 7.59 152.63 157.06 1.15 0.88 1,114 Franklin Mutual Shares A (7/1/49)e Allocation—85%+ Equity TESIX 5.74 4.02 9.06 3.96 — 126.48 153.53 1.05 1.05 15,620 American Funds Capital Income Bldr F1 (3/15/01) World Allocation CIBFX 10.02 5.38 7.43 3.97 7.20 109.28 130.73 0.67 0.67 108,230 Northern Global Tactical Asset Allc (7/1/93) World Allocation BBALX 11.04 5.62 6.54 4.52 6.32 96.81 100.70 0.85 0.64 89 TARGET DATE FUNDS—LEADING SCHWAB AFFILIATE FUNDSd

Schwab Target 2020 Fund (7/1/05) Target-Date 2020 SWCRX 9.55 5.73 7.49 4.67 6.03 89.82 84.33 0.45 0.42 574 Schwab Target 2025 Fund (3/12/08) Target-Date 2025 SWHRX 11.84 6.62 8.66 — 7.09 105.08 100.38 0.54 0.50 510 Schwab Target 2030 Fund (7/1/05) Target-Date 2030 SWDRX 13.66 7.26 9.51 5.72 7.02 117.11 114.09 0.60 0.57 951 Schwab Target 2060 Fund (8/25/16) Target-Date 2060+ SWPRX 18.58 — — — 17.53 — — 1.85 0.75 5 TARGET DATE FUNDS—LEADING 3RD PARTY FUNDS

American Funds 2020 Trgt Date Retire F1 (2/21/14) Target-Date 2020 FAOTX 9.26 5.81 8.32 4.54 5.95 91.98 87.38 0.73 0.73 11,463 T. Rowe Price Retirement 2020 (9/30/02) Target-Date 2020 TRRBX 12.03 6.83 8.81 5.51 8.78 110.24 107.28 0.63 0.63 25,031 American Funds 2025 Trgt Date Retire F1 (2/21/14) Target-Date 2025 FAPTX 11.19 6.49 9.73 5.14 6.48 104.89 102.20 0.74 0.74 12,939 T. Rowe Price Retirement 2025 (2/27/04) Target-Date 2025 TRRHX 13.73 7.46 9.75 5.73 7.31 120.67 117.91 0.67 0.67 21,240 T. Rowe Price Retirement 2030 (9/30/02) Target-Date 2030 TRRCX 15.32 8.03 10.54 5.95 9.56 130.20 127.77 0.69 0.69 27,093 American Funds 2030 Trgt Date Retire F1 (2/21/14) Target-Date 2030 FAETX 13.71 7.51 10.74 5.70 7.35 122.63 121.03 0.76 0.76 14,131 American Funds 2035 Trgt Date Retire F1 (2/21/14) Target-Date 2035 FAQTX 15.74 8.22 11.26 5.89 7.94 133.83 131.95 0.78 0.78 10,654 T. Rowe Price Retirement 2035 (2/27/04) Target-Date 2035 TRRJX 16.60 8.45 11.12 6.11 7.74 137.46 135.47 0.72 0.72 16,367 American Funds 2040 Trgt Date Retire F1 (2/21/14) Target-Date 2040 FAUTX 16.45 8.44 11.52 6.01 8.13 136.67 133.95 0.78 0.78 9,628 T. Rowe Price Retirement 2040 (9/30/02) Target-Date 2040 TRRDX 17.62 8.74 11.51 6.30 9.84 143.51 142.81 0.74 0.74 19,191 American Funds 2045 Trgt Date Retire F1 (2/21/14) Target-Date 2045 FATTX 16.84 8.64 11.62 6.06 8.29 139.27 135.94 0.78 0.78 6,413 T. Rowe Price Retirement 2045 (5/31/05) Target-Date 2045 TRRKX 17.98 8.86 11.59 6.34 8.01 144.18 142.19 0.74 0.74 10,317 American Funds 2050 Trgt Date Retire F1 (2/21/14) Target-Date 2050 FAITX 16.94 8.69 11.67 6.08 8.33 139.96 136.48 0.79 0.79 5,267 T. Rowe Price Retirement 2050 (12/29/06) Target-Date 2050 TRRMX 17.99 8.85 11.58 6.33 6.81 144.40 142.79 0.74 0.74 8,360 American Funds 2055 Trgt Date Retire F1 (2/21/14) Target-Date 2055 FAJTX 16.93 8.67 11.67 — 8.32 139.82 136.46 0.80 0.80 2,428 T. Rowe Price Retirement 2055 (12/29/06) Target-Date 2055 TRRNX 17.95 8.85 11.56 6.32 6.80 144.60 143.18 0.74 0.74 3,614 ALTERNATIVE FUNDS—LEADING SCHWAB AFFILIATE FUNDSd

Schwab Hedged Equity Fund (9/3/02) Long/Short Equity SWHEX 12.77 7.12 8.79 4.50 6.91 63.47 59.82 1.87 1.33 254 ALTERNATIVE FUNDS—LEADING 3RD PARTY FUNDS

Deutsche Enhanced Commodity Strat Instl (2/14/05) Commodities Broad Basket SKIRX -0.62 -4.44 -5.80 -4.59 -0.56 57.08 45.71 1.18 0.99 2,733 Credit Suisse Commodity Acss Strat A (9/28/12)e Commodities Broad Basket CRCAX -3.87 -16.24 -12.32 — -12.30 119.28 115.16 2.05 1.15 33 Lord Abbett Convertible A (6/30/03)e Convertibles LACFX 13.91 5.17 9.38 5.25 6.45 127.23 157.25 1.05 1.05 862 Natixis ASG Tactical US Market A (9/30/13)b,e Long-Short Equity USMAX 10.92 5.06 — — 9.30 82.12 101.32 1.40 1.24 90 Glenmede Long/Short (9/29/06) Long-Short Equity GTAPX 11.59 5.94 6.45 3.09 2.60 36.20 11.43 2.72 1.17 299 Victory CEMP Market Neutral Income A (11/19/12)e Market Neutral CBHAX 1.63 1.10 — — 0.16 71.37 24.29 1.27 0.90 58 Nuveen Equity Market Neutral A (6/17/13)e Market Neutral NMAEX 3.39 2.06 — — 3.24 22.49 -117.53 3.29 1.61 71 PERFORMANCE BENCHMARKS

S&P 500 Index® (Dividends Reinvested) 18.61 10.81 14.22 7.44 —Bloomberg Barclays U.S. Aggregate Bond Index (Dividends Reinvested) 0.07 2.71 2.06 4.27 —New to the Select List this quarter

Asset Class DefinitionsBalanced 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. ©2017 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.


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.

INCOME MUTUAL FUND SELECT LIST®

Definitions30-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 Distribution Yield: This measure looks back at the actual payouts of a mutual 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 and interest return for each fund in the form of a percentage of its share price (also known as “payout ratio”). The yield does not include long- or short-term capital gains distributions.



QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

AVG.WEIGHTED

MATURITY (YRS)

TOTAL ASSETS

($M) PAYMENT

DATE FREQUENCY

ANNUALDISTRIBUTION

YIELD

MOST RECENTDIVIDENDPAYMENT

30-DAYSEC YIELD

1YEAR

3YEARS

5YEARS

10YEARS

SINCEINCEPTION


Schwab® International Core Equity Fund (5/30/08) Foreign Large Blend SICNX 21.99 7.03 10.40 — 3.67 92.03 74.53 0.91 0.86 — 1,182 12/12/16 Annually 2.04 0.23 —

Laudus Mondrian International Equity Fund (6/16/08) Foreign Large Value LIEIX 15.26 4.50 8.17 — 1.81 82.39 78.63 0.96 0.90 — 115 12/15/16 Annually 2.40 0.16 —

Schwab Global Real Estate Fund (5/31/07) Global Real Estate SWASX 6.63 8.62 7.79 2.53 2.09 73.52 44.44 1.14 1.05 — 283 9/29/17 Quarterly 4.15 0.04 2.53


DOMESTIC

Janus Henderson US Managed Volatility T (7/6/09)b Large Blend JRSTX 15.80 9.98 13.82 6.49 15.13 72.25 47.09 0.86 0.86 — 1,044 6/21/17 Semi-Annually 1.75 0.06 0.00

American Funds Invmt Co of Amer F1 (3/15/01) Large Blend AICFX 16.14 9.21 13.68 6.51 6.99 96.25 109.44 0.69 0.69 — 89,763 9/15/17 Quarterly 1.59 0.14 1.69

American Funds American Mutual F1 (3/15/01) Large Value AMFFX 15.40 9.40 12.42 7.02 7.53 89.47 92.29 0.67 0.67 — 47,140 9/15/17 Quarterly 1.81 0.18 1.97

T. Rowe Price Equity Income (10/31/85) Large Value PRFDX 18.25 8.11 11.76 6.01 10.88 89.81 107.48 0.66 0.66 5.42 21,789 9/27/17 Quarterly 2.09 0.19 —

INTERNATIONAL

American Funds Intl Gr and Inc F1 (10/1/08) Foreign Large Blend IGIFX 17.43 2.96 6.82 — 7.54 84.62 91.77 0.97 0.97 — 13,644 9/22/17 Quarterly 1.91 0.14 2.09

Janus Henderson Global Inc Mgd Volatil T (12/15/11)b World Large Stock JDGTX 9.34 8.21 9.73 — 10.46 42.87 2.12 1.31 0.75 — 217 9/29/17 Monthly 3.00 0.05 2.53

SECTOR

Center Coast MLP Focus A (12/31/10)e Energy Limited Partnership CCCAX -7.19 -8.73 0.11 — 2.12 54.51 163.46 7.07 1.50 — 2,712 9/27/17 Monthly 8.88 0.06 —

Prudential Global Real Estate Z (5/5/98) Global Real Estate PURZX 1.54 5.06 6.43 2.62 8.61 53.84 43.96 0.94 0.94 — 2,728 7/14/17 Quarterly 2.71 0.17 2.86

Cohen & Steers Realty Shares (7/2/91) Real Estate CSRSX 0.24 9.77 9.57 5.98 11.76 57.40 6.37 0.96 0.96 — 4,616 9/29/17 Quarterly 2.82 0.39 1.55

TAXABLE BOND

Virtus Seix Floating Rate High Inc I (3/1/06) Bank Loan SAMBX 5.26 3.93 4.07 4.30 4.38 62.84 -25.78 0.75 0.63 4.81 6,318 9/29/17 Monthly 4.33 0.03 4.11

USAA Intermediate-Term Bond (8/2/99)b Corporate Bond USIBX 3.18 3.32 3.75 5.84 5.77 105.09 86.48 0.63 0.63 7.47 4,024 9/29/17 Monthly 3.47 0.03 2.95

T. Rowe Price Emerging Markets Bond (12/30/94) Emerging Markets Bond PREMX 6.60 7.12 4.63 6.68 10.59 154.39 41.75 0.92 0.92 10.72 6,735 9/29/17 Monthly 6.30 0.07 5.49

Prudential High-Yield Z (3/1/96) High Yield Bond PHYZX 8.83 6.23 6.48 7.66 6.69 122.30 8.78 0.57 0.57 — 6,524 9/29/17 Monthly 6.24 0.03 5.20

Lord Abbett Inflation Focused A (4/29/11)e Inflation-Protected Bond LIFAX 2.03 -1.37 -0.88 — -0.10 -64.29 -110.69 0.90 0.75 — 1,141 9/29/17 Monthly 3.92 0.04 1.86

T. Rowe Price GNMA (11/26/85) Intermediate Government PRGMX 0.32 1.76 1.36 3.75 5.81 49.14 31.94 0.59 0.59 6.69 1,404 9/29/17 Monthly 2.78 0.02 1.92

USAA Income (3/4/74)b Intermediate-Term Bond USAIX 2.02 3.47 3.24 5.21 8.05 114.94 101.31 0.51 0.51 8.75 7,621 9/27/17 Monthly 3.32 0.03 2.83

DoubleLine Total Return Bond N (4/6/10) Intermediate-Term Bond DLTNX 1.41 2.90 2.84 — 6.30 76.98 44.68 0.73 0.73 5.36 53,802 9/29/17 Monthly 3.44 0.03 3.23

PIMCO Income D (3/30/07) Multisector Bond PONDX 8.54 5.84 6.62 9.02 8.79 84.42 -55.24 0.93 0.90 6.07 99,018 9/29/17 Monthly 5.02 0.05 3.54

Eaton Vance Short Duration Gov Inc A (9/30/02)e Short Government EALDX -0.12 0.64 0.59 2.22 2.28 8.59 -39.18 0.96 0.90 — 534 9/29/17 Monthly 2.16 0.02 2.14

Lord Abbett Short Duration Income A (11/4/93)e Short-Term Bond LALDX -0.15 1.34 1.75 4.08 4.14 39.80 -1.90 0.60 0.60 — 42,449 9/29/17 Monthly 3.77 0.01 2.03

AB Global Bond A (3/27/92)e World Bond ANAGX -3.20 1.81 1.98 4.15 7.03 101.87 80.98 0.83 0.83 8.58 6,832 9/29/17 Monthly 2.17 0.01 2.03

TAX-FREE BOND

American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b Muni National Interm TWTIX 0.68 2.37 2.00 3.76 4.82 80.29 87.12 0.47 0.47 9.60 3,296 9/29/17 Monthly 2.57 0.02 1.60

USAA Tax Exempt Intermediate-Term (3/19/82)b Muni National Interm USATX 0.38 2.67 2.82 4.27 6.55 88.04 92.93 0.52 0.52 9.61 4,503 9/29/17 Monthly 3.16 0.04 2.04

Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 0.50 3.12 2.98 4.50 5.05 100.16 102.68 0.61 0.48 12.28 1,060 9/25/17 Monthly 3.06 0.03 2.35

Federated Shrt-Interm Dur Muni Trust Ins (8/20/81) Muni National Short FSHIX 1.21 0.98 1.10 2.19 4.09 29.09 27.02 0.79 0.47 2.70 1,063 9/29/17 Monthly 1.39 0.01 1.15

BALANCED FUNDS

JPMorgan Income Builder A (5/31/07)e Allocation--30% to 50% Eq JNBAX 4.24 3.49 5.33 5.45 5.15 85.34 86.25 1.06 0.75 — 12,815 9/27/17 Monthly 3.97 0.03 3.50

American Funds American Balanced F1 (3/15/01) Allocation--50% to 70% Eq BALFX 12.34 7.90 10.31 6.66 7.26 110.59 89.41 0.66 0.66 — 118,624 9/13/17 Quarterly 1.53 0.09 1.56

American Funds Capital Income Bldr F1 (3/15/01) World Allocation CIBFX 10.02 5.38 7.43 3.97 7.20 109.28 130.73 0.67 0.67 — 108,230 9/13/17 Quarterly 3.17 0.49 2.96

CONVERTIBLES FUNDS

Lord Abbett Convertible A (6/30/03)e Convertibles LACFX 13.91 5.17 9.38 5.25 6.45 127.23 157.25 1.05 1.05 — 862 9/29/17 Quarterly 2.88 0.04 0.65


IncomeMutualFundSelectList—FourthQuarter2017 12

INCOME MUTUAL FUND SELECT LIST®

(CONTINUED)

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.

A smart approach to help you generate income from your investmentsSchwab 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.



QUOTESYMBOL



GROSS EXPENSE

RATIOa

NETEXPENSE

RATIOa

AVG.WEIGHTED

MATURITY (YRS)

TOTAL ASSETS

($M) PAYMENT

DATE FREQUENCY

ANNUALDISTRIBUTION

YIELD

MOST RECENTDIVIDENDPAYMENT

30-DAYSEC YIELD

1YEAR

3YEARS

5YEARS

10YEARS

SINCEINCEPTION


Schwab® International Core Equity Fund (5/30/08) Foreign Large Blend SICNX 21.99 7.03 10.40 — 3.67 92.03 74.53 0.91 0.86 — 1,182 12/12/16 Annually 2.04 0.23 —

Laudus Mondrian International Equity Fund (6/16/08) Foreign Large Value LIEIX 15.26 4.50 8.17 — 1.81 82.39 78.63 0.96 0.90 — 115 12/15/16 Annually 2.40 0.16 —

Schwab Global Real Estate Fund (5/31/07) Global Real Estate SWASX 6.63 8.62 7.79 2.53 2.09 73.52 44.44 1.14 1.05 — 283 9/29/17 Quarterly 4.15 0.04 2.53


DOMESTIC

Janus Henderson US Managed Volatility T (7/6/09)b Large Blend JRSTX 15.80 9.98 13.82 6.49 15.13 72.25 47.09 0.86 0.86 — 1,044 6/21/17 Semi-Annually 1.75 0.06 0.00

American Funds Invmt Co of Amer F1 (3/15/01) Large Blend AICFX 16.14 9.21 13.68 6.51 6.99 96.25 109.44 0.69 0.69 — 89,763 9/15/17 Quarterly 1.59 0.14 1.69

American Funds American Mutual F1 (3/15/01) Large Value AMFFX 15.40 9.40 12.42 7.02 7.53 89.47 92.29 0.67 0.67 — 47,140 9/15/17 Quarterly 1.81 0.18 1.97

T. Rowe Price Equity Income (10/31/85) Large Value PRFDX 18.25 8.11 11.76 6.01 10.88 89.81 107.48 0.66 0.66 5.42 21,789 9/27/17 Quarterly 2.09 0.19 —

INTERNATIONAL

American Funds Intl Gr and Inc F1 (10/1/08) Foreign Large Blend IGIFX 17.43 2.96 6.82 — 7.54 84.62 91.77 0.97 0.97 — 13,644 9/22/17 Quarterly 1.91 0.14 2.09

Janus Henderson Global Inc Mgd Volatil T (12/15/11)b World Large Stock JDGTX 9.34 8.21 9.73 — 10.46 42.87 2.12 1.31 0.75 — 217 9/29/17 Monthly 3.00 0.05 2.53

SECTOR

Center Coast MLP Focus A (12/31/10)e Energy Limited Partnership CCCAX -7.19 -8.73 0.11 — 2.12 54.51 163.46 7.07 1.50 — 2,712 9/27/17 Monthly 8.88 0.06 —

Prudential Global Real Estate Z (5/5/98) Global Real Estate PURZX 1.54 5.06 6.43 2.62 8.61 53.84 43.96 0.94 0.94 — 2,728 7/14/17 Quarterly 2.71 0.17 2.86

Cohen & Steers Realty Shares (7/2/91) Real Estate CSRSX 0.24 9.77 9.57 5.98 11.76 57.40 6.37 0.96 0.96 — 4,616 9/29/17 Quarterly 2.82 0.39 1.55

TAXABLE BOND

Virtus Seix Floating Rate High Inc I (3/1/06) Bank Loan SAMBX 5.26 3.93 4.07 4.30 4.38 62.84 -25.78 0.75 0.63 4.81 6,318 9/29/17 Monthly 4.33 0.03 4.11

USAA Intermediate-Term Bond (8/2/99)b Corporate Bond USIBX 3.18 3.32 3.75 5.84 5.77 105.09 86.48 0.63 0.63 7.47 4,024 9/29/17 Monthly 3.47 0.03 2.95

T. Rowe Price Emerging Markets Bond (12/30/94) Emerging Markets Bond PREMX 6.60 7.12 4.63 6.68 10.59 154.39 41.75 0.92 0.92 10.72 6,735 9/29/17 Monthly 6.30 0.07 5.49

Prudential High-Yield Z (3/1/96) High Yield Bond PHYZX 8.83 6.23 6.48 7.66 6.69 122.30 8.78 0.57 0.57 — 6,524 9/29/17 Monthly 6.24 0.03 5.20

Lord Abbett Inflation Focused A (4/29/11)e Inflation-Protected Bond LIFAX 2.03 -1.37 -0.88 — -0.10 -64.29 -110.69 0.90 0.75 — 1,141 9/29/17 Monthly 3.92 0.04 1.86

T. Rowe Price GNMA (11/26/85) Intermediate Government PRGMX 0.32 1.76 1.36 3.75 5.81 49.14 31.94 0.59 0.59 6.69 1,404 9/29/17 Monthly 2.78 0.02 1.92

USAA Income (3/4/74)b Intermediate-Term Bond USAIX 2.02 3.47 3.24 5.21 8.05 114.94 101.31 0.51 0.51 8.75 7,621 9/27/17 Monthly 3.32 0.03 2.83

DoubleLine Total Return Bond N (4/6/10) Intermediate-Term Bond DLTNX 1.41 2.90 2.84 — 6.30 76.98 44.68 0.73 0.73 5.36 53,802 9/29/17 Monthly 3.44 0.03 3.23

PIMCO Income D (3/30/07) Multisector Bond PONDX 8.54 5.84 6.62 9.02 8.79 84.42 -55.24 0.93 0.90 6.07 99,018 9/29/17 Monthly 5.02 0.05 3.54

Eaton Vance Short Duration Gov Inc A (9/30/02)e Short Government EALDX -0.12 0.64 0.59 2.22 2.28 8.59 -39.18 0.96 0.90 — 534 9/29/17 Monthly 2.16 0.02 2.14

Lord Abbett Short Duration Income A (11/4/93)e Short-Term Bond LALDX -0.15 1.34 1.75 4.08 4.14 39.80 -1.90 0.60 0.60 — 42,449 9/29/17 Monthly 3.77 0.01 2.03

AB Global Bond A (3/27/92)e World Bond ANAGX -3.20 1.81 1.98 4.15 7.03 101.87 80.98 0.83 0.83 8.58 6,832 9/29/17 Monthly 2.17 0.01 2.03

TAX-FREE BOND

American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b Muni National Interm TWTIX 0.68 2.37 2.00 3.76 4.82 80.29 87.12 0.47 0.47 9.60 3,296 9/29/17 Monthly 2.57 0.02 1.60

USAA Tax Exempt Intermediate-Term (3/19/82)b Muni National Interm USATX 0.38 2.67 2.82 4.27 6.55 88.04 92.93 0.52 0.52 9.61 4,503 9/29/17 Monthly 3.16 0.04 2.04

Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 0.50 3.12 2.98 4.50 5.05 100.16 102.68 0.61 0.48 12.28 1,060 9/25/17 Monthly 3.06 0.03 2.35

Federated Shrt-Interm Dur Muni Trust Ins (8/20/81) Muni National Short FSHIX 1.21 0.98 1.10 2.19 4.09 29.09 27.02 0.79 0.47 2.70 1,063 9/29/17 Monthly 1.39 0.01 1.15

BALANCED FUNDS

JPMorgan Income Builder A (5/31/07)e Allocation--30% to 50% Eq JNBAX 4.24 3.49 5.33 5.45 5.15 85.34 86.25 1.06 0.75 — 12,815 9/27/17 Monthly 3.97 0.03 3.50

American Funds American Balanced F1 (3/15/01) Allocation--50% to 70% Eq BALFX 12.34 7.90 10.31 6.66 7.26 110.59 89.41 0.66 0.66 — 118,624 9/13/17 Quarterly 1.53 0.09 1.56

American Funds Capital Income Bldr F1 (3/15/01) World Allocation CIBFX 10.02 5.38 7.43 3.97 7.20 109.28 130.73 0.67 0.67 — 108,230 9/13/17 Quarterly 3.17 0.49 2.96

CONVERTIBLES FUNDS

Lord Abbett Convertible A (6/30/03)e Convertibles LACFX 13.91 5.17 9.38 5.25 6.45 127.23 157.25 1.05 1.05 — 862 9/29/17 Quarterly 2.88 0.04 0.65

New to the Select List this quarter 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.

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.

IncomeMutualFundSelectList—FourthQuarter2017 13

©2017 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. REF (0115-0934) MKT10884FM-100 (11/17)

Brokerage Products: Not FDIC-Insured • No Bank Guarantee • May Lose Value

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 InformationMore 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 SchwabInvestors 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. ©2017 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)

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