Schwab ETFs. Discover the value of ETF investing with Charles Schwab Investment Management. For Institutional Investor Use Only

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1 Schwab ETFs Discover the value of ETF investing with Charles Schwab Investment Management.

2 The importance of ETFs in today s portfolio Investment professionals face a challenging and ever-changing environment. The right strategy or investment vehicle can have a significant impact on a portfolio and every basis point counts. Exchange traded funds (ETFs) offer benefits that may help you better meet the needs of investors. Cost ETFs typically have significantly lower operating expenses and management fees than actively managed funds. Industrywide, the average fee for an active fund is 1.205%, nearly double the average fee for passive funds at 0.653%. 1 Diversification ETFs are available across asset classes, sectors and geography, giving investors access to a broad range of investment options. Each ETF provides exposure to multiple underlying securities, offering an efficient way to help achieve a broader range of diversification. Shifting industry The index investing space is growing rapidly. In fact, ETF assets are projected to soar to nearly $5 trillion by As the industry evolves, more investors may look to take advantage of these lower cost, more efficient vehicles. Tax efficiency Generally, passively-managed ETFs are considered more tax-efficient vehicles because of their product structure. Comparatively, actively-managed ETFs tend to trade more frequently as they attempt to either outperform the market or manage specific risks, and thus are more likely to realize capital gains. Charles Schwab Investment Management 2

3 Strength starts with the foundation At Charles Schwab Investment Management, we believe that every portfolio should be rooted in a strong foundation. That s why we leverage decades of market insight and index investing experience to deliver a broad range of products that can serve as a strong foundation for diversified portfolios. As one of the nation s largest ETF providers, Charles Schwab Investment Management has a long history and deep understanding of ETF investing. Since the launch of our first ETF in 2009, we have been focused on offering the quality foundational products our clients and partners demand at competitive prices. As a core part of a portfolio, our ETFs seek to deliver steady, reliable long-term results. By consistently putting our clients interests first, we have been able to grow our business, expand our product suite and offer among the lowest expenses sharing the benefits of our scale and efficiency wherever we can. $300+ billion firmwide assets under management $60+ billion ETF assets under management 5th largest provider of ETFs As of March 31, 2017, Charles Schwab Investment Management managed approximately $302.5 billion on a discretionary basis and approximately $13.6 billion on a nondiscretionary basis. Data sources: Assets under management from Charles Schwab Investment Management, Inc.; ETF ranking from Strategic Insight based on assets under management as of March 31, An ongoing commitment to index investing Charles Schwab Investment Management introduces lower costs on ETFs and market cap index funds, creating the same price for all investors with no minimums 3 Low cost, ETF-based Schwab Target Index Funds launched providing access to quality retirement solutions at competitive prices Charles Schwab Investment Management celebrates its 25th anniversary as one of the country s largest asset managers Schwab Fundamental Index ETFs launched providing investors more choice and value for their portfolios Schwab market cap index ETF expenses slashed offering ETFs with the lowest operating expense ratios in their respective Lipper categories 4 Schwab ETFs introduced the first ETFs in the marketplace to offer commission-free online trading 5 First Fundamental Index mutual funds launched with Research Affiliates LLC (RAFI) Charles Schwab Investment Management 3

4 Schwab ETF products Schwab market cap ETFs Schwab market cap ETFs contain stocks that are screened and weighted based on the size of their market capitalization, assigning the largest weights to the largest companies. We offer investment solutions across all major asset classes. Schwab market cap ETFs offer lower fees. With an asset-weighted average expense ratio of 0.05%, 6 our fees are among the lowest in the industry. Schwab Fundamental Index ETFs Schwab Fundamental Index* ETFs hold stocks that are screened and weighted based on three fundamental measures of a company s size: adjusted sales, retained operating cash flow, and dividends plus buybacks. Our Fundamental Index ETFs are offered across various asset classes. A cost-effective alternative to active management, fundamental indexing may deliver excess returns versus the benchmark over time. Comparing market cap index with Fundamental Index strategies Market Cap Index Fundamental Index Index construction Market value Economic value Portfolio characteristics Momentum/growth tilt Value tilt Portfolio turnover Reconstitution Reconstitution and rebalancing Alpha/beta Market beta Smart beta; Potential alpha Tax efficient Typically Typically Cost structure Lowest cost Low cost Investment process Index Rules-based Combining market cap and fundamental ETFs may provide greater diversification with the potential for better performance in the long run. Because of their unique approaches, both strategies may hold similar stocks but at different weights. This may lead the strategies to perform differently in different market cycles. As a result, the combination can be complementary creating a potential for less volatility and more attractive risk-adjusted returns. Schwab fixed income ETFs Schwab fixed income ETFs have among the lowest expenses in the industry. They also provide a convenient, low cost way to capture the performance of specific segments of the U.S. bond market in a product structure with potential tax efficiency and no minimum investment. Our low cost ETFs are accessible wherever Schwab Funds are sold. Charles Schwab Investment Management 4

5 Discover the value for yourself. Learn more about our ETFs. Call or visit csimfunds.com. 1 Vlastelica, Ryan. (2016, December). Here s more proof investors are flipping from mutual funds to ETFs. Morningstar. Retrieved from 2 The Cerulli Report: U.S. Exchange-Traded Fund Markets 2016, Exhibit Minimums are subject to change and ETFs require investment of at least one share. A financial intermediary may impose different or additional conditions than the funds on purchases, redemptions and exchanges of fund shares. These differences may include initial, subsequent and maintenance investment requirements, exchange policies, fund choices, cut-off times for investment and trading restrictions. 4 This claim is based on expense ratio data comparisons between Schwab Market-Cap ETFs and non-schwab Market- Cap ETFs in their respective Lipper categories. A Schwab Market-Cap ETF is determined to be the lowest in its Lipper category if its expense ratio is equal to or lower than the lowest expense ratio of any non-schwab Market-Cap ETF in that category. Securities in Market-Cap ETFs are selected and weighted based on the size of their market capitalization. Expense ratio data for both Schwab and non-schwab Market-Cap ETFs was obtained from Strategic Insight Simfund as of 3/31/2017. ETFs in the same Lipper category may track different indexes, have differences in holdings, and show different performance. Competitors may offer more than one ETF in a Lipper category. Expense ratios are subject to change. 5 Restrictions apply: Online trades of Schwab ETFs are commission-free at Charles Schwab & Co., Inc. (Member SIPC), while trades of certain third-party ETFs are subject to commissions. Broker-assisted and automated phone trades are subject to service charges. Waivers may apply. See the Charles Schwab Pricing Guide for details. All ETFs are subject to management fees and expenses. An exchange processing fee applies to sell transactions. 6 Asset-weighted average expense ratio is based on assets as of 3/31/17 *Schwab is a registered trademark of Charles Schwab & Co., Inc. Fundamental Index is a registered trademark of Research Affiliates LLC. 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 or by visiting Please read the prospectus carefully before investing. There can be no assurance that the Fundamental Index methodologies will achieve their desired outcomes. Each investing strategy brings with it its own set of unique risks and benefits. Past performance does not guarantee future results. Investment returns will fluctuate and are subject to market volatility, so that an investor s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixedincome investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Diversification does not eliminate the risks of investment losses. Charles Schwab Investment Management, Inc. (CSIM) is the investment advisor for Schwab Funds and Schwab ETFs. Schwab Funds are distributed by Charles Schwab & Co., Inc. (Schwab), Member SIPC. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). CSIM and Schwab, are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation, and are not affiliated with SIDCO Charles Schwab Investment Management, Inc. All rights reserved. MBC (0517-X533) MKT (05/17)

6 Market Cap Index ETFs Domestic Equity ETFs TICKER INCEPTION DATE BENCHMARK ETF Product List As of 10/31/2017 MORNINGSTAR CATEGORY Schwab 1000 Index ETF SCHK 10/11/17 Schwab 1000 Index Large Blend 0.05% Schwab U.S. Broad Market ETF SCHB 11/3/09 Dow Jones U.S. Broad Stock Market Index Schwab U.S. Large-Cap ETF SCHX 11/3/09 Dow Jones U.S. Large-Cap Total Stock Market Index Schwab U.S. Large-Cap Growth ETF SCHG 12/11/09 Dow Jones U.S. Large-Cap Growth Total Stock Market Index Schwab U.S. Large-Cap Value ETF SCHV 12/11/09 Dow Jones U.S. Large-Cap Value Total Stock Market Index EXPENSE RATIO Large Blend 0.03% Large Blend 0.03% Large Growth 0.04% Large Value 0.04% Schwab U.S. Dividend Equity ETF SCHD 10/20/11 Dow Jones U.S. Dividend 100 Index Large Value 0.07% Schwab U.S. Mid-Cap ETF SCHM 1/13/11 Dow Jones U.S. Mid-Cap Total Stock Market Index Schwab U.S. Small-Cap ETF SCHA 11/3/09 Dow Jones U.S. Small-Cap Total Stock Market Index Mid-Cap Blend 0.05% Small Blend 0.05% Schwab U.S. REIT ETF SCHH 1/13/11 Dow Jones U.S. Select REIT Index Real Estate 0.07% International Equity ETFs Schwab International Equity ETF SCHF 11/3/09 FTSE Developed ex US Index (Net) Foreign Large Blend 0.06% Schwab International Small-Cap Equity ETF SCHC 1/14/10 FTSE Developed Small Cap ex US Liquid Index (Net) Schwab Emerging Markets Equity ETF SCHE 1/14/10 FTSE Emerging Index (Net) Fixed Income ETFs Schwab U.S. TIPS ETF SCHP 8/5/10 Schwab Short-Term U.S. Treasury ETF SCHO 8/5/10 Schwab Intermediate-Term U.S. Treasury ETF SCHR 8/5/10 Schwab U.S. Aggregate Bond ETF SCHZ 7/14/11 Fundamental Index ETFs Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) Bloomberg Barclays U.S. 1-3 Year Treasury Bond Index Bloomberg Barclays U.S Year Treasury Bond Index Bloomberg Barclays U.S. Aggregate Bond Index Foreign Small/Mid Blend Diversified Emerging Markets Inflation-Protected Bond 0.12% 0.13% 0.05% Short Government 0.06% Intermediate Government Intermediate-Term Bond 0.06% 0.04% Domestic Equity ETFs Schwab Fundamental U.S. Broad Market Index ETF Schwab Fundamental U.S. Large Company Index ETF Schwab Fundamental U.S. Small Company Index ETF International Equity ETFs Schwab Fundamental International Large Company Index ETF Schwab Fundamental International Small Company Index ETF Schwab Fundamental Emerging Markets Large Company Index ETF FNDB 8/15/13 Russell RAFI US Index Large Value 0.25% FNDX 8/15/13 Russell RAFI US Large Co. Index Large Value 0.25% FNDA 8/15/13 Russell RAFI US Small Co. Index Small Blend 0.25% FNDF 8/15/13 FNDC 8/15/13 FNDE 8/15/13 Russell RAFI Developed ex US Large Co. Index (Net) Russell RAFI Developed ex US Small Co. Index (Net) Russell RAFI Emerging Markets Large Co. Index (Net) Foreign Large Value 0.25% Foreign Small/Mid Blend Diversified Emerging Markets 0.39% 0.39% Exchange-Traded Funds (ETFs) As of 10/31/2017 1

7 Find out more: For additional information, call or visit schwabfunds.com Charles Schwab Investment Management As one of the nation s largest asset managers, our goal is to provide investors with a diverse selection of foundational products that aim to deliver consistent performance at a competitive cost. 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 for Schwab ETFs by visiting schwabfunds.com. Please read the prospectuses carefully before investing. Investment returns will fluctuate and are subject to market volatility, so that an investor s shares, when redeemed or sold, may be worth less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares of ETFs are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Schwab is a registered trademark of Charles Schwab & Co., Inc. Fundamental Index is a registered trademark of Research Affiliates LLC. Charles Schwab Investment Management, Inc. (CSIM), is the investment advisor for Schwab ETFs. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). SIDCO is not affiliated with CSIM. Not FDIC insured No bank guarantee May lose value Morningstar Categories provided by Morningstar, Inc All rights reserved Charles Schwab Investment Management, Inc. All rights reserved. MARS IAN ( PB) MKT (11/17) Exchange-Traded Funds (ETFs) As of 10/31/2017 2