Mutual Fund OneSource Select List

SECOND QUARTER 206 Also available at schwab.com/selectlist Mutual Fund OneSource Select List & Income Select List The Importance of Achieving Diversification and an Easy Way to Do It Key points: Savvy investors understand that diversification is key to helping reduce investment risk and preserve growth potential. One way to achieve it easily is with Schwab s Mutual Fund Portfolio Builder, which provides investors access to diversified pre-defined portfolios of mutual funds from the Select List. Schwab s recent lowering of minimums for funds available in MF OneSource means that Mutual Fund Portfolio Builder is now accessible to even more investors, with a minimum as low as $,000. 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. HIGHLIGHTS The Importance of Achieving Diversification and an Easy Way to Do It (Pages ) Fund Selection Considerations (Page 4) First Quarter Perspectives and Summaries (Pages ) Mutual Fund OneSource Select List (Pages ) Income Mutual Fund Select List (Pages 2 ) Additional Important Information (Page 4) In our last issue of the Mutual Fund OneSource Select List, we wrote about Schwab lowering the minimums for the majority of funds participating in our Mutual Fund One- Source service, and how one of the benefits of that change was the associated reduced minimums required for participation in Schwab s Automatic Investment Program (AIP). (continued on page 2)

The Importance of Achieving Diversification and an Easy Way to Do It (continued) Another attractive benefit of the lower minimums relates to Schwab s Mutual Fund Portfolio Builder, an online tool that provides investors access to diversified, pre-defined portfolios of mutual funds drawn from the Select List. Whereas the previous required minimums to get started in this program were $0,000 for taxable accounts and $2,00 for IRAs, the minimum for either account type is now just $,000. This makes it even easier for investors to get started with a diversified portfolio of mutual funds. The Premise of Diversification Diversification is one of the most important concepts investors should grasp, yet many are unclear on its aim. The goal of diversification is not to boost performance it won t ensure gains or guarantee against losses. It s to help compensate for poorly performing assets by holding others that are performing well or at least holding up better. Diversification actually begins with asset allocation: how a portfolio is divided among stocks, bonds, cash, and other investments. An investor s asset allocation is determined by how much risk he or she is willing to take, as well as his or her financial situation and investment horizon. Diversification takes it a step further by seeking a broad range of investment types within each asset class. First introduced in the 90s as what s known as Modern Portfolio Theory, it posits that rather than judging risk by looking at an individual investment, one should look at how all the investments within a portfolio work together. By choosing a variety of investments across a wide range of sectors, industries, companies, and geographic locales that ideally react differently to any given market conditions, therefore, investors should be able to reduce their overall risk. Among stocks, for example, one can invest in large-cap U.S., small-cap U.S., or international stocks. Within each of those categories, however, are companies operating in different industries and sectors, of varying sizes, and in different parts of the world. The ultimate goal of diversification is to hold investments that won t necessarily move in lock-step with one another so that when one or more are hard-hit, others are holding up relatively well. The Value of Diversification Illustrated During the 2007 2008 financial crisis and subsequent bear market, when investments across many different asset classes lost value, many investors may have felt that diversification was irrelevant. Painful as that time might have been, diversification did indeed help contain portfolio losses. Consider the performance of two hypothetical portfolios: one comprising a blend of 60% stocks and 40% bonds; the other 00% in stocks. Whereas both lost ground during the great recession from October 2007 to February 2009, the diversified portfolio lost less it was down % versus the all-stock portfolio s decline of %. While this may not seem reassuring to some, it is evidence that diversification did its job, helping limit losses during the worst of times but not avoiding them entirely. The graph below shows the performance of those two portfolios during that period, as well as for a longer period from 999 through 20 that included both up and down markets. Although as of the end of that longer period, the value of the all-stock portfolio was greater than the diversified one, the graph shows how the diversified portfolio lost less than the all-stock portfolio during down cycles in the market yet still captured significant gains during up cycles. (continued on page ) Mutual Fund OneSource Select List Second Quarter 206 2

The Importance of Achieving Diversification and an Easy Way to Do It (continued) One important development investors should be aware of is that since the financial crisis, it has become more difficult to achieve diversification, because many formerly uncorrelated asset classes are now moving more in tandem. Whereas, for instance, international stocks once behaved considerably differently in various market and economic environments than did U.S. stocks, they are now more correlated, the result of the growing interconnectedness of global financial markets. 2 That means it might take a bit more digging to uncover potential portfolio holdings whose price movements aren t so closely tied to one another. And while most mutual funds are diversified by their nature in that they hold many securities, all funds do not provide the same amount of portfolio diversification. Those that focus on a small sector of the market, such as a particular industry or country, may not add much diversification to a portfolio because all of the fund s holdings may be very highly correlated, moving in lockstep with any given impact or environment. Conversely, there s actually such a thing as overdiversification more holdings than are necessary that do not further reduce portfolio risk. In other words, there s a point after which further diversification adds no benefit. So it s not simply the number of funds you own, but how differently each reacts to varying market impacts. Getting There For some people, the prospect of discovery is an exhilarating one, and they revel in the research required to uncover the optimal holding to address each piece of their investment pie. But for many others, that prospect is daunting. It s not hard to understand why. Assembling and monitoring a diversified portfolio requires time and a solid understanding of global markets, particularly as the world becomes more interconnected. For those who would welcome some assistance, there s the Schwab Mutual Fund Portfolio Builder. Designed for self-directed investors, the Mutual Fund Portfolio Builder helps investors identify a mutual fund portfolio that might be appropriate for them, appreciably simplifying the research process. After choosing one of five risk profiles Conservative, Moderately Conservative, Moderate, Moderately Aggressive or Aggressive an investor is presented with a diversified portfolio comprised of highly rated mutual funds, drawn from the Mutual Fund OneSource Select List. To help investors choose an appropriate risk profile, five asset allocation models are provided, along with time horizons and investment goals appropriate for each, average annual returns over the past 4 years, and each portfolio s best-year and worstyear return over that period. And if an investor prefers help, a risk profile questionnaire is also available. The Mutual Fund Portfolio Builder is an educational tool designed to help investors establish a one-time, diversified portfolio of funds. It allocates a lump sum investment and generates the buy orders for the identified funds. Investors retain control over all decisions made, including ongoing portfolio monitoring and rebalancing of fund allocations as needed and appropriate. There are no fees for the service. While the Mutual Fund Portfolio Builder tool is ideal for beginning investors or those who don t have a lot to invest, it s also appropriate for experienced investors or those with more to invest who may not have sufficient time or interest to dedicate to portfolio-building. The Bottom Line Risk is inherent in investing; no matter how diversified your portfolio is, risk can never be eliminated entirely. By diversifying one s holdings in an investment portfolio, the risk of specific holdings can be reduced. But inherent market risks or systematic risk, such as that in evidence during the financial crisis can affect nearly every individual holding, and no amount of diversification can prevent it. With that said, diversification proves its mettle over long time horizons that comprise both up and down markets. For those seeking a truly diversified portfolio, built with high-quality mutual funds across a range of asset classes, Schwab s Mutual Fund Portfolio Builder may be just the tool to get you there. To learn more about Schwab s Mutual Fund Portfolio Builder Online: schwab.com/mutualfundportfoliobuilder By phone: (800) 4-4000 The stocks in the hypothetical portfolios referenced are represented by the S&P 00 Index, a market-capitalization weighted index that consists of 00 widely traded stocks chosen for market size, liquidity, and industry group representation.; bonds are represented by the Barclay s U.S. Aggregate Bond Index, a market-value-weighted index of taxable investment-grade fixed-rate debt issues, including government, corporate, assetbacked, and mortgage backed securities, with maturities of one year or more. 2 Source: Charles Schwab Investment Advisory, Inc., with data from Morningstar Direct. (06-74) Mutual Fund OneSource Select List Second Quarter 206

How Funds Are Selected To build the Schwab Mutual Fund OneSource Select List and the Schwab Income Mutual Fund Select List, Charles Schwab Investment Advisory, Inc. (CSIA) starts by analyzing the funds tracked by Morningstar using quantitative and qualitative selection criteria described below. Then, based on its analysis, CSIA builds the Mutual Fund OneSource Select List and Income Select list by selecting the most favorably evaluated OneSource funds, including Schwab Funds and Laudus Funds ( Schwab Affiliate Funds ), within each Morningstar category. Most of the funds on the List are actively managed OneSource funds. In addition, CSIA also includes up to one Schwab Affilate Fund that is a market-cap weighted index fund for each of the large-cap, small-cap, international and taxable bond asset classes, and one Schwab Affiliate Fund that is a fundamentally weighted index fund for each of the large cap, small cap, developed large cap international, developed small cap international and emerging market asset classes. Visit the OneSource Select List on schwab.com to view the Select List online and to learn more about how index funds are selected. Eligibility Requirements Each OneSource Select List and Income Select List fund must: Be no-load and open to new investors at Schwab in all 0 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 2 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 2-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 0% 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 % to any single sector. Selection Criteria Actively Managed OneSource Funds, including Schwab Affiliate Funds, are evaluated by CSIA based on a quantitative analysis of risk, performance, expenses, active share (when meaningful), assets under management and asset flows. CSIA also may apply additional qualitative factors to its analysis to enhance its overall evaluation of a fund, including, for example, changes in a fund s investment strategy or management structure, portfolio manager tenure, whether a fund s investment style and portfolio holdings are representative of its investment category, portfolio composition and turnover rates, consistency of a fund s performance and CSIA s evaluation of the fund over time, and other risk and diversification considerations. In addition, for the Income Select List, those funds with the best capital preservation attributes and investment strategies that focus on selecting income-generating securities will receive preference when selecting from similarly rated funds with comparable yield characteristics. 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 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 percent of all CSIA-evaluated funds within a given Morningstar category and that receive the most favorable evaluations in their respective categories. For the OneSource Select List, CSIA generally includes the five most-favorably evaluated funds in each of the large-cap, small-cap, intermediate-term bond, municipal national intermediate and foreign large blend asset categories and the two most favorably evaluated funds in all other asset categories. If two or more of the most favorably evaluated funds within an asset category have similar investment styles, CSIA may substitute a less-favorably evaluated fund for one or more of those funds to provide a more diverse selection of fund investment strategies. (continued on page 4) Mutual Fund OneSource Select List Second Quarter 206 4

LARGE-CAP U.S. STOCK FUNDS FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) Perspectives and First Quarter 206 Summary We continue to believe U.S. stocks are in a secular bull market; but in a more mature phase which will be dotted with volatility and pullbacks. Corporate earnings likely need to recover before stocks can move demonstrably higher. More clarity from the Fed and a better political environment would help, but both seem unlikely in the near term. We remain neutral on equities, meaning investors should remain at their long-term equity allocations. Remember that a long-term perspective is beneficial, especially during periods of heightened volatility. The first quarter of 206 was a wild ride, falling -0.% from January st to mid-february and then rallying 2.2% from that point to the end of the quarter. The total S&P 00 quarterly return was.% for the quarter, nearly matching the return for all of 20 at.8%, with higher volatility expected to continue during the upcoming year. The Fed s decision to further delay additional interest rate hikes, along with continued economic data showing few signs of a U.S. recession, helped to strengthen the markets. Large-cap U.S. stocks saw gains versus Small-cap U.S. stocks. Large-cap Value and Large-cap Blend had only slight gains at.29% and 0.29%, respectively. However, Large-cap Growth fell -2.46% with what may be the beginning of a shift in style towards value, which has underperformed for several years. All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com AVERAGE ANNUALIZED RETURN 0 LEADING SCHWAB AFFILIATE FUNDS d Schwab Core Equity Fund (7//96) Large Blend SWANX -4.0 0.28 9.6 6. 7.89 0.9 6.2 0.74 0.74 2,70 Laudus U.S. Large-Cap Growth Fund (0/4/97) Large Growth LGILX -2.0.8.22 8.96 6.22 04.96 09.4 0.77 0.77,976 FUNDAMENTAL INDEX FUNDS Schwab Fundamental U.S. Large Company Index Fund (4/2/07) Large Value SFLNX 0.49 0. 0.60 6.86 94.8 0.9 0.9 0. 4,682 CAP-WEIGHTED INDEX FUNDS Schwab S&P 00 Index Fund (/9/97) Large Blend SWPPX.69.70.49 6.97 6.78 99. 00.09 0.09 0.09 2,774 LEADING RD PARTY FUNDS Parnassus Core Equity Investor (8//92) Large Blend PRBLX 2.82.7 2.0 9.6 0. 9.2 89.27 0.87 0.87 2,67 INTECH US Mgd Volatility T (7/6/09) b Large Blend JRSTX 2.7.77.84 6.4.8 87. 7.42 0.9 0.9 6 Lord Abbett Calibrated Dividend Gr A (2/27/0) e Large Blend LAMAX -2.0 8.04 8.29 6.4 6.9 89.6 92.6.07 0.8,9 Glenmede Large Cap Core Port (2/27/04) Large Blend GTLOX -0.7.27 2.87 8.0 8.66 02.0 9.6 0.87 0.87 2,44 Prudential Jennison Equity Opportunity Z (/7/96) Large Blend PJGZX -6.8 8.77 8.89 6.40 9.72 9.20.0 0.80 0.80 42 Parnassus (2/27/84) Large Growth PARNX -.6 2.98.72 8.82 9.89 08.44 07.27 0.84 0.84 79 Jensen Quality Growth J (8//92) Large Growth JENSX 6.02 2.8.40 8. 8. 94.9 80.6 0.87 0.87,092 Madison Investors Y (//78) Large Growth MINVX 4.00.08.0 6.62 0.4 86.0 78.60 0.9 0.9 26 Nicholas (7/4/69) Large Growth NICSX -8.68 0.84 2.9 8.29.0 9.04 98.8 0.72 0.72,274 Glenmede Large Cap Growth (2/27/04) Large Growth GTLLX.2 6.2.8 9.0 9.29 09. 84.04 0.87 0.87 2,2 American Century Equity Income Inv (8//94) b Large Value TWEIX 6.78 9.62 9.8 6.97 0. 7.46 6.48 0.9 0.9 9,679 Federated Strategic Value Dividend A (/0/0) e Large Value SVAAX.26 9. 0.76 6.0 6.89 80.0 6.87.9.06 2,7 JPMorgan Large Cap Value A (2/8/92) e Large Value OLVAX -. 9.2 9.06.24 6.9 00.7 04.88. 0.9 727 JPMorgan Equity Income A (2/8/92) e Large Value OIEIX -.48 8.24 0.02 6.97 8. 90.77 94.96.09.04,4 Commerce Value (//97) Large Value CFVLX.74 0.08.9 6.9 6.26 86. 87.24 0.7 0.72 207 PERFORMANCE BENCHMARKS Schwab 000 Index (Dividends Reinvested) 0.48.48.22 7.09 S&P 00 Index (Dividends Reinvested).78.82.8 7.0 New to the Select List this quarter Asset Class and Performance Benchmark Definitions Large-cap U.S. stock funds invest primarily in stocks that fall in the top 70% of the U.S. market capitalization range as defined by Morningstar, Inc. Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity. Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to turnaround or lower price-to-earnings or price-to-book ratios. Blend funds invest in a combination of value and growth stocks. The S&P 00 Index includes common stocks of 00 widely held companies. S&P 00 is a registered trademark of The McGraw-Hill Co., Inc. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Current performance may be lower or higher. Visit schwab.com for month s end performance information. Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost. Mutual Fund OneSource Select List Second Quarter 206

MID- AND SMALL-CAP U.S. STOCK FUNDS Perspectives and First Quarter 206 Summary We don t believe the economy is heading into a recession, but it is also not likely to exit anytime soon from its muddle-through state. More volatility is the most likely outcome, which may be amplified for mid-to-small cap stocks. While the favorable trends of the second half of the first quarter may continue to lift stocks a pullback in the U.S. dollar and a recovery in oil prices a reversal of these trends would likely weigh on stock market performance. Not overreacting to short-term pullbacks is critical to long-term investing success. Small-cap stocks saw declines on average with the Russell 2000 down -.2%. However, there were pockets of strength with Small Value up 2.8% and Small Blend returning 0.%, while Small Growth continued the overall decline in Growth vs. Value with a loss of -4.2%. Mid-cap had the highest returns, at 2.24%, among all three capitalizations. Losses were seen once again in the growth style with Mid Growth falling -.8%. However, Mid Value and Mid Blend both saw gains of 2.44% and.2%, respectively. All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) AVERAGE ANNUALIZED RETURN 0 LEADING SCHWAB AFFILIATE FUNDS d FUNDAMENTAL INDEX FUNDS Schwab Fundamental U.S. Small Co Index Fund (4/2/07) Small Blend SFSNX -6. 9. 8.47 7.24 00. 2.0 0.4 0.,40 CAP-WEIGHTED INDEX FUNDS Schwab Small-Cap Index Fund (/9/97) Small Blend SWSSX -9.68 6.87 7. 6.2 7.9 94.9 29.8 0.20 0.7 2,0 LEADING RD PARTY FUNDS Parnassus Mid-Cap (4/29/0) Mid-Cap Blend PARMX 0.64 0.02 0. 8. 8.7 84.6 8.4.09 0.99 62 Hennessy Cornerstone Mid Cap 0 Inv (9/7/0) Mid-Cap Blend HFMDX -.4 0.82.29 7.7.22 99.0 06.0..,8 Janus Enterprise T (9//92) b Mid-Cap Growth JAENX -0.8 2. 0.98 8.88 0. 87.44 70.94 0.92 0.92 7,66 Buffalo Discovery (4/6/0) Mid-Cap Growth BUFTX -.28..86 9.2 8.4 9.04 79.77.0.0,02 Victory Sycamore Established Value A (//00) e Mid-Cap Value VETAX -.4 9. 8.84 8.0 9.7 98.9 98.0 0.99 0.99,878 Perkins Select Value T (2//) b Mid-Cap Value JSVTX 0.6 7.44 0.6 7.79 84.2.0 0.89 77 Tributary Small Company Instl (6/0/96) Small Blend FOSCX -0.6 9.7 8.68 7.9 8.96 92.0 0.44.2.22 279 Lord Abbett Small Cap Value A (2//9) e Small Blend LRSCX -9.96 4.4 4.4.8.66 82.92 2.4.2.2,7 Perritt MicroCap Opportunities Investor (/2/88) Small Blend PRCGX -8.4.9.0.8 9.08 70.4 94.8.22.22 276 Great Lakes Small Cap Opportunity Inv (2/2/08) Small Blend GLSCX -.80 6.77 7.2.72 98.0 7.49.4. 72 ASTON/River Road Small Cap Value N (6/28/0) Small Blend ARSVX. 6.7 7..29 6.78 74.80 9.29.9.9 29 Rice Hall James Small Cap Instl (//96) Small Growth RHJMX -8.9 7.8 7.69 7.6 8.88 87.78 0.7.67.00 4 Neuberger Berman Genesis Inv (9/27/88) Small Growth NBGNX -2.6 7.7 7.96 7.2 2.02 86. 06.04.0.0 0,27 Conestoga Small Cap Investors (0//02) Small Growth CCASX -0.78 7.90 8.84 7.0 0.64 89.2 0.89.0.0 688 TIAA-CREF Small-Cap Equity Retail (0//02) Small Growth TCSEX -7.0 8.8 7.74.4 9.97 96.22 7.09 0.7 0.7 2,89 Driehaus Micro Cap Growth (/2/0) Small Growth DMCRX -. 9.68 7.7 7.46 6.74 0.2 20.28.9.9 20 Perkins Small Cap Value T (0/2/87) b Small Value JSCVX -2.0 8. 6.90 7.2 2.07 84.8 99.8 0.8 0.8,97 American Beacon Zebra Small Cap Eq Inv (6//0) Small Value AZSPX -4.9 8.74 8.74 2.22 89.2 0.7.8.28 24 Northern Small Cap Value (//94) Small Value NOSGX -4.7 8.4 8.7.79 9.76 9.68.08.2.0 2,97 PERFORMANCE BENCHMARK Russell 2000 Index (Dividends Reinvested) -9.76 6.84 7.20.26 New to the Select List this quarter Asset Class and Performance Benchmark Definitions Mid-cap U.S. stock funds invest primarily in stocks that fall in the next 20% of the U.S. market capitalization range following large-cap stocks. Small-cap U.S. stock funds generally invest in stocks falling in the bottom 0% 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 000 Index, which represents approximately 98% of the total market value of publicly available domestic equities. Small-cap funds are subject to greater volatility than those in other asset categories. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List Second Quarter 206 6

INTERNATIONAL STOCK FUNDS FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) Perspectives and First Quarter 206 Summary Fears of a global recession earlier this year may have been overdone and the rebound in stocks is supported by the improvement in economic data. However, global growth remains sluggish and risks remain. Uncertainty about monetary policy, in particular the options for the Bank of Japan and the European Central Bank are likely to continue to contribute to market volatility. We recommend a globally diversified asset allocation to attempt to manage this volatility. The MSCI EAFE, a broad representation of non-u.s developed market equities, was down.0% in the first quarter of 206. A slump in financial stocks seemed to be a persistent theme in the international markets with the Japan and Europe categories losing.6% and 2.% respectively. Emerging Markets were positive for the quarter with a gain of.8% despite weakness in Chinese equities which lost 4.6%. The Latin America region posted the strongest turnaround with a 4.74% return, buoyed by an improving Brazilian real. Foreign fund investors experienced a setback across many categories with Foreign Small/Mid Value (-0.2%) and Foreign Small/Mid Blend (-0.6%) holding up better than their counterparts while Foreign Large Growth (-2.02%) and Foreign Large Blend (-.97%) trailed the pack. All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com AVERAGE ANNUALIZED RETURN 0 LEADING SCHWAB AFFILIATE FUNDS d Schwab International Core Equity Fund (/0/08) Foreign Large Blend SICNX -6.00.9 4.8.06 00.06 80.82 0.92 0.86 709 Laudus Mondrian International Equity Fund Invstor (6/6/08) Foreign Large Value LIEQX -7.20.89.2-0.8 02.4 8.48.2.22 20 FUNDAMENTAL INDEX FUNDS Schwab Fundamental Emerg Mkts Lg Co Index (//08) Diversified Emerging Mkts SFENX -9.74-6.6-6.68-2.02.0 49.4 0.8 0.49 02 Schwab Fundamental Intl Large Co Index (4/2/07) Foreign Large Value SFNNX -9.2 2.7 0.82-0. 0.7 97.2 0.46 0. 98 Schwab Fundamental Intl Small Co Index (//08) Foreign Small/Mid Blend SFILX 0.9.68 4.27 4.76 9.7 67.6 0.7 0.49 48 CAP-WEIGHTED INDEX FUNDS Schwab International Index Fund (/9/97) Foreign Large Blend SWISX -8.4.94 2.6.9.7 99.6 90.72 0.2 0.9 2,922 LEADING RD PARTY FUNDS Matthews China Dividend Investor (/0/09) China Region MCDFX -0.40 6.0 6.6 8.7 0.72 72.0.9.9 7 Matthews China Investor (2/9/98) China Region MCHFX -4.28 -.9 -.00 7.6 8.7 90.26 98.4.. 629 Manning & Napier Emerging Markets S (/6/) Diversified Emerging Mkts MNEMX -4.8-4.00.4 9. 8.9.27.6 9 Brandes Emerging Markets Value A (//) e Diversified Emerging Mkts BEMAX -9.6-7.2 -.2.76-4.2 8.2 49.2.9.7,067 Matthews Asia Dividend Investor (0//06) Diversified Pacific/Asia MAPIX -2.0.8. 8.77 84.6 69.48.06.0 4,76 Matthews Asia Growth Investor (0//0) Diversified Pacific/Asia MPACX -6.7. 4.7.69 8.64 77.62 60.74.. 686 Henderson European Focus A (8//0) e Europe Stock HFEAX -.2 6.87 2.0.88.66 6.28 7.0..,494 Lazard International Strategic Eq Open (2//06) Foreign Large Blend LISOX -6.77 4..66.89 4.40 99.2 79.42.09.09 7,669 INTECH International Mgd Volatility T (7/6/09) b Foreign Large Blend JRMTX -.7.2.8 7.82 88.47 62..6.6 78 FMI International (2//0) Foreign Large Blend FMIJX -2.78 7.48 9. 9.22 70.87.28 0.98 0.98,67 Cambiar International Equity Inv (9/9/02) Foreign Large Blend CAMIX -2.6.6.99.7 7.70 90.2 62.20.0.2 2,47 TIAA-CREF International Eq Retail (//06) Foreign Large Blend TIERX -9.0 2.7.99 2.08 2.08 02.0 89.62 0.8 0.8 4,07 Oppenheimer International Growth A (/2/96) e Foreign Large Growth OIGAX -.60 2.46 4.7 4. 7.7 97.4 7.22.4.4 22,688 WCM Focused International Growth Inv (8//) Foreign Large Growth WCMRX 0.67 6.04 6.7 9.2 6.7.0.0 2,2 Henderson Global Equity Income A (/0/06) e Foreign Large Value HFQAX -8.0 2.2 4.7 2.78 87.86 6.4.9.9,768 Federated Intl Strategic Val Div A (6//08) e Foreign Large Value IVFAX -7.89 -.97. -0.96 9.62 9.97.2. 74 Oberweis International Opportunities (2//07) Foreign Small/Mid Growth OBIOX.94.6.6 9. 07.78 9.79.89.60 809 Lazard International Small Cap Eq Open (2//97) Foreign Small/Mid Growth LZSMX 4.8 8.6 7.27 2.9 6.60 98.64.0.44.4 6 Brandes International Small Cap Equity A (//2) e Foreign Small/Mid Value BISAX -0.82 7.6.68.62 0.29 04.68 8.2.2.40,20 Matthews Japan Investor (2//98) Japan Stock MJFOX..40 0.7.68.80 8.89 26.74.0.0,020 Matthews Pacific Tiger Investor (9/2/94) Pacific/Asia ex-japan Stk MAPTX -8.02.69 4.8 8.9 8.4 97. 79.4.09.08 6,6 Matthews Asia Small Companies Inv (9//08) Pacific/Asia ex-japan Stk MSMLX -2.4 0..64.68 86.2 8.22.47.47 66 Perkins Global Value T (6/29/0) b World Stock JGVAX -2..02 6.9 4.8 6.8 78.78.97 0.89 0.89 227 BlackRock Global Dividend Inv A (4/7/08) e World Stock BABDX -0.72 4.00 6.72 4.70 92.86 6.60.02.02 2,8 PERFORMANCE BENCHMARKS MSCI EAFE Index (Dividends Reinvested) -8.27 2.2 2.29.80 New to the Select List this quarter Asset Class and Performance Benchmark Definitions Foreign stock funds typically have less than 20% of assets invested in the United States. Funds that do not have a specific growth or value orientation compared to a benchmark are classified as blend funds. World Stock funds invest primarily in equity securities of issuers located throughout the world and generally invest at least 20% of assets in the United States. Regional funds generally hold high concentrations of securities from one specific geographic region. Emerging markets funds generally invest in securities from less developed countries. International investments are subject to risks such as currency fluctuations and political instability. Investing in emerging markets can accentuate these risks. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List Second Quarter 206 7

SECTOR FUNDS Perspectives and First Quarter 206 Summary We continue to favor the technology sector, which may be poised to find two major lines of support from business investment and consumer spending. We are also positive on financials as fundamentals and broader macroeconomic developments are improving. More volatility is likely for the energy sector but it seems like some fundamentals are supporting the group, and investors should consider selectively adding to exposure during down cycles if necessary to bring energy positions up to a market weight. Finally, the health care sector has been among the worst performing groups in the S&P 00 so far this year. We are currently neutral on the health care sector, but if you re underweight, consider slowly adding to positions until reaching market weighting. The Specialty Category was mostly positive for the first quarter. Precious Metals were up by a whopping 40.7% bolstered by strong performance in gold and silver mining equities. Real Estate (4.68%) and Energy (2.9%) also started the year with positive returns. On a side note, Equity REITs are poised to debut as the th GICS sector on August, 206. The Health Care sector (-.28%) was the worst performing group in the category, plagued by the selloff in the biotech industry. FOR THE QUARTER ENDED MARCH, 206 All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com FUND NAME (FUND DATE) AVERAGE ANNUALIZED RETURN 0 LEADING SCHWAB AFFILIATE FUNDS d FINANCIAL FUNDS ( AVERAGE) -6.9 6.28 6.67.2 Schwab Financial Services Fund (7//00) Financial SWFFX -7.78 7.68 7.9 0.99 4.8 00.62 86. 0.9 0.9 68 HEALTH FUNDS ( AVERAGE) -.44.0 6.7 0.0 Schwab Health Care Fund (7//00) Health SWHFX -7.0 4.20 6.2 9.69 9.02 0.08 0.74 0.79 0.79 968 LEADING RD PARTY FUNDS EQUITY ENERGY FUNDS ( AVERAGE) -24.98-2.2-9.7 -. BlackRock Natural Resources Inv A (0/2/94) e Equity Energy MDGRX -2.47 -.8-9.29-0.77 6.29 6.6 6.02.. 00 ICON Energy S (//97) Equity Energy ICENX -8.46 -.9-7.4 0.8 8.0 64.6 78.8.42.42 4 ENERGY LIMITED PARTNERSHIP FUNDS ( AVERAGE) -6.2-0.2 -.06 Tortoise MLP & Pipeline Investor (//) e Energy Limited Partnership TORTX -.0-7.2.7 96.76 72.89.24.24,64 Oppenheimer SteelPath MLP Select 40 A (/0/0) e Energy Limited Partnership MLPFX -26.80-6. -0.0 2.69 8.87 6.0.2.2 2,24 FINANCIAL FUNDS ( AVERAGE) -6.9 6.28 6.67.2 Burnham Financial Services A (6/7/99) e Financial BURKX 6. 4.04 2.26 6.04 2. 78.4 2.9.64.80 26 Davis Financial A (//9) e Financial RPFGX -6. 7.77 7.0.8.4 08.0 84.8 0.86 0.86 89 HEALTH FUNDS ( AVERAGE) -.44.0 6.7 0.0 Janus Global Life Sciences T (2//98) b Health JAGLX -7.28 9.68 9.69.29.2 6.0 2. 0.9 0.9,794 BlackRock Health Sciences Opps Inv A (2/2/99) e Health SHSAX -.87 4.47.60.6 4.66 0.66 4.8.6.6,44 NATURAL RESOURCES FUNDS ( AVERAGE) -7. -8.07-7.2-0.84 ICON Natural Resources S (//97) Natural Resources ICBMX -.06.2.8.8 4.06 02.0 9.02.42.42 74 Columbia Global Energy & Natural Res A (9/28/07) b,e Natural Resources EENAX -9.0-8.69-8.44-0.87-4.09 80.42 6.49.0.0 29 PRECIOUS METALS FUNDS ( AVERAGE) 2. -.66-8.06 -.00 Gabelli Gold AAA (7//94) Equity Precious Metals GOLDX 9.6 -.06-4.9 -.07 4.4-4.60 9.47.8.8 22 Oppenheimer Gold & Special Minerals A (7/9/8) e Equity Precious Metals OPGSX 4.2-8.80-2.29-2.9 4.98-48.44 66.60.2.7,08 GLOBAL REAL ESTATE FUNDS ( AVERAGE) -.06.96 6.44 2.87 Prudential Global Real Estate Z (//98) Global Real Estate PURZX -0.46.2 7.69 4. 9.0 8.0 8.87 0.97 0.97,67 AB Global Real Estate Investment A (9/0/96) e Global Real Estate AREAX -.70.49 6.8 2.64 8.4 8.46 8.24.29.29 66 REAL ESTATE FUNDS ( AVERAGE) 2.66 9.4 0.78.7 Cohen & Steers Realty Shares (7/2/9) Real Estate CSRSX.60 0.7 0.96 6.69 2.2 87.4 48.7 0.97 0.97,8 Manning & Napier Real Estate S (/0/09) Real Estate MNREX 4.0 0.7.78.0 88.82 2.92.. 272 TECHNOLOGY FUNDS ( AVERAGE) -0.2.70 8.88 7.26 Red Oak Technology Select (2//98) Technology ROGSX...26 9.8.4 20.96 66.47.. 6 Janus Global Technology T (2//98) b Technology JAGTX 0.4 2.8 9.97 8. 6.2 2.70 8.98 0.9 0.9,090 UTILITY FUNDS ( AVERAGE) 2.87 7.4 9.2 7.22 American Century Utilities Inv (//9) b Utilities BULIX 4.88.4.20 8. 8. 86.2 4.4 0.67 0.67 9 ICON Utilities S (7/9/97) Utilities ICTUX 4.2 0.0 2.0 7.66 8. 90.80 4.8.70.0 44 New to the Select List this quarter Reflects load-adjusted returns Asset Class and Performance Benchmark Definitions Sector funds concentrate investments in firms that fall into specific industries that produce related products or services. Sector funds, in general, have a low correlation to market indices, such as the S&P 00 Index, so they tend to perform differently than broader market measures. Because of their unique investment objectives, it s unfair to compare sector funds with broader market indices as they will seldom correlate. When evaluating sector fund performance, it s more appropriate to compare an individual fund s returns with the average performance of funds in its category. Due to the concentrated nature of sector funds, they can be more volatile than broadly diversified equity funds. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. MLP funds invest in the equity securities of master limited partnerships ( MLPs ). Investments in securities of MLPs involve risks that differ from investments in common stock, including risks related to cash flow, dilution and voting rights. MLP funds also may carry heightened risks including industry concentration, volatility, limited liquidity, issuer-specific risks, valuation and taxation. Many MLP funds are classified for federal tax purposes as a taxable regular corporation ( C corporation ), and are subject to US federal income tax on taxable income at corporate income tax rates, as well as state and local income taxes. These corporate taxes and accruals for deferred tax liabilities could substantially reduce a fund s net assets (reflected in the fund s NAV), the amount of income available for distribution and the amount of a fund s distributions. If an MLP fund is classified for tax purposes as a C corporation, all distributions from a fund s current or accumulated earnings and profits will be taxable to shareholders as ordinary income. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List Second Quarter 206 8

TAXABLE BOND FUNDS FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) LEADING SCHWAB AFFILIATE FUNDS d Perspectives and First Quarter 206 Summary Treasury yields fell in the first quarter of 206, despite the Fed raising its benchmark rate for the first time in nearly a decade in December. Notwithstanding the Fed s median expectations for two more rate hikes in 206, global growth concerns and financial market volatility pushed Treasury yields even lower. Ten-year Treasury bond yields dropped 0 basis points for the quarter. Meanwhile, riskier fixed income investments, like high-yield corporate bonds, suffered steep declines in the first half of the quarter, only to rebound in the second half. The yield curve the difference between short- and longterm bond yields continued its decline, a trend we think will continue as the year progresses. In the first quarter of 206, all taxable fixed income categories generated a positive total return. Longer-term and international bond funds led the way with the Long Government category returning 6.90%. Long-Term Bond funds were close behind at 6.9%, Emerging Markets Bond funds at.6% and World Bond funds at 4.2%. In contrast, shorter-term categories fared the worst in Q with Short-Term Bond funds returning 0.99%, Short Government funds at 0.97% and Ultrashort Bond funds at 0.7%. Nontraditional Bond funds barely edged out a positive return of just 0.02%, on average. All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com AVERAGE ANNUALIZED RETURN 0 AVG. WEIGHTED MATURITY (YRS) Schwab GNMA Fund (//0) Intermediate Government SWGSX 2.2 2.0.0 4..97 8.76 8.46 0.64 0.6.96 2 Schwab Intermediate-Term Bond Fund (0//07) Intermediate-Term Bond SWIIX.64.77 2.77 4.2 7.80 72.49 0.62 0.4 4.9 4 Laudus Mondrian Int l Govt Fxd Income Instl (/2/07) World Bond LIFNX 7.27 -.0-0.86 2.70 8.84 82. 0.76 0.7 9.6 20 CAP-WEIGHTED INDEX FUNDS Schwab Total Bond Market Fund (//9) Intermediate-Term Bond SWLBX.6 2.2.46. 4.8 97.44 04.8 0.4 0.29 7.4,24 LEADING RD PARTY FUNDS RidgeWorth Seix Floating Rate Hi Inc I (//06) Bank Loan SAMBX -.0.8.2.89.86 8.0 7.98 0.6 0.6 4.2 4,8 Lord Abbett Floating Rate A (2//07) e Bank Loan LFRAX -2.2.2.8.6 6.26 -.9 0.80 0.80 6,42 Payden Emerging Markets Bond Adviser (/2/09) Emerging Markets Bond PYEWX.42 0.44 4.6 6.02.90 08.4 80..0.0 0.6,0 TCW Emerging Markets Income N (//04) Emerging Markets Bond TGINX 2.0 -.02. 7.0 7.77 80.29 77.6.6.6 6.96 2,700 RidgeWorth Seix High Yield I (2/29/00) High Yield Bond SAMHX -.2 0.87.67.7 6.4 79.94.77 0.8 0.8.90 8 TIAA-CREF High-Yield Retail (//06) High Yield Bond TIYRX -4.06.7 4.46 6.4 6.4 94.79 26.4 0.64 0.64 6.62,090 American Century Infl-Adj Bond Inv (2/0/97) b Inflation-Protected Bond ACITX 0.98 -.4 2.46 4.8.08 99.64 22.26 0.47 0.47 8.97 2,88 JPMorgan Inflation Managed Bond A (//0) e Inflation-Protected Bond JIMAX -2.6 -.7 0.64. 40.24 86.9.22 0.7 4.7, American Century Ginnie Mae Inv (9/2/8) b Intermediate Government BGNMX..7 2.79 4.4 6.4 70.9 76.26 0. 0..69,202 PIMCO GNMA D (//0) Intermediate Government PGNDX.6.72.0 4.87 4.84 74.60 79. 0.90 0.90 4.64 862 Western Asset Core Bond I (9/4/90) Intermediate-Term Bond WATFX 2.08.22 4.40.4 7.0 0.2 9.7 0.2 0.4.7,74 Prudential Total Return Bond Z (9/6/96) Intermediate-Term Bond PDBZX 0.89 2.89 4.96 6.27 6.02 2.7 2.84 0.6 0.,826 Northern Fixed Income (//94) Intermediate-Term Bond NOFIX 0. 2.6 4.09 4.7.29 08. 9.04 0.49 0.47 9.0, Baird Core Plus Bond Inv (9/29/00) Intermediate-Term Bond BCOSX.6 2.4 4.2.6.9 04.09 09.44 0. 0. 7. 0,9 Metropolitan West Total Return Bond M (//97) Intermediate-Term Bond MWTRX 0.98 2.46 4.6 6.9 6.69 9.7 89.48 0.69 0.69 8.8 74,66 PIMCO Income D (/0/07) Multisector Bond PONDX 2. 4.20 7.66 8.7 9.4 8.98 0.79 0.79 6.00,99 Scout Unconstrained Bond Y (2//2) Nontraditional Bond SUBYX.87-0.07 0.4 -.42-8.7. 0.80 6.0,20 Putnam Absolute Return 00 A (2/2/08) e Nontraditional Bond PTRNX -.7-0.8-0.2.62-2.4-42.0 0.84 0.84 6.46 676 Northern Short-Intermediate US Govt (0//99) Short Government NSIUX.8 0..22 2.7.24 7.. 0.48 0.4 2.87 66 Prudential Short-Term Corporate Bd Z (2/6/96) Short-Term Bond PIFZX.6.69 2.6 4.8 4.74 0.9 7.0 0.2 0.2 9,47 Lord Abbett Short Duration Income A (/4/9) e Short-Term Bond LALDX -.6 0.68 2.26 4.28 4.20 6.7 9.6 0.60 0.60 4,72 Payden Limited Maturity (4/29/94) Ultrashort Bond PYLMX 0.4 0. 0.72.4 2.97 9.94 0.09 0.7 0.2 0.8 40 Putnam Short Duration Income A (0/7/) Ultrashort Bond PSDTX 0. 0.47 0.6 6.2 -.94 0.4 0.40.7 2,4 AB Global Bond A (/27/92) e World Bond ANAGX -2.62 0.90 2.96.4 7.27 98.60 0.4 0.8 0.8 8.02,0 PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 0.9 4.04 6.09 6.0.84 7.47 8.09 0.92 0.90 0.47 7,78 PERFORMANCE BENCHMARKS Barclays U.S. Aggregate Bond Index (Dividends Reinvested).96 2.0.78 4.90 New to the Select List this quarter Asset Class and Performance Benchmark Definitions Bond funds invest in corporate, municipal or government debt obligations of different maturities and interest rates. Taxable bond funds generally invest in the debt obligations issued by the U.S. Treasury, other U.S. government agencies and U.S. corporations. They also may invest in high-yield and foreign (non-u.s.) bonds. The Barclays U.S. Aggregate Bond Index tracks the total U.S. bond market, which includes U.S. Treasury, government agency, investment-grade corporate bond and mortgage-backed securities with maturities of at least one year. The index includes reinvestment of interest. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. Mutual Fund OneSource Select List Second Quarter 206 9

TAX-FREE BOND FUNDS Perspectives and First Quarter 206 Summary We believe the recent performance for munis highlights that they have served the role they are designed to serve in most portfolios: provide diversification, produce steady income after taxes, and aid stability against other riskier sectors including stocks. Despite some headline cases, like Puerto Rico and Chicago, credit conditions for most municipalities are either stable or improving in our view. For investors seeking tax-advantaged income, we believe that intermediate-term municipal bond funds provide an attractive balance between risk and reward. We would generally suggest short-term municipal bond funds for investors seeking tax-advantaged income but have a lower risk tolerance or have near-term spending needs. The first quarter of 206 was a continuation of strong performance for municipal bond funds and, similar to the taxable market, longer-term funds tended to do the best. The Barclays Municipal Index returned.67% for the quarter and only two categories were able to outperform that benchmark High Yield Muni (2.00%) and Muni California Long (.8%). While still positive, shorter-term categories were the worst performing for municipal bonds. The Muni Single State Short funds returned 0.84% and Muni National Short returned 0.%. FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) All perspectives are as of April, 206. For the latest up-to-date perspectives, please visit schwab.com AVERAGE ANNUALIZED RETURN 0 AVG. WEIGHTED MATURITY (YRS) LEADING SCHWAB AFFILIATE FUNDS d Schwab Tax-Free Bond Fund (9//92) Muni National Interm SWNTX.24.00 4.6 4.48. 79.04 74.68 0.7 0.49.27 68 LEADING RD PARTY FUNDS American Century High-Yield Muni Inv (//98) b High Yield Muni ABHYX.4 4.26 7.7 4.02 4.92 2.80 6.07 0.60 0.60 9.4 488 Nuveen High Yield Municipal Bond A (6/7/99) e High Yield Muni NHMAX.7 4.74 9.98.4.4 69.69 67.92 0.8 0.78 22.22 2,778 American Century IntermTrm Tx-Fr Bd Inv (/2/87) b Muni National Interm TWTIX. 2.29 4.2 4.2 4.99 7.8 8.9 0.47 0.47 9.6,42 Northern Intermediate Tax-Exempt (//94) Muni National Interm NOITX.4 2.88 4.6 4.0 4.4 89.9 02.2 0.0 0.46 9.20,208 USAA Tax Exempt Intermediate-Term (/9/82) b Muni National Interm USATX.48.4. 4.8 6.77 82. 77.79 0. 0. 9.0 4,42 Baird Quality Intermediate Muni Bd Inv (/0/0) Muni National Interm BMBSX 2.49.90.9.92 4.4 62.6 7.07 0. 0. 4.80,98 Nuveen Intermediate Duration Muni Bd A (6//9) e Muni National Interm NMBAX 0.0 2.0.96.78 4.9 87.92 9.24 0.69 0.69 9.60,2 Northern Tax-Exempt (//94) Muni National Long NOTEX 4.0.88 6.4 4.84.28.87 26.8 0.49 0.4 6.20,080 USAA Tax Exempt Long-Term (/9/82) b Muni National Long USTEX.94.8 6.87 4.7 7.44 07.8 0.84 0. 0..46 2,447 Northern Short-Intermediate Tax-Exempt (8/22/07) Muni National Short NSITX.42.02.0 2. 26.79 24.86 0.48 0.46.,66 Federated Shrt-Interm Dur Muni Instl (8/20/8) Muni National Short FSHIX 0.66.00 2. 2. 4.22 2.88 2.72 0.79 0.46 2.90,76 PERFORMANCE BENCHMARKS Barclays Municipal Bond Index (Dividends Reinvested).98.6.9 4.86 New to the Select List this quarter Asset Class and Performance Benchmark Definitions Tax-exempt bond funds primarily invest in municipal bonds generally issued by state and local governments to fund general expenditures and public projects. Investment income may be subject to certain state and local income taxes and a portion of income may be subject to the alternative minimum tax (AMT). Capital gains are not exempt from federal income tax. The Barclays Municipal Bond Index is a total-return performance benchmark for the investment-grade tax-exempt bond market. The index includes reinvestment of interest. If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers. Performance quoted is past performance and is no guarantee of future results. NOTES: ALL DATA SHOWN IS AS OF MARCH, 206 a. Definitions: Gross Expense Ratio actual expense as stated in the fund s prospectus. Net Expense Ratio net amount after any expenses are waived and/or partially absorbed by fund management. b. Fund has an initial minimum investment greater than $00. c. Investor Shares are available at a lower minimum but with higher operating expenses than Select Shares. d. Schwab Affiliate Funds include Schwab Funds and Laudus Funds. Schwab Funds and Laudus Funds are advised by Charles Schwab Investment Management, Inc. Schwab Funds and the Laudus MarketMasters Funds are distributed by Charles Schwab & Co., Inc. Laudus Funds, except the Laudus MarketMasters Funds, are distributed by ALPS Distributors, Inc. e. This fund is available without a load through Schwab. The performance figures shown reflect the performance with the load. Please see the Fund Summary on schwab.com for performance without load. Mutual Fund OneSource Select List Second Quarter 206 0

ADDITIONAL FUND CATEGORIES FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) AVERAGE ANNUALIZED RETURN 0 BALANCED FUNDS LEADING SCHWAB AFFILIATE FUNDS d Schwab Monthly Income Fund Enhanced Payout (/28/08) Conservative Allocation SWKRX -0.28.4 4.48 4.27 6.7.2 0.72 0.7 97 Schwab Monthly Income Fund Moderate Payout (/28/08) Conservative Allocation SWJRX -.2 4.2.07 4.62 80. 74.4 0.9 0.66 48 Schwab Balanced Fund (/8/96) Moderate Allocation SWOBX -2.9 6.8 7.02 4.94 6.2 0.9 79.66 0.69 0.62 29 BALANCED FUNDS LEADING RD PARTY FUNDS Wells Fargo Diversified Cap Bldr A (/20/98) e Aggressive Allocation EKBAX -.29 7.67 6.8 4.69 4.47 2.4 9... 9 JPMorgan Income Builder A (//07) e Conservative Allocation JNBAX -6.8.48 4.0 4.28 9.02 04.82. 0.7,9 American Century One Choice VryCnsrv Inv (9/0/04) b Conservative Allocation AONIX 0.6.07 4.6 4.46 4. 7.0.72 0.68 0.68 78 Northern Global Tactical Asset Allc (7//9) Moderate Allocation BBALX -.2.2 4.80 4.20 6.0 97.84. 0.8 0.6 7 Oakmark Equity & Income I (//9) b Moderate Allocation OAKBX -4.7 6. 6.0 6.49 0.07 6.66 04.6 0.7 0.7 6,96 American Century One Choice In Ret Inv (8//04) b Retirement Income ARTOX -.7 4.27.47..7 82.0 76.8 0.79 0.79,882 First Eagle Global A (4/28/70) e World Allocation SGENX -4.7.29 4.69 6.8.7.0.8.. 47,88 Loomis Sayles Global Equity and Income A (2//06) b,e World Allocation LGMAX -7.42. 4. 6.2 6.20 22. 24.79.8.8,480 TARGET DATE FUNDS LEADING SCHWAB AFFILIATE FUNDS d Schwab Target 20 Fund (/2/08) Target Date 20-20 SWGRX -0.4 4.69. 4.8 79.47 66.97 0.9 0.0 2 Schwab Target 2020 Fund (7//0) Target Date 206-2020 SWCRX -.44.4 6.2 4.78. 98. 87.04 0.62 0.9 6 Schwab Target 202 Fund (/2/08) Target Date 202-202 SWHRX -.94 6.07 6.7 6. 2.20 0.2 0.69 0.6 424 Schwab Target 200 Fund (7//0) Target Date 2026-200 SWDRX -2.8 6.47 7.04.4 6.22 22.6 2.7 0.7 0.70 79 Schwab Target 20 Fund (/2/08) Target Date 20-20 SWIRX -.0 6.88 7.7 6.70 2.2 22.4 0.79 0.74 49 Schwab Target 2040 Fund (7//0) Target Date 206-2040 SWERX -.4 7.4 7.60.72 6.66 9.0 0.6 0.80 0.77 829 Schwab Target 204 Fund (/2/) Target Date 204-204 SWMRX -.79 7.27 8.8 4.2 4.6 0.99 0.79 72 Schwab Target 200 Fund (/2/) Target Date 2046-200 SWNRX -.84 7.46 8.40 46.4 7.20.06 0.8 9 Schwab Target 20 Fund (/2/) Target Date 20+ SWORX -4.8 7.44 8.4 48.4 40.48.26 0.82 2 TARGET DATE FUNDS LEADING RD PARTY FUNDS American Century One Choice 2020 Inv (/0/08) b Target Date 206-2020 ARBVX -. 4.69.78 4.7 89.4 82.42 0.79 0.79,82 American Century One Choice 202 Inv (8//04) b Target Date 202-202 ARWIX -.7.09 6.04. 6.0 97.00 89.9 0.8 0.8 2,666 American Century One Choice 200 Inv (/0/08) b Target Date 2026-200 ARCVX -2.24.2 6. 4.77 0.76 94.66 0.8 0.8,864 American Century One Choice 20 Inv (8//04) b Target Date 20-20 ARYIX -2.67 6.00 6.7.49 6.7.4 00.88 0.87 0.87 2,40 American Century One Choice 2040 Inv (/0/08) b Target Date 206-2040 ARDVX -.08 6.42 7.0. 9.9 08.89 0.90 0.90,47 American Century One Choice 204 Inv (8//04) b Target Date 204-204 AROIX -.0 6.77 7.29.69 7.08 27.8 6.89 0.94 0.94,0 American Century One Choice 200 Inv (/0/08) b Target Date 2046-200 ARFVX -.0 6.87 7.6.0 0.96 20. 0.96 0.96 84 American Century One Choice 20 Inv (//) b Target Date 20+ AREVX -.70 7.0 7.0 7.49.7 2.2 0.97 0.97 24 ALTERNATIVE FUNDS LEADING SCHWAB AFFILIATE FUNDS d Schwab Hedged Equity Fund (9//02) Long/Short Equity SWHEX -0.4 6.87.76.9 6.4 66. 74..84. 98 ALTERNATIVE FUNDS LEADING RD PARTY FUNDS Deutsche Enhanced Commodity Strat Instl (2/4/0) Commodities Broad Basket SKIRX -2.7-9.8-9.0 -.29 -.7 2.2 48.80.7 0.99 2,24 Parametric Commodity Strategy Investor (//2) Commodities Broad Basket EAPCX -.8-4.6 -.4 66.2 72.7.24 0.9 9 Glenmede Secured Options (6/0/0) Long/Short Equity GTSOX 2.78 6.00 7.2 0.9 49.66 48.6 0.84 0.84 40 Glenmede Long/Short (9/29/06) Long/Short Equity GTAPX 2.09.46..99.8 24.84 2.64.6 240 Cognios Market Neutral Large Cap Inv (2//2) Market Neutral COGMX. 8.6 7. 86.9-2..92.82 90 JPMorgan Multi-Cap Market Neutral A (/2/0) e Market Neutral OGNAX -.6 0.28 0.08-0.08 0.89 27.9-7.72.26.2 98 PERFORMANCE BENCHMARKS S&P 00 Index (Dividends Reinvested).78.82.8 7.0 Barclays U.S. Aggregate Bond Index (Dividends Reinvested).96 2.0.78 4.90 New to the Select List this quarter Asset Class Definitions Balanced funds invest in a mix of stocks, bonds and cash within one fund and are classified into two categories. Conservative Allocation funds may invest 20% to 0% of assets in equities and 0% to 80% of assets in fixed income and cash. Moderate Allocation funds may invest 0% 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. 20 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 9. Mutual Fund OneSource Select List Second Quarter 206

INCOME MUTUAL FUND SELECT LIST Schwab s Income Mutual Fund Select List was developed and is managed by the Charles Schwab Investment Advisory, Inc. (CSIA) experts and includes mutual funds that have met their rigorous criteria, including both quantitative and qualitative factors. All are no-load and no-transaction fee and are selected based on their ability to generate income in their respective asset classes. The list is designed to help you achieve income and growth. For more information on how funds are selected, see pages 4 and 4. FOR THE QUARTER ENDED MARCH, 206 FUND NAME (FUND DATE) LEADING SCHWAB AFFILIATE FUNDS d Definitions 0-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 2 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 2 months. It provides an accurate picture of the fund s recent short-term distributions without any forward anticipation. The Income Select List shows the 2-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. AVERAGE ANNUALIZED RETURN 0 Schwab Core Equity Fund (7//96) Large Blend SWANX -4.0 0.28 9.6 6. 7.89 0.9 6.2 Schwab International Core Equity Fund (/0/08) Foreign Large Blend SICNX -6.00.9 4.8.06 00.06 80.82 Laudus Mondrian International Equity Fund Investor (6/6/08) Foreign Large Value LIEQX -7.20.89.2-0.8 02.4 8.48 Schwab GNMA Fund (//0) Intermediate Government SWGSX 2.2 2.0.0 4..97 8.76 8.46 Schwab Intermediate-Term Bond Fund (0//07) Intermediate-Term Bond SWIIX.64.77 2.77 4.2 7.80 72.49 Schwab Tax-Free Bond Fund (9//92) Muni National Interm SWNTX.24.00 4.6 4.48. 79.04 74.68 Schwab Monthly Income Fund Enhanced Payout (/28/08) Conservative Allocation SWKRX -0.28.4 4.48 4.27 6.7.2 Schwab Monthly Income Fund Moderate Payout (/28/08) Conservative Allocation SWJRX -.2 4.2.07 4.62 80. 74.4 Schwab Balanced Fund (/8/96) Moderate Allocation SWOBX -2.9 6.8 7.02 4.94 6.2 0.9 79.66 LEADING RD PARTY FUNDS DOMESTIC Parnassus Core Equity Investor (8//92) Large Blend PRBLX 2.82.7 2.0 9.6 0. 9.2 89.27 Lord Abbett Calibrated Dividend Gr A (2/27/0) e Large Blend LAMAX -2.0 8.04 8.29 6.4 6.9 89.6 92.6 American Century Equity Income Inv (8//94) b Large Value TWEIX 6.78 9.62 9.8 6.97 0. 7.46 6.48 JPMorgan Equity Income A (2/8/92) e Large Value OIEIX -.48 8.24 0.02 6.97 8. 90.77 94.96 INTERNATIONAL FMI International (2//0) Foreign Large Blend FMIJX -2.78 7.48 9. 9.22 70.87.28 Henderson Global Equity Income A (/0/06) e Foreign Large Value HFQAX -8.0 2.2 4.7 2.78 87.86 6.4 Perkins Global Value T (6/29/0) b World Stock JGVAX -2..02 6.9 4.8 6.8 78.78.97 SECTOR Oppenheimer SteelPath MLP Select 40 A (/0/0) e Energy Limited Partnership MLPFX -26.80-6. -0.0 2.69 8.87 6.0 Prudential Global Real Estate Z (//98) Global Real Estate PURZX -0.46.2 7.69 4. 9.0 8.0 8.87 Cohen & Steers Realty Shares (7/2/9) Real Estate CSRSX.60 0.7 0.96 6.69 2.2 87.4 48.7 TAXABLE BOND RidgeWorth Seix Floating Rate Hi Inc I (//06) Bank Loan SAMBX -.0.8.2.89.86 8.0 7.98 TCW Emerging Markets Income N (//04) Emerging Markets Bond TGINX 2.0 -.02. 7.0 7.77 80.29 77.6 RidgeWorth Seix High Yield I (2/29/00) High Yield Bond SAMHX -.2 0.87.67.7 6.4 79.94.77 American Century Ginnie Mae Inv (9/2/8) b Intermediate Government BGNMX..7 2.79 4.4 6.4 70.9 76.26 USAA Income (/4/74) b Intermediate-Term Bond USAIX 0.26 2.6 4.02.24 8.6 97.88 07.0 DoubleLine Total Return Bond N (4/6/0) Intermediate-Term Bond DLTNX 2.20 2.9. 7. 88.9 6.0 PIMCO Income D (/0/07) Multisector Bond PONDX 2. 4.20 7.66 8.7 9.4 8.98 Lord Abbett Short Duration Income A (/4/9) e Short-Term Bond LALDX -.6 0.68 2.26 4.28 4.20 6.7 9.6 PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 0.9 4.04 6.09 6.0.84 7.47 8.09 TAX-FREE BOND American Century IntermTrm Tx-Fr Bd Inv (/2/87) b Muni National Interm TWTIX. 2.29 4.2 4.2 4.99 7.8 8.9 USAA Tax Exempt Intermediate-Term (/9/82) b Muni National Interm USATX.48.4. 4.8 6.77 82. 77.79 Northern Tax-Exempt (//94) Muni National Long NOTEX 4.0.88 6.4 4.84.28.87 26.8 Federated Shrt-Interm Dur Muni Instl (8/20/8) Muni National Short FSHIX 0.66.00 2. 2. 4.22 2.88 2.72 BALANCED FUNDS JPMorgan Income Builder A (//07) e Conservative Allocation JNBAX -6.8.48 4.0 4.28 9.02 04.82 Northern Global Tactical Asset Allc (7//9) Moderate Allocation BBALX -.2.2 4.80 4.20 6.0 97.84. American Century One Choice In Ret Inv (8//04) b Retirement Income ARTOX -.7 4.27.47..7 82.0 76.8 First Eagle Global A (4/28/70) e World Allocation SGENX -4.7.29 4.69 6.8.7.0.8 New to the Select List this quarter *$0,000 initial minimum investment Income Mutual Fund Select List Second Quarter 206 2

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. AVG. WEIGHTED MATURITY (YRS) PAYMENT DATE FOR THE QUARTER ENDED MARCH, 206 FREQUENCY ANNUAL DISTRIBUTION YIELD MOST RECENT DIVIDEND PAYMENT 0-DAY SEC YIELD 0.74 0.74 2,70 2/0/ Annually.67 0.6 0.92 0.86 709 2/0/ Annually 2.0 0.9.2.22 20 2// Annually 2.27 0. 0.64 0.6.96 2 //6 Monthly 2. 0.02 2.02 0.62 0.4 4.9 4 //6 Monthly.88 0.02.79 0.7 0.49.27 68 //6 Monthly 2.7 0.02.8 0.72 0.7 6.4 97 4//6 Monthly 2.4 0.02 2.09 0.9 0.66 6.4 48 4//6 Monthly 2. 0.0 2.2 0.69 0.62 6.68 29 2/0/ Annually 2.9 0.2 0.87 0.87 2,67 //6 Quarterly 2.09 0..07 0.8,9 //6 Quarterly.7 0.06.8 0.9 0.9 9,679 //6 Quarterly 2.24 0.0 2..09.04,4 /29/6 Monthly.77 0.0.6 0.98 0.98,67 2/8/ Annually.79 0..9.9,768 /28/6 Monthly 6.8 0.0.8 0.89 0.89 227 2/2/ Annually 2.0 0.27.2.2 2,24 4/8/6 Quarterly 8.29 0.06 0.97 0.97,67 2/6/ Quarterly.68 0.08 2.42 0.97 0.97,8 //6 Quarterly 2.9 0.4.4 0.6 0.6 4.2 4,8 //6 Monthly 4.78 0.0 4.82.6.6 6.96 2,700 //6 Monthly 4.79 0.04 4.87 0.8 0.8.90 8 //6 Monthly 6.8 0.04 7.04 0. 0..69,202 //6 Monthly 2. 0.02.78 0. 0. 8.26 6,280 /29/6 Monthly.62 0.04.2 0.72 0.72.4 8,494 //6 Monthly.74 0.0.24 0.79 0.79 6.00,99 //6 Monthly 7.40 0.0.6 0.60 0.60 4,72 //6 Monthly.9 0.0 2.96 0.92 0.90 0.47 7,78 //6 Monthly 6.6 0.0.0 0.47 0.47 9.6,42 //6 Monthly 2. 0.02.8 0. 0. 9.0 4,42 //6 Monthly.2 0.04.6 0.49 0.4 6.20,080 /2/6 Monthly.2 0.0 2.9 0.79 0.46 2.90,76 //6 Monthly. 0.0 0.94. 0.7.0,9 /29/6 Monthly 4.2 0.04 4.47 0.8 0.6 7.4 7 2/26/6 Other 2.7 0.0 0.79 0.79 6.98,882 /22/6 Quarterly.67 0.02.2.. 47,88 2/7/ Annually 0. 0.07 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. Please see page 0 for information on items a e cited above. A smart approach to help you generate income from your investments Schwab developed the Income Mutual Fund Select List to help investors in or approaching retirement build or modify an investment portfolio that addresses their growth and income needs. Here are some things to consider as you develop or fine-tune your portfolio: Asset Allocation: As always, your portfolio s asset allocation should be driven by your investment goals, time horizon and risk tolerance. As your goals shift from accumulation to income, you can use the funds on this list to help address your income and growth needs from both bond and equity funds. Diversification: Investors in or nearing retirement often believe that they should be exclusively in bonds and other fixed income assets. While for some investors this might be an appropriate strategy, you may want to consider keeping some percentage of your portfolio in equities for the capital appreciation potential they provide. Risk vs. Return: Evaluate yields within the context of risk: different categories or asset classes will reflect differing risk/reward trade-offs. Consider a mix of bond funds: government, municipal and corporate. Also, a fund s exposure to below-investment grade bonds is important to keep in mind. One of the selection criteria for fixed-income funds on the Income Select List is relatively low exposure to these types of securities, except for the high yield, multisector and emerging bond categories. (To see a fixed-income fund s credit rating, click on the fund name, then the Portfolio tab.) Maturity: Bond funds with longer maturities can leave investors exposed to greater inflation and credit risk, so consider a balance of maturities, from ultrashort to long. Distribution Frequency: Different funds provide payouts on different schedules. Check the frequency of distributions to determine when you ll receive income, if any, from the fund. Taxes: Remember tax implications. Income on investments in nonretirement accounts is generally taxable; in tax-protected retirement accounts, such as IRAs and 40(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. Income Mutual Fund Select List Second Quarter 206

(continued from page 4) For the Income Select List, CSIA generally includes no more than the two most favorably evaluated funds in each asset category, except for the intermediate-term bond category, which may feature up to five funds. Upside and downside capture ratios: a measure of how much a fund moves in comparison to the broad market when the market goes up or down. Upside capture ratio: For the months in which the market return was positive, what was the ratio of the fund s returns to the market s returns? Upside capture of 0% means that in up markets, the fund went up 0% 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 00%) 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 0% means that in down markets, the fund went down 0% more than the market did. For investors who are concerned with minimizing losses, looking for a fund with a low downside capture ratio (below 00%) 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 0% of the market s positive returns but only 0% 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 00% 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 20%, it means that the fund has been more volatile than the market (even if upside is higher than downside). If both ratios are around 80%, it means that the fund has been less volatile than the market. As with most metrics, these ratios are backward looking (in this case, over the past three years). Just because a fund has delivered a certain percentage of the market s returns in past up markets and down markets doesn t mean that it is guaranteed to do the same in future up or down markets. In a three-year period with very few up months or very few down months, the upside or downside capture ratio can be hard to measure. These ratios provide no information about the fund s overall returns and are simply a measure of performance relative to the market in up periods and in down periods. Additional Important Information More than,00 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 4. Schwab Affiliate Funds include Schwab Funds and Laudus Funds. Schwab Funds and Laudus Funds are advised by Charles Schwab Investment Management, Inc. Schwab Funds and the Laudus MarketMasters Funds are distributed by Charles Schwab & Co., Inc. and Laudus Funds (except Laudus MarketMasters Funds) are distributed by ALPS Distributors, Inc. Investing in Mutual Funds at Schwab Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can obtain a prospectus by calling Schwab at 800-4-4000. 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 $2 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. 206 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 9. 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 0-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. (04-08) Brokerage Products: Not FDIC-Insured No Bank Guarantee May Lose Value 206 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. REF (0-094) MKT0884FM-94 (04/6) Mutual Fund OneSource Select List Second Quarter 206 4