Mutual Fund OneSource Select List

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SECOND QUARTER

2016

Also available at

schwab.com/selectlist

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 $5,000.

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).

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 Fund

OneSource

Select List

& Income Select List

HIGHLIGHTS

The Importance of Achieving

Diversification—and an Easy

Way to Do It

(Pages 1–3)

Fund Selection Considerations

(Page 4)

First 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)

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Another attractive benefit of the lower minimums relates to

Schwab’s Mutual Fund Portfolio Builder, an online tool that

pro-vides 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 $10,000

for taxable accounts and $12,500 for IRAs, the minimum for either

account type is now just $5,000. 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

inves-tors 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

port-folio is divided among stocks, bonds, cash, and other

invest-ments. 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 1950s 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

cate-gories, 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

100% in stocks. Whereas both lost ground during the “great

recession” from October 2007 to February 2009, the diversified

portfolio lost less—it was down 31% versus the all-stock

port-folio’s decline of 51%.

1

_{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

portfo-lios during that period, as well as for a longer period—from 1999

through 2015—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.

The Importance of Achieving Diversification—and an Easy Way to Do It

(continued)

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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

intercon-nectedness 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

lock-step 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

unders-tand why. Assembling and monitoring a diversified portfolio

requires time and a solid understanding of global markets,

par-ticularly 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 45 years, and each portfolio’s best-year and

worst-year 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

port-folio 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.

The Importance of Achieving Diversification—and an Easy Way to Do It

(continued)

(0516-1754)

To learn more about Schwab’s Mutual Fund Portfolio Builder

Online:

schwab.com/mutualfundportfoliobuilder |

By phone:

(800) 435-4000

1_{The stocks in the hypothetical portfolios referenced are represented by the S&P 500 Index, a market-capitalization weighted index that consists of 500 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, asset-backed, and mortgage backed securities, with maturities of one year or more.

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Eligibility Requirements

Each OneSource Select List and Income Select List fund must:

Be no-load and open to new investors at Schwab in all 50 states.

Have a minimum three-year performance track record (except funds that

are listed below the “Leading Schwab Affiliate Funds” sections of the lists,

which are eligible if they have a minimum 12 months performance track

record under their current management and/or current investment

objectives and strategy).

Have at least $40 million in assets (except for small-cap value, high yield,

multisector bond, world bond, emerging market equity and bond,

diversified Pacific Asia, Pacific Asia ex-Japan, Europe, Japan, Latin

America, convertibles, retirement income, target date and specialty funds,

which require at least $20 million in assets). To meet this requirement,

assets in multiple share classes of the same fund may be aggregated.

Additionally, each Income Select List fund must:

Demonstrate a track record of making income distributions in each of the

prior five calendar years (or during every full calendar year since inception

in the case of funds with less than a five-year track record, including

Schwab Affiliate Funds which may have a 12-month track record).

For fixed income funds, make income distributions on at least a quarterly

basis; and—with the exception of the high-yield, multisector and emerging

markets bond categories—not allocate in excess of 30% to issues rated

below investment grade.

For equity funds, offer a current yield in excess of their category average;

and for equity funds with “dividend” or “income” in their name, make

income distributions at least quarterly.

With the exception of specialty sector (REITs) and fixed income funds, not

allocate in excess of 33% to any single sector.

Selection Criteria

Actively Managed OneSource Funds,

including Schwab Affiliate Funds, are

evaluated by CSIA based on a quantitative analysis of risk, performance,

expenses, active share (when meaningful), assets under management and

asset flows. CSIA also may apply additional qualitative factors to its analysis

to enhance its overall evaluation of a fund, including, for example, changes in

a fund’s investment strategy or management structure, portfolio manager

tenure, whether a fund’s investment style and portfolio holdings are

representative of its investment category, portfolio composition and turnover

rates, consistency of a fund’s performance and CSIA’s evaluation of the fund

over time, and other risk and diversification considerations.

In addition, for the Income Select List, those funds with the best capital

preservation attributes and investment strategies that focus on selecting

income-generating securities will receive preference when selecting from

similarly rated funds with comparable yield characteristics.

“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 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.

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LARGE-CAP U.S. STOCK FUNDS

Perspectives and First Quarter 2016 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 2016 was a wild ride, falling -10.5% from January 1st to mid-February and

then rallying 12.2% from that point to the end of the quarter. The total S&P 500 quarterly return

was 1.35% for the quarter, nearly matching the return for all of 2015 at 1.38%, 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 1.29% 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 13, 2016. For the latest up-to-date perspectives, please visit schwab.com

FOR THE QUARTER ENDED MARCH 31, 2016

FUND NAME (FUND INCEPTION DATE) MORNINGSTARCATEGORY QUOTESYMBOL

AVERAGE ANNUALIZED TOTAL RETURN _UPSIDE

MARKET CAPTURE DOWNSIDE MARKET CAPTURE GROSS EXPENSE RATIOa NET EXPENSE RATIOa TOTAL ASSETS ($M) 1

YEAR YEARS3 YEARS5 YEARS10 INCEPTIONSINCE

LEADING SCHWAB AFFILIATE FUNDSd

Schwab Core Equity Fund (7/1/96) Large Blend SWANX -4.03 10.28 9.63 6.11 7.89 101.95 116.25 0.74 0.74 2,170 Laudus U.S. Large-Cap Growth Fund (10/14/97) Large Growth LGILX -2.50 11.85 11.22 8.96 6.22 104.96 109.45 0.77 0.77 1,976

FUNDAMENTAL INDEX FUNDS

Schwab Fundamental U.S. Large Company Index Fund (4/2/07) Large Value SFLNX 0.49 10.31 10.60 — 6.86 94.58 101.59 0.39 0.35 4,682

MARKET CAP-WEIGHTED INDEX FUNDS

Schwab®_{S&P 500 Index Fund (5/19/97)} _{Large Blend} _SWPPX _1.69 _11.70 _11.49 _6.97 _6.78 _{99.55 100.09} _0.09 _0.09 _21,774

LEADING 3RD PARTY FUNDS

Parnassus Core Equity Investor (8/31/92) Large Blend PRBLX 2.82 11.57 12.10 9.61 10.51 93.52 89.27 0.87 0.87 12,617 INTECH US Mgd Volatility T (7/6/09)b _{Large Blend} _JRSTX _2.37 _11.77 _11.84 _6.43 _15.83 _87.31 _75.42 _0.95 _0.95 ₃₆₁

Lord Abbett Calibrated Dividend Gr A (12/27/01)e _{Large Blend} _LAMAX _-2.30 _8.04 _8.29 _6.45 _6.93 _89.56 _92.65 _1.07 _0.85 _1,955

Glenmede Large Cap Core Port (2/27/04) Large Blend GTLOX -0.71 13.27 12.87 8.01 8.66 102.50 93.36 0.87 0.87 2,144 Prudential Jennison Equity Opportunity Z (11/7/96) Large Blend PJGZX -6.85 8.77 8.89 6.40 9.72 93.20 111.50 0.80 0.80 412 Parnassus (12/27/84) Large Growth PARNX -3.56 12.98 11.72 8.82 9.89 108.44 107.27 0.84 0.84 739 Jensen Quality Growth J (8/3/92) Large Growth JENSX 6.02 12.81 11.40 8.13 8.55 94.19 80.65 0.87 0.87 5,092 Madison Investors Y (11/1/78) Large Growth MINVX 4.00 11.08 11.01 6.62 10.54 86.10 78.60 0.95 0.95 256 Nicholas (7/14/69) Large Growth NICSX -8.68 10.84 12.19 8.29 11.30 95.04 98.18 0.72 0.72 3,274 Glenmede Large Cap Growth (2/27/04) Large Growth GTLLX 1.12 16.21 13.81 9.05 9.29 109.51 84.04 0.87 0.87 2,235 American Century Equity Income Inv (8/1/94)b _{Large Value} _TWEIX _6.78 _9.62 _9.85 _6.97 _10.55 _71.46 _61.48 _0.93 _0.93 _9,679

Federated Strategic Value Dividend A (3/30/05)e _{Large Value} _SVAAX _5.26 _9.33 _10.76 _6.05 _6.89 _80.05 _63.87 _1.19 _1.06 _12,137

JPMorgan Large Cap Value A (2/18/92)e _{Large Value} _OLVAX _-5.53 _9.32 _9.06 _5.24 _6.91 _{100.37 104.88} _1.11 _0.93 ₇₂₇

JPMorgan Equity Income A (2/18/92)e _{Large Value} _OIEIX _-5.48 _8.24 _10.02 _6.97 _8.31 _90.77 _94.96 _1.09 _1.04 _11,451

Commerce Value (3/3/97) Large Value CFVLX 3.74 10.08 11.93 6.19 6.26 86.35 87.24 0.75 0.72 207

PERFORMANCE BENCHMARKS

Schwab 1000 Index®_{(Dividends Reinvested)} _0.48 _11.48 _11.22 _7.09 _—

S&P 500 Index®_{(Dividends Reinvested)} _1.78 _11.82 _11.58 _7.01 _—

New to the Select List this quarter

Asset Class and Performance Benchmark Definitions

Large-cap U.S. stock funds invest primarily in stocks that fall in the top 70% of the U.S. market capitalization range as defined by Morningstar, Inc. Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity. Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to “turnaround” or lower price-to-earnings or price-to-book ratios. Blend funds invest in a combination of value and growth stocks.

The S&P 500®_{Index includes common stocks of 500 widely held companies. S&P 500 is a registered trademark of The McGraw-Hill Co., Inc.}

If an expense waiver was in place during the period, the net expense ratio was used to calculate fund performance. A net expense ratio lower than the gross expense ratio may reflect a cap on or contractual waiver of fund expenses. Please read the fund prospectus for details on limits or expiration dates for any such waivers.

Performance quoted is past performance and is no guarantee of future results. Current performance may be lower or higher. Visit schwab.com for month’s end

performance information. Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

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

Perspectives and First Quarter 2016 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 -1.52%. However, there

were pockets of strength with Small Value up 2.18% and Small Blend returning 0.55%, while

Small Growth continued the overall decline in Growth vs. Value with a loss of -4.32%.

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 -1.81%. However, Mid Value and Mid Blend

both saw gains of 2.44% and 1.25%, respectively.

LEADING SCHWAB AFFILIATE FUNDSd FUNDAMENTAL INDEX FUNDS

Schwab Fundamental U.S. Small Co Index Fund (4/2/07) Small Blend SFSNX -6.13 9.11 8.47 — 7.24 100.53 123.01 0.43 0.35 1,403

Schwab Small-Cap Index Fund (5/19/97) Small Blend SWSSX -9.68 6.87 7.51 6.23 7.95 94.19 129.18 0.20 0.17 2,503

Parnassus Mid-Cap (4/29/05) Mid-Cap Blend PARMX 0.64 10.02 10.11 8.33 8.71 84.16 83.41 1.09 0.99 652 Hennessy Cornerstone Mid Cap 30 Inv (9/17/03) Mid-Cap Blend HFMDX -3.34 10.82 11.29 7.17 11.22 99.10 106.30 1.33 1.33 1,181 Janus Enterprise T (9/1/92)b _{Mid-Cap Growth} _JAENX _-0.81 _12.35 _10.98 _8.88 _10.51 _87.44 _70.94 _0.92 _0.92 _7,366

Buffalo Discovery (4/16/01) Mid-Cap Growth BUFTX -3.28 13.13 11.86 9.23 8.34 95.04 79.77 1.01 1.01 1,032 Victory Sycamore Established Value A (5/5/00)e _{Mid-Cap Value} _VETAX _-5.54 _9.53 _8.84 _8.30 _9.17 _98.59 _98.10 _0.99 _0.99 _3,878

Perkins Select Value T (12/15/11)b _{Mid-Cap Value} _JSVTX _0.16 _7.44 _— _— _10.63 _73.79 _84.23 _1.01 _0.89 ₇₇

Tributary Small Company Instl (6/10/96) Small Blend FOSCX -0.65 9.71 8.68 7.95 8.96 92.03 101.44 1.32 1.22 279 Lord Abbett Small Cap Value A (12/13/95)e _{Small Blend} _LRSCX _-9.96 _4.14 _4.41 _5.81 _11.66 _82.92 _112.54 _1.21 _1.21 _1,173

Perritt MicroCap Opportunities Investor (5/2/88) Small Blend PRCGX -8.34 5.39 5.03 3.85 9.08 70.14 94.38 1.22 1.22 276 Great Lakes Small Cap Opportunity Inv (12/2/08) Small Blend GLSCX -5.80 6.77 7.25 — 15.72 98.01 137.49 1.14 1.15 72 ASTON/River Road Small Cap Value N (6/28/05) Small Blend ARSVX 1.55 6.37 7.51 5.29 6.78 74.80 95.29 1.39 1.39 259 Rice Hall James Small Cap Instl (11/1/96) Small Growth RHJMX -8.59 7.58 7.69 7.16 8.88 87.78 110.71 1.67 1.00 45 Neuberger Berman Genesis Inv (9/27/88) Small Growth NBGNX -2.36 7.75 7.96 7.32 12.02 86.13 106.04 1.01 1.01 10,127 Conestoga Small Cap Investors (10/1/02) Small Growth CCASX -0.78 7.90 8.84 7.05 10.64 89.23 110.89 1.50 1.10 688 TIAA-CREF Small-Cap Equity Retail (10/1/02) Small Growth TCSEX -7.50 8.81 7.74 5.14 9.97 96.22 117.09 0.75 0.75 2,895 Driehaus Micro Cap Growth (1/2/03) Small Growth DMCRX -15.51 9.68 7.71 7.46 16.74 101.52 120.28 1.59 1.59 250 Perkins Small Cap Value T (10/21/87)b _{Small Value} _JSCVX _-2.10 _8.11 _6.90 _7.32 _12.07 _84.38 _99.58 _0.81 _0.81 _1,397

American Beacon Zebra Small Cap Eq Inv (6/1/10) Small Value AZSPX -4.93 8.74 8.74 — 12.22 89.12 103.73 1.83 1.28 24 Northern Small Cap Value (3/31/94) Small Value NOSGX -4.17 8.45 8.75 5.79 9.76 93.68 115.08 1.23 1.01 2,937

PERFORMANCE BENCHMARK

Russell 2000 Index®_{(Dividends Reinvested)} _-9.76 _6.84 _7.20 _5.26 _—

Mid-cap U.S. stock funds invest primarily in stocks that fall in the next 20% of the U.S. market capitalization range following large-cap stocks. Small-cap U.S. stock funds generally invest in stocks falling in the bottom 10% of the range. Definitions based on Morningstar, Inc.

Growth funds invest in companies that may be experiencing rapid growth in earnings, sales or return on equity. Value funds invest in companies that may have share prices below estimated fair market value, undervalued assets, an opportunity to “turnaround” or lower price-to-earnings or price-to-book ratios. Blend funds invest in a combination of value and growth stocks. The Russell 2000®_{Index consists of the}

2,000 smallest companies in the Russell 3000®_{Index, which represents approximately 98% of the total market value of publicly available domestic equities.}

Small-cap funds are subject to greater volatility than those in other asset categories.

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INTERNATIONAL STOCK FUNDS

Perspectives and First Quarter 2016 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 3.01% in the first quarter of 2016. A slump in financial stocks seemed to be a persistent theme in the international markets with the Japan and Europe categories losing 3.65% and 2.51% respectively. Emerging Markets were positive for the quarter with a gain of 3.85% despite weakness in Chinese

equities which lost 4.65%. The Latin America region posted the strongest turnaround with a 14.74% return, buoyed by an improving Brazilian real.

Foreign fund investors experienced a setback across many categories with Foreign Small/Mid Value (-0.12%) and Foreign Small/Mid Blend (-0.16%) holding up better than their counterparts while Foreign Large Growth (-2.02%) and Foreign Large Blend (-1.97%) trailed the pack.

Schwab®_{International Core Equity Fund (5/30/08)} _{Foreign Large Blend} _SICNX _-6.00 _3.95 _4.58 _— _1.06 _100.06 _80.82 _0.92 _0.86 ₇₀₉

Laudus Mondrian International Equity Fund—Invstor (6/16/08) Foreign Large Value LIEQX -7.20 3.89 3.25 — -0.58 102.45 83.48 1.32 1.22 120

FUNDAMENTAL INDEX FUNDS

Schwab Fundamental Emerg Mkts Lg Co Index (1/31/08) Diversified Emerging Mkts SFENX -9.74 -6.65 -6.68 — -2.02 111.10 149.41 0.85 0.49 302 Schwab Fundamental Intl Large Co Index (4/2/07) Foreign Large Value SFNNX -9.25 2.73 0.82 — -0.13 110.17 97.21 0.46 0.35 918 Schwab Fundamental Intl Small Co Index (1/31/08) Foreign Small/Mid Blend SFILX 0.39 5.68 4.27 — 4.76 95.57 67.36 0.71 0.49 418

Schwab International Index Fund (5/19/97) Foreign Large Blend SWISX -8.45 1.94 2.16 1.93 3.71 99.36 90.72 0.23 0.19 2,922

Matthews China Dividend Investor (11/30/09) China Region MCDFX -0.40 6.30 6.16 — 8.37 103.72 72.30 1.19 1.19 157 Matthews China Investor (2/19/98) China Region MCHFX -14.28 -1.19 -3.00 7.65 8.57 90.26 98.54 1.13 1.13 629 Manning & Napier Emerging Markets S (11/16/11) Diversified Emerging Mkts MNEMX -4.38 -4.00 — — 1.45 95.13 118.91 1.27 1.16 93 Brandes Emerging Markets Value A (1/31/11)e _{Diversified Emerging Mkts BEMAX} _-9.36 _-7.25 _-5.32 _3.76 _-4.52 _{118.21 149.23} _1.39 _1.37 _1,067

Matthews Asia Dividend Investor (10/31/06) Diversified Pacific/Asia MAPIX -2.10 3.18 5.33 — 8.77 84.61 69.48 1.06 1.05 4,756 Matthews Asia Growth Investor (10/31/03) Diversified Pacific/Asia MPACX -6.75 3.51 4.75 5.69 8.64 77.62 60.74 1.11 1.11 686 Henderson European Focus A (8/31/01)e _{Europe Stock} _HFEAX _-13.32 _6.87 _2.10 _5.88 _13.66 _116.28 _71.10 _1.31 _1.31 _3,494

Lazard International Strategic Eq Open (2/3/06) Foreign Large Blend LISOX -6.77 4.11 5.66 3.89 4.40 99.52 79.42 1.09 1.09 7,669 INTECH International Mgd Volatility T (7/6/09)b _{Foreign Large Blend} _JRMTX _-1.17 _5.32 _3.83 _— _7.82 _88.47 _62.13 _1.16 _1.16 ₇₈

FMI International (12/31/10) Foreign Large Blend FMIJX -2.78 7.48 9.53 — 9.22 70.87 33.28 0.98 0.98 3,567 Cambiar International Equity Inv (9/9/02) Foreign Large Blend CAMIX -2.16 5.65 3.99 3.71 7.70 90.25 62.20 1.30 1.21 2,457 TIAA-CREF International Eq Retail (3/31/06) Foreign Large Blend TIERX -9.03 2.73 1.99 2.08 2.08 102.50 89.62 0.83 0.83 4,307 Oppenheimer International Growth A (3/25/96)e _{Foreign Large Growth} _OIGAX _-5.60 _2.46 _4.37 _4.53 _7.73 _97.34 _75.22 _1.14 _1.14 _22,688

WCM Focused International Growth Inv (8/31/11) Foreign Large Growth WCMRX 0.67 6.04 — — 6.75 95.25 65.17 1.30 1.30 2,233 Henderson Global Equity Income A (11/30/06)e _{Foreign Large Value} _HFQAX _-8.05 _2.52 _4.37 _— _2.78 _87.86 _65.45 _1.19 _1.19 _3,768

Federated Intl Strategic Val Div A (6/3/08)e _{Foreign Large Value} _IVFAX _-7.89 _-1.97 _1.15 _— _-0.96 _93.62 _95.97 _1.25 _1.11 ₇₄₅

Oberweis International Opportunities (2/1/07) Foreign Small/Mid Growth OBIOX 5.94 13.65 13.36 — 9.15 107.78 39.79 1.89 1.60 809 Lazard International Small Cap Eq Open (2/13/97) Foreign Small/Mid Growth LZSMX 4.18 8.65 7.27 2.91 6.60 98.64 55.30 1.44 1.43 116 Brandes International Small Cap Equity A (1/31/12)e _{Foreign Small/Mid Value} _BISAX _-0.82 _7.16 _5.68 _5.62 _10.29 _104.68 _58.12 _1.32 _1.40 _1,230

Matthews Japan Investor (12/31/98) Japan Stock MJFOX 3.15 11.40 10.17 1.68 5.80 83.89 26.74 1.03 1.03 3,020 Matthews Pacific Tiger Investor (9/12/94) Pacific/Asia ex-Japan Stk MAPTX -8.02 3.69 4.38 8.39 8.43 97.31 79.45 1.09 1.08 6,613 Matthews Asia Small Companies Inv (9/15/08) Pacific/Asia ex-Japan Stk MSMLX -12.54 0.51 1.64 — 11.68 86.12 85.22 1.47 1.47 566 Perkins Global Value T (6/29/01)b _{World Stock} _JGVAX _-2.55 _5.02 _6.59 _4.58 _6.18 _78.78 _53.97 _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 _63.60 _1.02 _1.02 _2,338

MSCI EAFE Index (Dividends Reinvested) -8.27 2.23 2.29 1.80 —

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.

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SECTOR FUNDS

Perspectives and First Quarter 2016 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 500 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 (2.19%) also started the year with positive returns. On a side note, Equity REITs

are poised to debut as the 11th GICS sector on August 31, 2016. The Health Care sector (-13.28%)

was the worst performing group in the category, plagued by the selloff in the biotech industry.

AVERAGE ANNUALIZED TOTAL RETURN

UPSIDE MARKET CAPTURE DOWNSIDE MARKET CAPTURE GROSS EXPENSE RATIOa NET EXPENSE RATIOa TOTAL ASSETS ($M) 1

FINANCIAL FUNDS (CATEGORY AVERAGE)† _-6.19 _6.28 _6.67 _1.12

Schwab Financial Services Fund (7/3/00) Financial SWFFX -7.78 7.68 7.59 0.99 4.58 100.62 86.55 0.93 0.93 68

HEALTH FUNDS (CATEGORY AVERAGE)† _-15.44 _15.03 _16.17 _10.01

Schwab Health Care Fund (7/3/00) Health SWHFX -7.30 14.20 16.52 9.69 9.02 105.08 50.74 0.79 0.79 968

EQUITY ENERGY FUNDS (CATEGORY AVERAGE)† _-24.98 _-12.25 _-9.71 _-1.33

BlackRock Natural Resources Inv A (10/21/94)e _{Equity Energy} _MDGRX _-23.47 _-11.38 _-9.29 _-0.77 _6.29 _63.61 _161.02 _1.11 _1.11 ₃₀₀

ICON Energy S (11/5/97) Equity Energy ICENX -18.46 -11.93 -7.14 0.18 8.03 64.16 178.58 1.42 1.42 345

ENERGY LIMITED PARTNERSHIP FUNDS (CATEGORY AVERAGE)† _-36.23 _-10.32 _-1.06 _—

Tortoise MLP & Pipeline Investor (5/31/11)e _{Energy Limited Partnership TORTX} _-35.01 _-7.32 _— _— _3.17 _96.76 _172.89 _1.24 _1.24 _1,645

Oppenheimer SteelPath MLP Select 40 A (3/30/10)e _{Energy Limited Partnership MLPFX} _-26.80 _-6.53 _-0.30 _— _2.69 _58.87 _116.05 _1.23 _1.12 _2,524

FINANCIAL FUNDS (CATEGORY AVERAGE)† _-6.19 _6.28 _6.67 _1.12

Burnham Financial Services A (6/7/99)e _Financial _BURKX _6.55 _14.04 _12.26 _6.04 _12.11 _78.54 _2.93 _1.64 _1.80 ₂₆₁

Davis Financial A (5/1/91)e _Financial _RPFGX _-6.13 _7.77 _7.50 _3.81 _11.14 _108.30 _84.83 _0.86 _0.86 ₈₉₁

HEALTH FUNDS (CATEGORY AVERAGE)† _-15.44 _15.03 _16.17 _10.01

Janus Global Life Sciences T (12/31/98)b _Health _JAGLX _-17.28 _19.68 _19.69 _11.29 _11.12 _116.10 _32.13 _0.95 _0.95 _3,794

BlackRock Health Sciences Opps Inv A (12/21/99)e _Health _SHSAX _-13.87 _14.47 _15.60 _11.61 _14.66 _103.66 _34.18 _1.16 _1.16 _5,544

NATURAL RESOURCES FUNDS (CATEGORY AVERAGE)† _-17.35 _-8.07 _-7.21 _-0.84

ICON Natural Resources S (5/5/97) Natural Resources ICBMX -15.06 3.12 1.81 3.85 4.06 102.01 119.02 1.42 1.42 74 Columbia Global Energy & Natural Res A (9/28/07)b,e _{Natural Resources} _EENAX _-19.50 _-8.69 _-8.44 _-0.87 _-4.09 _80.42 _161.49 _1.30 _1.30 ₂₅₉

PRECIOUS METALS FUNDS (CATEGORY AVERAGE)† _12.31 _-15.66 _-18.06 _-3.00

Gabelli Gold AAA (7/11/94) Equity Precious Metals GOLDX 19.63 -11.06 -14.19 -1.07 4.14 -45.60 19.47 1.58 1.58 252 Oppenheimer Gold & Special Minerals A (7/19/83)e _{Equity Precious Metals} _OPGSX _4.25 _-18.80 _-21.29 _-2.93 _4.98 _-48.44 _66.60 _1.23 _1.17 _1,085

GLOBAL REAL ESTATE FUNDS (CATEGORY AVERAGE)† _-1.06 _3.96 _6.44 _2.87

Prudential Global Real Estate Z (5/5/98) Global Real Estate PURZX -0.46 5.21 7.69 4.31 9.10 85.01 81.87 0.97 0.97 3,367 AB Global Real Estate Investment A (9/30/96)e _{Global Real Estate} _AREAX _-3.70 _3.49 _6.83 _2.64 _8.54 _83.46 _81.24 _1.29 _1.29 ₁₆₆

REAL ESTATE FUNDS (CATEGORY AVERAGE)† _2.66 _9.43 _10.78 _5.73

Cohen & Steers Realty Shares (7/2/91) Real Estate CSRSX 3.60 10.75 10.96 6.69 12.25 87.41 48.57 0.97 0.97 5,813 Manning & Napier Real Estate S (11/10/09) Real Estate MNREX 4.30 10.37 11.78 — 15.01 88.82 52.92 1.11 1.11 272

TECHNOLOGY FUNDS (CATEGORY AVERAGE)† _-0.32 _13.70 _8.88 _7.26

Red Oak Technology Select (12/31/98) Technology ROGSX 5.31 15.13 13.26 9.85 3.43 120.96 66.47 1.11 1.11 136 Janus Global Technology T (12/31/98)b _Technology _JAGTX _0.34 _12.81 _9.97 _8.55 _6.52 _121.70 _81.98 _0.95 _0.95 _1,090

UTILITY FUNDS (CATEGORY AVERAGE)† _2.87 _7.54 _9.23 _7.22

American Century Utilities Inv (3/1/93)b _Utilities _BULIX _14.88 _11.34 _11.20 _8.51 _8.33 _86.23 _43.14 _0.67 _0.67 ₅₃₉

ICON Utilities S (7/9/97) Utilities ICTUX 14.12 10.50 12.05 7.66 8.51 90.80 54.83 1.70 1.50 44 New to the Select List this quarter †_{Reflects load-adjusted returns}

Sector funds concentrate investments in firms that fall into specific industries that produce related products or services. Sector funds, in general, have a low correlation to market indices, such as the S&P 500 Index, so they tend to perform differently than broader market measures. Because of their unique investment objectives, it’s unfair to compare sector funds with broader market indices as they will seldom correlate. When evaluating sector fund performance, it’s more appropriate to compare an individual fund’s returns with the average performance of funds in its category.

Due to the concentrated nature of sector funds, they can be more volatile than broadly diversified equity funds.

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.

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TAXABLE BOND FUNDS

Perspectives and First Quarter 2016 Summary

Treasury yields fell in the first quarter of 2016, 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 2016, global growth concerns and financial market volatility pushed Treasury yields even

lower. Ten-year Treasury bond yields dropped 50 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

long-term bond yields—continued its decline, a trend we think will continue as the year progresses.

In the first quarter of 2016, 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 6.19%, Emerging Markets Bond

funds at 5.65% and World Bond funds at 4.25%.

In contrast, shorter-term categories fared the worst in Q1 with Short-Term Bond funds returning

0.99%, Short Government funds at 0.97% and Ultrashort Bond funds at 0.17%. Nontraditional

Bond funds barely edged out a positive return of just 0.02%, on average.

UPSIDE MARKET CAPTURE DOWNSIDE MARKET CAPTURE GROSS EXPENSE RATIOa NET EXPENSE RATIOa AVG. WEIGHTED MATURITY (YRS) TOTAL ASSETS ($M) 1

Schwab GNMA Fund (3/3/03) Intermediate Government SWGSX 2.25 2.05 3.01 4.51 3.97 81.76 81.46 0.64 0.56 5.96 321 Schwab Intermediate-Term Bond Fund (10/31/07) Intermediate-Term Bond SWIIX 1.64 1.77 2.77 — 4.32 71.80 72.49 0.62 0.45 4.93 345 Laudus Mondrian Int’l Govt Fxd Income—Instl (11/2/07) World Bond LIFNX 7.27 -1.10 -0.86 — 2.70 81.84 182.35 0.76 0.75 9.36 120

Schwab Total Bond Market Fund (3/5/93) Intermediate-Term Bond SWLBX 1.61 2.21 3.46 3.31 4.85 97.44 104.58 0.54 0.29 7.54 1,324

RidgeWorth Seix Floating Rate Hi Inc I (3/1/06) Bank Loan SAMBX -1.50 1.58 3.12 3.89 3.86 38.10 17.98 0.61 0.61 4.52 4,358 Lord Abbett Floating Rate A (12/31/07)e _{Bank Loan} _LFRAX _-2.23 _1.32 _3.18 _— _3.61 _36.26 _-1.39 _0.80 _0.80 _— _6,142 Payden Emerging Markets Bond Adviser (11/2/09) Emerging Markets Bond PYEWX 1.42 0.44 4.56 6.02 5.90 108.43 180.11 1.01 1.01 10.61 1,015 TCW Emerging Markets Income N (3/1/04) Emerging Markets Bond TGINX 2.05 -1.02 3.31 7.30 7.77 80.29 177.16 1.16 1.16 6.96 2,700 RidgeWorth Seix High Yield I (12/29/00) High Yield Bond SAMHX -5.23 0.87 3.67 5.37 6.45 79.94 115.77 0.58 0.58 5.90 538 TIAA-CREF High-Yield Retail (3/31/06) High Yield Bond TIYRX -4.06 1.37 4.46 6.34 6.34 94.79 126.45 0.64 0.64 6.62 3,090 American Century Infl-Adj Bond Inv (2/10/97)b _{Inflation-Protected Bond} _ACITX _0.98 _-1.45 _2.46 _4.18 _5.08 _99.64 _225.26 _0.47 _0.47 _8.97 _2,885 JPMorgan Inflation Managed Bond A (3/31/10)e _{Inflation-Protected Bond} _JIMAX _-2.63 _-1.71 _0.64 _— _1.55 _40.24 _86.95 _1.22 _0.75 _4.17 _1,533 American Century Ginnie Mae Inv (9/23/85)b _{Intermediate Government BGNMX} _1.53 _1.57 _2.79 _4.41 _6.34 _70.39 _76.26 _0.55 _0.55 _5.69 _1,202 PIMCO GNMA D (5/31/01) Intermediate Government PGNDX 1.63 1.72 3.01 4.87 4.84 74.60 79.35 0.90 0.90 4.64 862 Western Asset Core Bond I (9/4/90) Intermediate-Term Bond WATFX 2.08 3.22 4.40 5.43 7.03 110.12 95.37 0.52 0.45 11.37 5,374 Prudential Total Return Bond Z (9/16/96) Intermediate-Term Bond PDBZX 0.89 2.89 4.96 6.27 6.02 125.37 132.84 0.56 0.51 — 13,826 Northern Fixed Income (3/31/94) Intermediate-Term Bond NOFIX 0.53 2.36 4.09 4.71 5.29 108.15 119.04 0.49 0.47 9.03 1,353 Baird Core Plus Bond Inv (9/29/00) Intermediate-Term Bond BCOSX 1.16 2.43 4.23 5.65 5.95 104.09 109.44 0.55 0.55 7.13 10,395 Metropolitan West Total Return Bond M (3/31/97) Intermediate-Term Bond MWTRX 0.98 2.46 4.63 6.39 6.69 93.37 89.48 0.69 0.69 8.18 74,616 PIMCO Income D (3/30/07) Multisector Bond PONDX 2.13 4.20 7.66 — 8.71 95.54 38.98 0.79 0.79 6.00 55,993 Scout Unconstrained Bond Y (12/31/12) Nontraditional Bond SUBYX 3.87 -0.07 — — 0.54 -11.42 -18.37 1.11 0.80 6.30 1,320 Putnam Absolute Return 300 A (12/23/08)e _{Nontraditional Bond} _PTRNX _-5.71 _-0.85 _-0.23 _— _1.62 _-32.41 _-42.10 _0.84 _0.84 _6.46 ₆₇₆ Northern Short-Intermediate US Govt (10/1/99) Short Government NSIUX 1.38 0.51 1.22 2.71 3.24 37.51 51.31 0.48 0.41 2.87 166 Prudential Short-Term Corporate Bd Z (12/16/96) Short-Term Bond PIFZX 1.61 1.69 2.63 4.38 4.74 50.59 37.03 0.52 0.52 — 9,347 Lord Abbett Short Duration Income A (11/4/93)e _{Short-Term Bond} _LALDX _-1.56 _0.68 _2.26 _4.28 _4.20 _36.57 _19.63 _0.60 _0.60 _— _34,723 Payden Limited Maturity (4/29/94) Ultrashort Bond PYLMX 0.34 0.55 0.72 1.34 2.97 9.94 0.09 0.57 0.25 0.83 430 Putnam Short Duration Income A (10/17/11) Ultrashort Bond PSDTX 0.35 0.47 — — 0.56 6.21 -3.94 0.54 0.40 1.17 2,453 AB Global Bond A (3/27/92)e _{World Bond} _ANAGX _-2.62 _0.90 _2.96 _5.14 _7.27 _98.60 _101.54 _0.85 _0.85 _8.02 _5,101 PIMCO Foreign Bond (USD-Hedged) D (4/8/98) World Bond PFODX 0.19 4.04 6.09 6.03 5.84 117.47 83.09 0.92 0.90 10.47 7,718

Barclays U.S. Aggregate Bond Index (Dividends Reinvested) 1.96 2.50 3.78 4.90 —

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.

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NOTES: ALL DATA SHOWN IS AS OF MARCH 31, 2016

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 $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 First Quarter 2016 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 2016 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 1.67% for the quarter and only two categories were able to outperform

that benchmark – High Yield Muni (2.00%) and Muni California Long (1.85%).

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 0.55%.

UPSIDE MARKET CAPTURE DOWNSIDE MARKET CAPTURE GROSS EXPENSE RATIOa NET EXPENSE RATIOa AVG. WEIGHTED MATURITY (YRS) TOTAL ASSETS ($M) 1

Schwab Tax-Free Bond Fund (9/11/92) Muni National Interm SWNTX 3.24 3.00 4.65 4.48 5.15 79.04 74.68 0.57 0.49 5.27 681

American Century High-Yield Muni Inv (3/31/98)b _{High Yield Muni} _ABHYX _5.45 _4.26 _7.57 _4.02 _4.92 _125.80 _136.07 _0.60 _0.60 _19.41 ₄₈₈

Nuveen High Yield Municipal Bond A (6/7/99)e _{High Yield Muni} _NHMAX _1.73 _4.74 _9.98 _3.45 _5.14 _169.69 _167.92 _0.83 _0.78 _22.22 _12,778

American Century IntermTrm Tx-Fr Bd Inv (3/2/87)b _{Muni National Interm} _TWTIX _3.15 _2.29 _4.21 _4.12 _4.99 _73.38 _85.59 _0.47 _0.47 _9.36 _3,452

Northern Intermediate Tax-Exempt (3/31/94) Muni National Interm NOITX 3.54 2.88 4.61 4.10 4.43 89.93 102.52 0.50 0.46 9.20 3,208 USAA Tax Exempt Intermediate-Term (3/19/82)b _{Muni National Interm} _USATX _3.48 _3.14 _5.35 _4.58 _6.77 _82.55 _77.79 _0.55 _0.55 _9.03 _4,425

Baird Quality Intermediate Muni Bd Inv (3/30/01) Muni National Interm BMBSX 2.49 1.90 3.19 3.92 4.14 62.65 75.07 0.55 0.55 4.80 1,198 Nuveen Intermediate Duration Muni Bd A (6/13/95)e _{Muni National Interm} _NMBAX _0.50 _2.05 _3.96 _3.78 _4.39 _87.92 _91.24 _0.69 _0.69 _9.60 _5,132

Northern Tax-Exempt (3/31/94) Muni National Long NOTEX 4.30 3.88 6.14 4.84 5.28 115.87 126.81 0.49 0.45 16.20 1,080 USAA Tax Exempt Long-Term (3/19/82)b _{Muni National Long} _USTEX _3.94 _3.83 _6.87 _4.71 _7.44 _107.85 _110.84 _0.55 _0.55 _15.46 _2,447

Northern Short-Intermediate Tax-Exempt (8/22/07) Muni National Short NSITX 1.42 1.02 1.50 — 2.31 26.79 24.86 0.48 0.46 3.13 1,166 Federated Shrt-Interm Dur Muni Instl (8/20/81) Muni National Short FSHIX 0.66 1.00 2.11 2.53 4.22 25.88 23.72 0.79 0.46 2.90 1,176

Barclays Municipal Bond Index (Dividends Reinvested) 3.98 3.63 5.59 4.86 — New to the Select List this quarter

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.