Mutual Fund OneSource Select List

Transcription

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

Mutual Fund OneSource Select List

Transcription

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