Asset Management

March 31, 2021

Charles Schwab Investment Management, Inc. Schwab Managed Portfolios™ Disclosure Brochure

211 Main Street San Francisco, CA 94105 1-866-855-5689 www.schwab.com

This brochure provides information about the qualifications and business practices of Charles Schwab Investment Management, Inc. If you have any questions about the contents of this brochure, please contact us at 1-866-855-5689. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission (the “SEC”) or by any state securities authority. Registration with the SEC does not imply a certain level of skill or training. Additional information about Charles Schwab Investment Management, Inc. is also available on the SEC’s website at www.adviserinfo.sec.gov.

©2021 Charles Schwab Investment Management, Inc. All rights reserved. REG114291-00 Summary of Material Changes (As of March 31, 2021, since prior annual update on March 30, 2020)

Advisory Business ● CSIM has updated the disclosure to reflect the investment management services it provides for the USAA Managed Portfolios – UMP and the Wasmer Schroeder Strategies.

Other Financial Industry Activities and Affiliations ● CSIM has modified the discussion of its relationship with affiliates to disclose new and modified relationships.

Brokerage Practices ● CSIM has updated information pertaining to its trading process for the different types of accounts it manages, the relationships among separate trading groups and portfolio management groups, and how trade rotation and trade allocation are handled.

Client Referrals and Other Compensation ● CSIM has modified the discussion to reflect its relationship with affiliates.

2 Contents

Advisory Business ...... 4 Fees and Compensation — SMP Program ...... 4 Performance-Based Fees and Side-by-Side Management ...... 4 Types of Clients ...... 4 Methods of Analysis, Investment Strategies and Risk of Loss...... 4 Disciplinary Information ...... 9 Other Financial Industry Activities and Affiliations...... 9 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading ...... 11 Brokerage Practices ...... 12 Review of Accounts ...... 14 Client Referrals and Other Compensation ...... 14 Custody ...... 15 Investment Discretion ...... 15 Voting Client Securities ...... 15 Financial Information ...... 16

3 Advisory Business SMP Program offered through the Managed Accounts Programs sponsored by Schwab and other services provided by CSIM to Schwab, Charles Schwab Investment Management, Inc., a Delaware corporation plus an additional amount based on a fixed percentage of such (“CSIM”) that is doing business as Schwab Asset Management. costs and expenses. Schwab also provides CSIM with human CSIM was founded in 1989 as a wholly-owned subsidiary of resources, legal, compliance, and other administrative and The Charles Schwab Corporation (“CSC”), a Delaware corporation technological support services. The portion of the costs and expenses that is publicly traded and listed on the New York Stock Exchange. paid by Schwab for the work done by CSIM may be adjusted from CSIM provides advisory services to separately managed accounts time to time as more or fewer resources are required. (“SMAs”), registered investment companies, which include mutual funds and exchange-traded funds (“ETFs,” and collectively with the CSIM participates as a portfolio manager in the Managed Account mutual funds, “Registered Funds”), collective investment trusts Programs offered by Schwab. More specific information about and one non-U.S. pooled investment vehicle. As further described in the Managed Account Programs and the fees paid by clients who the “Methods of Analysis, Investment Strategies and Risk of Loss” participate in the Managed Account Programs appears in Schwab’s section, CSIM provides advice about a variety of investments, ranging Disclosure Brochure for those programs, which is provided to from equity and fixed income to money market securities and also program clients directly by Schwab. CSIM does not enter into provides advice as to the selection of investment advisers and pooled agreements directly with Managed Account Program clients and so investment vehicles for certain clients. does not receive direct compensation from or negotiate fees with them. On May 26, 2020, CSIM became the investment adviser, and assumed ® fiduciary responsibility, for the USAA Managed Portfolios — UMP Additional Costs (the “UMP Program”), which includes UMP Wrap and UMP Custom strategies, and its assets. This is as a result of the acquisition of In addition to the SMP Program fee, clients may incur additional the assets of USAA Investment Management Company (“USAA IMCO”) costs. Schwab will waive all of its trading commissions, if any, on SMP by an affiliate of CSIM and the subsequent assignment of USAA accounts managed by CSIM. Please note that Schwab’s waiver IMCO’s investment advisory agreements to Charles Schwab & Co., does not extend to any other non-Schwab broker fees, commissions, Inc. (“Schwab”), with Schwab becoming the wrap fee sponsor, account fees, or expenses. and CSIM becoming the manager, of the UMP Program. Prior to May 26, ETFs and mutual funds held in the SMP Program are subject to 2020, the UMP Program was managed by USAA IMCO, a registered operating expenses and fees as set forth in the prospectuses of those investment adviser. funds. These fees and expenses are paid by the funds but ultimately On July 1, 2020, CSIM became the investment adviser and assumed are borne by clients as fund shareholders, and are in addition to fiduciary responsibility, for the Wasmer Schroeder Strategies. the SMP Program fee. Clients pay the operating expense ratio (“OER”) This is as a result of the acquisition of the assets of Wasmer, Schroeder of ETFs used in the portfolios, which affects the performance of & Company, LLC (“Wasmer”) by CSIM and the subsequent assignment the SMP Program accounts. CSIM may also provide access to certain of Wasmer’s investment advisory agreements to CSIM. Prior to ETFs, mutual funds, or classes of funds that a client might normally July 1, 2020, the Wasmer Schroeder Strategies were managed by not be qualified to purchase. If an account terminates, these Wasmer, a registered investment adviser. investments may be liquidated or exchanged for the share class This brochure relates to the portfolio management services that corresponding to the size of the client’s individual investment in the CSIM provides for the SMP Program. The SMP Program consists of fund. various investment strategies, selected by clients, and consists Information relating to CSIM’s brokerage practices is included in the of either mutual funds (“SMP-MF”) or ETFs (“SMP-ETF”), bought and “Brokerage Practices” section of this brochure. sold for clients on a discretionary basis, as well as a cash investment. CSIM utilizes a proprietary process and models to help guide investment decisions and seeks to manage portfolio risk. The Performance-Based Fees and Side-by-Side strategies are broadly diversified across asset classes. Understanding Management and modeling risk is a research priority. Assets in the SMP Program Not applicable. are primarily invested in ETFs and mutual funds. The SMP Program is a wrap fee program sponsored by CSIM’s Types of Clients affiliate Charles Schwab & Co., Inc. (“Schwab”). Information relating to CSIM’s participation in Wrap Fee Programs is included in the Clients of the SMP Program primarily include individuals, trusts “Other Financial Industry Activities and Affiliations” section of this (including trusts directed by an affiliate), charitable organizations, brochure. CSIM receives compensation from the program sponsor for investment clubs, corporations, and other business organizations. the investment management services it provides. More information Government entities and certain accounts subject to the Employee about the SMP Program is available in Schwab’s Disclosure Brochure Retirement Income Security Act of 1974 (“ERISA”) are not eligible for for Schwab Managed Portfolios provided to SMP Program clients. this Program. The minimum investment required to open an account In addition, upon the request of its affiliate Charles Schwab Trust in SMP-MF and SMP-ETF is $25,000 for all account types. Company (“CSTC”), CSIM may offer access to some of its SMP Program If the market value of a client account falls below this specified strategies to CSTC in connection with the management of trust minimum due to withdrawal of assets from the account, clients may assets. be required to deposit additional money or securities to bring the Clients may impose reasonable restrictions on the management of account up to the required minimum, and CSIM reserves the right to their account(s) subject to approval by CSIM. See the “Investment discontinue management of the account. Exceptions to this policy Discretion” section of this brochure for details on potential investment are made at CSIM’s discretion. For clients requesting tax gain/ restrictions. loss harvesting, there is a minimum gain or loss per security in order As of December 31, 2020, CSIM managed approximately for CSIM to implement this request. $581,447,137,331 on a discretionary basis and approximately $28,500,839,238 on a non-discretionary basis. Methods of Analysis, Investment Strategies and Risk of Loss Fees and Compensation In managing discretionary client accounts and providing Pursuant to an agreement between CSIM and Schwab, Schwab pays recommendations to non-discretionary clients, CSIM uses various all costs and expenses incurred by CSIM in connection with the investment strategies and methods of analysis, as described

4 below. This section also contains a discussion of the primary risks the SMP Program. Each portfolio is designed so that the strategic associated with these investment strategies, although it is not possible asset allocation is consistent with a certain combination of investment to identify all of the risks associated with investing and the particular objectives and risk tolerance. Within both SMP-MF and SMP-ETF, risks applicable to a client account will depend on the nature of CSIM may implement limited deviations from the strategic allocation the account, its investment strategy or strategies and the types of (“tactical allocations”). Also, certain portfolios are intended for securities held. Where available, please refer to the applicable taxable accounts and others for tax-deferred accounts. Certain prospectus or other offering documents for a more detailed discussion portfolios are intended for clients who are looking for some level of of strategies and risks involved with your particular account. income generation. Each SMP-MF portfolio consists of approximately 5-30 mutual funds. Each SMP-ETF portfolio consists of approximately While CSIM seeks to manage accounts so that risks are appropriate 7-25 ETFs. to the return potential for the strategy, it is often not possible or desirable to fully mitigate risks. Any investment includes the risk of Risk of Loss loss and there can be no guarantee that a particular level of return will There are inherent risks to investing in strategies managed by CSIM, be achieved. Clients should understand that they could lose some including the Schwab Managed Portfolios. The following list of or all of their investment and should be prepared to bear the risks does not purport to be a complete enumeration or explanation risk of such potential losses. of the risks involved in those strategies. As the strategies develop Clients should be aware that while CSIM does not limit its advice to and change over time, clients and investors may be subject to particular types of investments, client mandates may be limited additional and different risk factors. No assurance can be made that to certain types of securities (e.g., equities) or to the recommendation profits will be achieved or that substantial losses will not be of investment advisers or pooled investment vehicles and may not incurred. be diversified. Unless specifically discussed with a client, the accounts Management Risks managed by CSIM are generally not intended to provide a complete investment program for a client or investor and CSIM expects CSIM applies its investment techniques and risk analyses in making that the assets it manages typically do not represent all of the client’s investment decisions or recommendations for its clients, but assets. Clients are responsible for appropriately diversifying their there can be no guarantee that they will produce the desired results. assets to guard against the risk of loss. In addition, there is no guarantee that a strategy based on historical information will produce the desired results in the future, and, if market CSIM receives a broad range of research from a wide variety of dynamics change, the effectiveness of the strategy may be limited. sources that includes Schwab-affiliated entities, other brokers, and Each strategy runs the risk that investment techniques will fail independent research providers, including issuers and trading to produce the desired results. There also can be no assurance that partners. CSIM may use written reports prepared by recognized all of the key personnel will continue to be associated with the analysts who are specialists in the industry and may use firm for any length of time. computer-based models to assist in portfolio management. CSIM may also use statistical and other information published by third-party Investment Risks data providers, industry, and government, information gathered at Investments in securities, including ETFs and mutual funds and the meetings of professionals within the industry, and its own research of securities that they in turn invest in, involve various risks, including investment trends. those summarized below. In addition, each ETF and mutual fund has CSIM creates diversified portfolios that primarily consist of ETFs its own investment style, which may involve risks different from and/or mutual funds in a single account for several SMA strategies those described below. Clients and prospective clients should and certain pooled investment vehicles it manages. CSIM also creates be aware that investing in securities involves risk of loss that clients model portfolios that consist of ETFs and/or mutual funds and should be prepared to bear. provides non-discretionary investment advice regarding ETFs and/or Model Risks mutual funds to its affiliate, TD Ameritrade Investment Management, The SMP Program uses quantitative analyses and/or models. Any Inc. (“TDAIM”) for SMAs that TDAIM advises. In addition, CSIM imperfections, limitations, or inaccuracies in its analyses and/or also provides portfolio management for ThomasPartners Strategies, models could affect its ability to implement strategies. By necessity, which invests primarily in dividend-paying stocks and fixed income these tools make simplifying assumptions that may limit their investments, and pooled investment vehicles that invest in a variety of effectiveness. Models that appear to explain prior market data can equity and fixed income securities. Each SMA strategy or pooled fail to predict future market events. Further, the data used in models investment vehicle that CSIM manages maintains a cash component may be inaccurate, and/or it may not include the most current which may be invested in Schwab Cash Vehicles (as defined later information available. in this brochure), a money market fund, an ETF, or similar cash instruments. The guidelines for asset allocations for each SMA ETF General Risks strategy, pooled investment vehicle, model portfolios or ETFs in which the strategy may invest involve certain inherent risks TDAIM-advised SMAs differ from the others. However, certain pooled generally associated with investments in a portfolio of underlying investment vehicles may have substantially equivalent strategies. securities, including the risk that the general level of underlying security In such circumstances, the guidelines for multiple pooled investment prices may decline, thereby adversely affecting the value of each vehicles may be substantially similar. There may be times when unit of the ETF. Moreover, an ETF may not fully replicate the CSIM is investing in the same ETF or mutual fund for different SMA performance of its benchmark index because of the temporary strategies, pooled investment vehicles, model portfolios or unavailability of certain securities in the secondary market or TDAIM-advised SMAs; however, portfolio management personnel discrepancies between the ETF and the benchmark index with respect make investment decisions based on the investment objectives and to the weighting of securities or the number of securities held. parameters set for each SMA strategy, pooled investment vehicle, Investing in ETFs carries the risk of capital loss. ETFs are not or model portfolio. CSIM has adopted policies and procedures guaranteed or insured by the FDIC or any other government agency. to address any conflicts of interest that may arise. You can lose money investing in ETFs. Methods of Analysis and Investment Strategies ETFs in which the strategies invest have their own fees and expenses as set forth in the ETF prospectuses. These fees and expenses Using strategic asset allocations and fund selection parameters lower investment returns. Although ETFs themselves are generally approved by Schwab, CSIM creates diversified portfolios of mutual classified as equities, the underlying holdings of ETFs can include funds or ETFs combined with a cash investment in a single account for a variety of asset classes, including, but not limited to, equities, bonds,

5 foreign currencies, physical commodities, and derivatives. A full Certain CSIM managed Registered Funds have limitations arising disclosure of the specific risks of ETFs is located in the respective from their use of the Schwab Equity Ratings. Given that systematic prospectus of each fund. stock evaluation approaches cannot capture all the dynamics that affect individual stock returns, Schwab Equity Ratings may not ETFs may have exposure to derivative instruments, such as futures capture more subjective, qualitative influences on return and risk, such contracts, forward contracts, options, and swaps. There is a risk that a as management changes and pending lawsuits. Furthermore, the derivative may not perform as expected. The main risk of derivatives ratings may not reflect the possible impact of late-breaking news. The is that some types can amplify a gain or loss, potentially earning quality of the ratings depends on the accuracy of financial data or losing substantially more money than the actual cost of the provided by third parties, including the companies rated through the derivative, or that the counterparty may fail to honor its contract approach. terms, causing a loss for the ETF. Use of these instruments may also involve certain costs and risks such as liquidity risk, interest rate Market/Systemic Risks risk, market risk, credit risk, management risk, and the risk that an ETF Financial markets rise and fall in response to a variety of factors, could not close out a position when it would be most advantageous sometimes rapidly and unpredictably. Markets may be impacted by to do so. economic, political, regulatory and other conditions, including Schwab ETFs™ Risks economic sanctions and other government actions. In addition, the occurrence of global events, such as war, terrorism, environmental The Program may invest in ETFs managed by CSIM. Some of these disasters, natural disasters, and epidemics, may also negatively affect ETFs may have been recently launched. Accordingly, there is the financial markets. As with any investment whose performance limited data available when assessing investment risk associated is tied to these markets, the value of an investment in the fund with some of these ETFs. As a result, one or more of the following may will fluctuate, which means that an investor could lose money over occur: (1) poor liquidity in or limited availability of the ETFs or short or long periods. (2) lack of market depth, causing the ETFs to trade at excessive Asset Allocation/Strategy/Diversification Risks premiums or discounts. The asset allocation decisions can result in more portfolio Mutual Fund Risks concentration in a certain asset class or classes, which could reduce Mutual fund managers may base investment decisions for funds on overall return if the concentrated assets underperform expectations. historical information. There is no guarantee that a strategy based on The more aggressive the strategy selected, the more likely the portfolio historical information will produce the desired results in the future. will contain larger weights in riskier asset classes, such as equities. In addition, if market dynamics change, the effectiveness of that kind The asset classes in which the strategy seeks investment exposure of strategy may be limited. Either of these risks may cause the can perform differently at any given time (as well as over the long term), investment strategy of a particular fund to underperform its benchmark so the strategy will be affected by its allocation among the various or similar funds. Mutual funds in which the strategies invest have asset classes. Depending on market conditions, there may be their own fees and expenses as set forth in the fund prospectuses. times where diversified portfolios perform worse than less-diversified These fees and expenses lower investment returns. portfolios. Mutual funds may have exposure to derivative instruments, such as Geographic Concentration Risk futures contracts, forward contracts, options, and swaps. There Portfolios concentrated in any one geographic region can be more is a risk that a derivative may not perform as expected. The main risk susceptible to that region’s political and economic risk. For example, of derivatives is that some types of derivatives can amplify a gain a portfolio that is concentrated in the United States will be more or loss, potentially earning or losing substantially more money than the susceptible to the United States’ political and economic risk, actual cost of the derivative, or that the counterparty may fail to as compared to a more globally diversified portfolio. honor its contract terms, causing a loss for the fund. Use of these instruments may also involve certain costs and risks such as Trading/Liquidity Risks liquidity risk, interest rate risk, market risk, credit risk, management A particular investment may be difficult to purchase or sell or may risk, and the risk that a fund could not close out a position when become difficult to sell after being purchased for a client account. it would be most advantageous to do so. CSIM may be unable to sell securities on behalf of a client at an advantageous time and/or price due to then-existing trading The value of mutual funds can be impacted by the movement of large market conditions. positions in and out of a particular fund. Clients may collectively account for a large portion of the assets in certain mutual funds. A Large Investment Risks decision by CSIM to buy or sell some or all of a particular fund where CSIM clients may collectively account for a large portion of the SMP Program clients hold a significant portion of that fund may assets in certain ETFs or mutual funds. A decision by CSIM to buy or negatively impact the value of that fund. sell for its clients’ accounts some or all of a particular ETF or Affiliated Mutual Funds Risks mutual fund where clients hold a significant portion of such ETF or mutual fund may negatively impact the value of that security. The value of mutual funds can be impacted by the movement of large positions in and out of a particular fund. Because of the limited Counterparty Risks universe of mutual funds available, Program clients may also There may be a risk of an executing broker failing to deliver securities, collectively account for a large portion of the assets in certain CSIM especially due to the large volume of step-out transactions with managed Registered Funds. A decision by CSIM to buy or sell broker-dealers other than the program sponsor or client-selected some or all of a particular CSIM managed Registered Fund where broker-dealer/custodian for the Windhaven Strategies and SMP Program clients hold a significant portion of that fund may ThomasPartners Strategies. This may result in a loss to the client. negatively impact the value of that fund. CSIM, working with Schwab, will attempt to mitigate trading Schwab Equity Ratings® Risks counterparty risk through its broker selection program described in “Brokerage Practices.” Some of the CSIM managed Registered Funds in SMP-MF accounts use Schwab Equity Ratings as a principal means of selecting Custodian Risks individual equities. Schwab Equity Ratings is Schwab’s proprietary Schwab is a Securities Investor Protection Corporation (“SIPC”) stock evaluation system and evaluates securities on the basis of three member brokerage firm and maintains SIPC protection. SIPC offers primary factors: fundamentals, valuation, and sentiment. protection of up to $500,000, including a $250,000 limit for cash, if a

6 member brokerage firm fails. SIPC covers most securities, such, as generated and could result in taxes being due on the gains from the stocks, bonds, ETFs, and mutual funds, but does not protect against sale. This also means that all shares held in this account for the market loss. requested security will be sold. Tax Risks There is the risk that the investment management activity in the The SMP Program is not designed to address specific tax objectives. client’s account subsequent to the tax gain/loss sale may result in Ongoing investment income, capital gains, capital losses, and additional realized gains or losses that partially or completely offset the miscellaneous deductions for some ETFs, including, but not limited losses realized from the tax gain/loss sale requested. to, certain commodity and currency ETFs, are reported annually on the Schedule K-1, and when certain commodity ETFs are sold in a Underlying Securities Risks taxable account, proceeds will be reported on Form 1099-B. For those Equity-Related Risks limited ETFs (e.g., commodity and currency), the Schedule K-1 is General Risks mailed separately to clients each year and needs to be included in the clients’ income tax returns. In cases where the entity generating The prices of equity securities, and thus the value of ETFs or mutual the Schedule K-1 files for a tax extension beyond April 15, clients may funds that invest in them, will rise and fall. These price movements receive their Schedule K-1 after the due date for their income tax may result from factors affecting individual companies, industries, or return. Individual taxpayers who do not request a filing extension may the securities market as a whole. Individual companies may report need to file an amended federal and/or state tax return if they poor results or be negatively affected by industry and/or economic receive their Schedule K-1 after filing their original return. Also, gains trends and developments. The prices of securities issued by and losses associated with some commodities may be taxed such companies may suffer a decline in response. In addition, the differently than standard short-term and long-term capital gains and equity market tends to move in cycles, which may cause stock prices losses. Clients should consult a professional tax advisor for help to fall over short or extended periods of time. with their unique situations. Large- and Mid-Cap Risks Tax Gain/Loss Harvesting Risks Large- and/or mid-cap U.S. stocks, along with mutual funds and Clients are able to request limited tax gain or loss harvesting ETFs that focus on large- and/or mid-cap segments of the U.S. stock opportunities in their accounts. CSIM can accommodate tax gain/ market, bear the risk that they tend to go in and out of favor based loss harvest requests. The request is subject to CSIM approval, and on market and economic conditions. However, stocks of mid-cap CSIM reserves the right to decline the request if, in its discretion, companies tend to be more volatile than those of large-cap companies the security or market changes are such that the requested action is because mid-cap companies tend to be more susceptible to not or is no longer appropriate for tax harvesting. There is no adverse business or economic events than larger, more established guarantee that a client tax gain/loss harvesting request will reduce, companies. During a period when large- and/or mid-cap U.S. defer, or eliminate the tax liability generated by a client’s investment stocks fall behind other types of investments — bonds or small-cap portfolio in any given tax year. Clients should consult a professional stocks, for instance — the performance of the portion of the tax advisor for help with their unique situations. investment strategies invested in large- and/or midcap stocks may There are several investment-related risks associated with lag the performance of these other investments. client-requested tax gain/loss harvesting. There is potential that the Small-Cap and International Risks gain/loss request may: (i) negatively affect the overall performance Historically, small-cap and international stocks have been riskier of a client’s portfolio; (ii) prevent a client’s account from being included in large block trades; instead, the account will be traded separately than large- and mid-cap U.S. stocks (also see the “Foreign Investment afterward, which could result in an execution price better or worse — Related Risks” section below for additional information). During than the execution price of the large block trade; (iii) result in a period when small-cap and/or international stocks fall behind other a temporary overweight and/or underweight of certain sectors, types of investments — U.S. large- and mid-cap stocks, for instance securities, and/or cash in a client’s portfolio; and (iv) result in — the performance of the portion of the investment strategies disallowed tax losses since CSIM will not consider transactions 30 days invested in small-cap or international stocks may lag the performance prior to its harvesting transactions and will only consider transactions of these other investments. 30 days following its harvesting transactions in the identified Fixed Income—Related Risks account, and CSIM will not consider any other account that the General Risks client may have. CSIM may repurchase securities after tax gain harvesting or after the end of the tax loss “wash sale” period at a Bond markets rise and fall daily, and fixed income investments, price higher than that for which they were sold. Securities sold for the which generally also include instruments with variable or floating rates purpose of tax loss may or may not be repurchased by CSIM (including cash and cash-like investments), are subject to various following the 30-day wash sale period. CSIM cannot prevent wash risks. As with any investment whose performance is tied to bond sales that may occur in other accounts besides the one in which the markets, the value of a fixed income investment, ETF, or mutual fund harvest was requested as a result of the requested gain/loss will fluctuate, which means that the client could lose money. harvesting activity. Interest Rate Risks A wash sale is the sale at a loss and purchase of the same or When interest rates rise, bond prices usually fall, and with them the substantially similar security within 30 days of each other. If a wash value of an ETF or mutual fund holding the bonds. A decline in sale transaction occurs, the Internal Revenue Service may disallow interest rates generally causes bond prices to rise, and with them or defer the loss for current tax reporting purposes. More specifically, potentially the value of a bond fund or ETF, but could also hurt the wash sale period for any sale at a loss consists of 61 calendar the performance of an ETF or mutual fund by lowering its yield (which days: the day of the sale, the 30 days before the sale, and the 30 days could increase reinvestment risk). The longer the duration of the after the sale. The wash sale rule postpones losses on a sale if investments held by an ETF or mutual fund, the more sensitive replacement shares are bought around the same time. to interest rate movements its value is likely to be. CSIM will harvest gains and/or losses at the security level only and Credit Risks will not take tax lots into consideration. This means there is potential for a gain to be generated with the sale of the requested security A decline in the credit quality of a fixed income investment, whether position, despite the security being at a loss overall when combining real or perceived, could cause the value of a fixed income security, all tax lots. This may result in partially offsetting the loss being ETF, or mutual fund to fall. The security, ETF, or mutual fund could lose

7 value if the issuer or guarantor of an investment fails to make timely U.S. issuers. These include risks of adverse changes in foreign principal or interest payments or otherwise honor its obligations. economic, political, regulatory, and other conditions; changes in The emphasis of a fixed income strategy on relatively higher currency exchange rates or exchange control regulations (including credit quality and preservation of capital also could cause a security, limitations on currency movements and exchanges); differing ETF, or mutual fund to underperform certain other types of bond accounting, auditing, financial reporting, foreign taxes, and legal investments, particularly those that take greater maturity and credit standards and practices; differing securities market structures; risks. differing trading and settlement practices; ownership restrictions; High-Yield Risks and higher transaction costs. Investments in ETFs or mutual funds that hold high-yield securities Emerging Markets Risks and unrated securities of similar credit quality (sometimes called junk These and other risks (e.g., nationalization, expropriation, or other bonds) are subject to greater levels of credit and liquidity risks. confiscation of assets of foreign issuers) are greater for those High-yield securities and the ETFs or mutual funds that invest in them securities, ETFs, or mutual funds investing in companies tied may be considered speculative. economically to emerging countries, the economies of which tend to Government Securities Risks be more volatile than the economies of developed countries. Many U.S. government securities are not backed by the full faith and Frontier Markets Risks credit of the United States government, which means they are The risks associated with investing in securities, ETFs, or mutual neither issued nor guaranteed by the U.S. Treasury. Certain issuers of funds that hold foreign or emerging markets generally are magnified securities, such as the Federal Home Loan Banks (“FHLB”), maintain in frontier markets, also known as “next emerging” markets. Some limited lines of credit with the U.S. Treasury. Securities issued by other frontier markets may operate in politically unstable regions of the world issuers, such as the Federal Farm Credit Banks Funding Corporation (“FFCB”), are supported solely by the credit of the issuer. There and may be subject to additional geopolitical/disruption-of-markets can be no assurance that the U.S. government will provide financial risks. support to securities of its agencies and instrumentalities if it is Geopolitical/Disruption-of-Markets Risks not obligated to do so under law. Geopolitical events may adversely affect global economies and Bank Loans markets and thereby decrease the value of and/or the ease of trading Investments in ETFs or mutual funds that hold bank loans are those securities ETFs or mutual funds invested in those affected typically below investment grade credit quality and may be subject to markets. Those events as well as other changes in foreign and more credit risk, including the risk of non-payment of principal or domestic economic and political conditions could adversely affect interest. Most bank loans are floating rate, with interest rates tied to the value of a strategy’s investments. LIBOR or another short-term reference rate; substantial increases Currency Risks in interest rates may make it more difficult for issuers to service their debt and cause an increase in loan defaults. Bank loans are typically Fluctuations in exchange rates may adversely affect the value of ETFs secured by collateral posted by the issuer, or guarantees of its or mutual funds that hold foreign currency holdings and investments affiliates, the value of which may decline and be insufficient to cover denominated in foreign currencies. repayment of the loan. Many loans are relatively illiquid or are Other Asset Classes Related Risks subject to restrictions on resales, have delayed settlement periods, and may be difficult to value, which could have an adverse impact Commodities Risks on the ability of the ETF or mutual fund to sell loans at an advantageous Commodities involve unique risks that may be distinct from those time and/or price. Loans are also subject to maturity extension risk that affect stocks and bonds, including, but not limited to, worldwide and prepayment risk. supply and demand factors, weather conditions, currency movements, State and Regional Risks and international government policies regarding commodity reserves and choice of currency for commodity pricing. Commodities To the extent that a security, ETF, or mutual fund invests in securities investments may also involve unique risks inherent to investing in from a given state or geographic region, its value and performance derivatives, which may include basis, roll, liquidity, and regulatory risks. could be affected by local, state, and regional factors, including erosion A detailed explanation of the risks is available in the prospectus of of the tax base and changes in the economic climate. National the respective commodity fund. Commodity pools may be subject governmental actions, such as the elimination of tax-exempt status, to different regulatory requirements than traditional funds governed also could affect performance. In addition, an ETF or mutual fund may be more sensitive to adverse economic, business, or political by the Investment Company Act of 1940. developments if a substantial portion of it is invested in municipal Hard Asset Risks securities that are financing similar projects. The production and distribution of hard assets, such as precious Foreign Risks metals, oil and gas, real estate, and/or agricultural commodities, may Investments in ETFs or mutual funds that hold securities of foreign be affected by geopolitical and environmental factors and are issuers or securities with credit or liquidity enhancements provided by cyclical in nature. During periods of economic or financial instability, foreign entities may involve certain risks, such as adverse changes hard asset securities and other instruments may be subject to in foreign economic, political, regulatory, and other conditions; differing broad price fluctuations, reflecting volatility of energy and basic accounting, auditing, financial reporting, and legal standards and materials prices and possible instability of supply of various practices; differing securities market structures; and higher transaction hard assets. Hard asset securities, hard asset companies, and other costs. In addition, sovereign risk, or the risk that a government instruments may also experience greater price fluctuations than may become unwilling or unable to meet its loan obligations or the relevant hard asset. Therefore, the return on hard asset securities guarantees, could increase the credit risk of financial institutions can deviate from that of the hard asset itself. connected to that particular country. Real Estate Risks Foreign Investment — Related Risks Real estate — related investments (and the ETFs or mutual funds that General Risks hold them) may be adversely affected by factors affecting the real Investments in securities of foreign issuers or ETFs or mutual funds estate industry, which may include changes in interest rates and social that hold securities of foreign issuers may involve certain risks that are and economic trends. Real Estate Investment Trusts (“REITs”) may greater than those associated with investments in securities of also be subject to the risk of fluctuations in income from underlying real

8 estate assets, poor performance by the REITs’ manager, prepayments settle the plaintiffs’ federal securities law claims for approximately and defaults by borrowers, adverse changes in tax laws, and, with $200,000,000 and the plaintiffs’ California law claims for approximately respect to U.S. REITs, their failure to qualify for the special tax $35,000,000. On April 19, 2011, the court entered an order granting treatment granted to REITs under the Internal Revenue Code of 1986 plaintiffs’ and defendants’ motions for final approval of the and/or to maintain exempt status under the Investment Company settlement agreements. Act of 1940. Limitations of Disclosure Other Financial Industry Activities and Affiliations The foregoing list of risks does not purport to be a complete As a wholly owned subsidiary of CSC, CSIM leverages the resources enumeration or explanation of the risks involved in CSIM’s strategies. of CSC, Schwab, and their affiliated companies, such as personnel As the strategies develop and change over time, clients and investors including, but not limited to, its Chief Executive Officer (“CEO”) (also may be subject to additional and different risk factors. No assurance CEO of CSIA, an affiliated investment adviser); Chief Compliance can be made that profits will be achieved or that substantial losses Officer (“CCO”); Chief Legal Officer; legal and compliance support; will not be incurred. sales, marketing, technology, operations, finance, human resources, and risk management personnel. CSIM pays Schwab for the Disciplinary Information services of certain employees and for the facilities and equipment necessary to enable it to provide advisory services to clients. Charles Schwab & Co., Inc., Charles Schwab Investment Management, CSIM, CSIA and Schwab personnel have reporting relationships to Inc. and/or Schwab Investments (together, “Schwab” for this personnel of affiliated entities. These arrangements and others noted section only) reached agreements with the United States Securities below create the potential for conflicts of interest to arise. These and Exchange Commission (“SEC”), the Financial Industry Regulatory potential conflicts of interest are governed by various policies adopted Authority (“FINRA”), the Illinois Secretary of State, Securities by CSIM. For example, CSIM has adopted policies and procedures Department (“Illinois”), and the Connecticut Department of Banking, reasonably designed to protect against the misuse of information (and Securities and Business Investments Division (“Connecticut”) to mitigate potential conflicts of interest) whether among CSC-affiliated ® settle matters related to the Schwab YieldPlus Fund (the “Yield Plus entities or entities or individuals outside of CSC and its affiliates. Fund”) and/or Schwab Total Bond Market Fund (the “Bond Fund,” Other wholly owned subsidiaries of CSC are engaged in investment and together with Yield Plus Fund, the “Funds” for this section only). advisory, brokerage, trust, custody, or banking services. As part of the SEC settlement, the SEC found that Schwab violated certain investment-related laws and regulations related to the Charles Schwab & Co., Inc. offer, sale and management of the Funds from 2005 through 2008. In CSIM is under common control with Schwab, which is both a particular, the SEC found that Schwab: (1) deviated from the Funds’ registered broker-dealer and a registered investment adviser, and a concentration policy with respect to investments in non-agency wholly-owned subsidiary of CSC. Schwab serves as the principal mortgage-backed securities, without shareholder approval; (2) made underwriter for certain Registered Funds managed by CSIM but does materially misleading statements and omissions about the Yield not receive any compensation in that capacity. However, Schwab Plus Fund and its associated risks before and during the decline of receives recordkeeping, shareholder servicing and other administrative its net asset value (“NAV”); (3) materially understated the Yield servicing fees from certain Registered Funds managed by CSIM. Plus Fund’s weighted average maturity (“WAM”) in certain instances; (4) willfully aided and abetted misstatements and omissions CSIM pays Schwab an annual fee to obtain Schwab Equity Ratings appearing in Yield Plus Fund sales materials and other documents; and Schwab Equity Ratings International, which are maintained and (5) lacked policies and procedures reasonably designed to prevent by Schwab and used by CSIM in its management of the equity the misuse of material nonpublic information about the Yield Plus strategies for certain Registered Funds. If the Schwab Equity Ratings Fund. Without admitting or denying these allegations, Schwab agreed and/or Schwab Equity Ratings International were no longer available, to pay a total of approximately $118,944,996 in disgorgement of CSIM would need to significantly alter its methods of analysis for these fees, penalties and interest. The SEC settlement was approved by the Registered Funds. U.S. District Court for the Northern District of California on Schwab, which is also an insurance agency, offers certain Registered February 16, 2011. Funds managed by CSIM as part of its insurance product offerings. The amount paid by Schwab pursuant to the SEC settlement Schwab sponsors, develops, coordinates the calculation of and included approximately $18,000,000 paid by Schwab in settlement of maintains the Schwab 1000 Index. The Schwab 1000 Index ETF and the FINRA matter in which FINRA made related factual allegations Schwab 1000 Index Fund that are managed by CSIM seek to against Schwab and found that Schwab’s conduct violated FINRA’s just track the performance of the Schwab 1000 Index by investing in the and equitable principles of trade and its rules pertaining to constituents of such index or a representative sample of such communications with the public and supervision. constituents of the index. Schwab does not provide recommendations Schwab also agreed to pay approximately $8,567,364 in settlement to the Registered Funds using the Schwab 1000 Index regarding of the Illinois matter, and $2,800,000 in settlement of the Connecticut the purchase or sale of specific securities. In addition, Schwab will matter, in which those states made related factual allegations against not provide any information relating to changes to the Schwab Schwab and found that Schwab’s conduct violated Illinois and 1000 Index methodology for the inclusion or exclusion of component Connecticut laws and regulations relating to the supervision of its securities or methodology for the calculation or the return of employees and the maintenance of written procedures reasonably component securities to the Registered Funds, in advance of a public designed to comply with securities laws and regulations. The amounts announcement of such changes by Schwab. paid to Illinois and Connecticut were included in the settlement CSIM selects and recommends investment advisers to act as with the SEC. (i) sub-advisers for Registered Funds advised by CSIM, (ii) Schwab and certain affiliated entities and individuals (the “Schwab sub-advisers to CSTB collective investment trusts, (iii) investment Parties”) were named as defendants in a number of Yield Plus advisers of mutual funds or ETFs in which CSIM advised Registered Fund-related class action lawsuits filed in the United States District Funds or SMAs invest, or (iv) investment advisers to mutual funds Court for the Northern District of California in 2008. These lawsuits or ETFs that are part of model portfolios or are used in TDAIM advised were consolidated into a single class action complaint that alleged SMAs. Such investment advisers may have a business relationship violations of state law and federal securities law similar to those with Schwab whereby Schwab has agreed to make mutual funds described above. The Parties entered into a settlement agreement to advised by such investment advisers available through Schwab Mutual

9 Fund OneSource platform. Schwab receives fees from mutual funds Schwab sponsors the advisory services Schwab Intelligent Portfolios® and/or their affiliates for the services Schwab provides in connection (“SIP”) and Schwab Intelligent Portfolios Premium™ (“SIP Premium”). with Schwab Mutual Fund OneSource. CSIM does not take into SIP is an automated discretionary investment advisory service consideration whether an adviser participates in these platforms when that offers clients a diversified portfolio based on their stated making its recommendations or selections. Schwab also makes investment objectives and risk tolerance. SIP Premium is a hybrid available certain Registered Funds advised by CSIM through advisory service that combines financial planning and guidance from its Schwab Mutual Fund OneSource platform. Schwab financial planners with discretionary portfolio management through SIP.SIP portfolios may include ETFs managed by CSIM, In its role as sponsor of the SMP Program, CSIM’s affiliate, Schwab, for which CSIM receives investment advisory fees. SIP is further sets the target asset allocations for each SMP Program portfolio described below. and creates the parameters that determine mutual fund and ETF eligibility for the SMP Program. Although CSIM does not favor its In connection with the SMP Program, UMP Program, SIP, ThomasPartners Strategies, Windhaven Strategies and Wasmer own Registered Funds, or disfavor any third-party mutual fund or Schroeder Strategies, CSIM provides Schwab with composite ETF, in its selection of investments or allocation among investments performance reporting data resources and support, for which CSIM for the SMP Program portfolios, the parameters and eligibility is paid a fee. criteria created by Schwab are designed, in part, to favor certain CSIM managed Registered Funds and to disfavor certain third-party Charles Schwab, Hong Kong, Ltd. mutual funds and ETFs. Charles Schwab, Hong Kong, Ltd. has been appointed the Hong Schwab has a financial interest in certain CSIM managed Registered Kong representative of Charles Schwab Asset Management (Ireland) Funds because it or its affiliates receive advisory and recordkeeping, Limited (“CSAMIL”) and is authorized by CSAMIL to receive requests shareholder servicing and other administrative servicing fees from Hong Kong investors for subscriptions, redemptions and from those Registered Funds. This results in higher overall exchange of shares of the non-U.S. fund advised by CSIM. Charles compensation to Schwab, CSIM, and the ultimate parent entity, CSC. Schwab, Hong Kong, Ltd. is a registered securities dealer that is Schwab also receives fees from third party funds (or their affiliates) regulated by the Hong Kong securities and futures commission. in the SMP Program portfolios for record keeping, shareholder services, and other administrative services. The aggregate fees Pooled Investment Vehicles Schwab or its affiliates receive from the CSIM managed Registered CSIM provides investment advice to a number of Registered Funds Funds may be greater than the fees Schwab receives from third and a non-U.S. fund, and may be deemed to control such funds, party funds. although CSIM disclaims any control relationship. CSIM also makes If a client’s account(s) is custodied at Schwab, cash in the account(s), recommendations in connection with the management of certain whether as an investment holding, or while awaiting pending collective investment trusts although Charles Schwab Trust Bank investment or distribution, may be invested in: (1) a money market (“CSTB”) retains ultimate investment discretion over those funds. fund that is managed by CSIM or distributed by Schwab; (2) a sweep vehicle sponsored by Schwab Bank; or (3) a Schwab One® product Charles Schwab Investment Advisory, Inc. (collectively, “Schwab Cash Vehicles”). In addition, Direct Client CSIM is under common control with CSIA, a registered investment accounts may also have investments in CSIM managed Registered adviser. CSIM pays CSIA an annual fee to obtain CSIA’s asset allocation Funds. This presents a conflict of interest. The CSIM Fees will models which are used in the management of certain Registered be adjusted relative to the Schwab Cash Vehicle and CSIM managed Funds. Registered Funds for retirement accounts, including IRAs and CSIA provides portfolio management services to SIP.SIP is an accounts subject to ERISA. CSIM reserves the right to change the automated discretionary investment advisory service that offers clients manner in which it makes accommodations, to the extent permitted by a diversified portfolio based on their stated investment objectives applicable law. More information about Schwab Cash Vehicles may and risk tolerance. SIP Premium is a hybrid advisory service that be found in clients’ brokerage account agreement(s) with Schwab. combines financial planning and guidance from Schwab financial CSIM serves as an investment manager for the Windhaven Strategies, planners with discretionary portfolio management through SIP. ThomasPartners Strategies, UMP Program and Wasmer Schroeder SIP portfolios may include Schwab ETFs managed by CSIM, for which Strategies available in the Managed Account Programs sponsored by CSIM receives investment advisory fees. CSIM provides CSIA with Schwab. The Schwab Managed Account Programs include, but are composite performance reporting data resources and support not limited to, the following Schwab wrap fee programs: ( i) Charles in connection with SIP for which CSIM is paid a fee. CSIM also provides Schwab & Co., Inc. – Managed Account Access®, and ( ii) Charles CSIA with trade execution services for SIP under an inter-company Schwab & Co., Inc. – Managed Account Connection®. CSIM also serves agreement. CSIM directs these trades to Schwab. In addition, as an investment manager for the Windhaven Strategies, CSIM provides proxy voting services to CSIA under an inter-company agreement. CSIM pays CSIA for the services of certain employees ThomasPartners Strategies and Wasmer Schroeder Strategies primarily providing sales and marketing services. available in programs sponsored by other Broker/Custodian-Related Programs. CSIM receives from the program sponsor a fee for the Charles Schwab Trust Bank investment management services it provides for the Windhaven Strategies, ThomasPartners Strategies, UMP Program and Wasmer CSIM is under common control with CSTB. CSIM provides Schroeder Strategies. Each program sponsor has prepared a non-discretionary investment management advice to CSTB pursuant brochure which contains detailed information about its wrap fee to an agreement between CSIM and CSTB with respect to collective program, including the wrap fee charged. Copies of each brochure are investment trusts maintained and advised by CSTB. CSIM also available from the program sponsor upon request. provides CSTB with trading support, at CSTB’s request. CSTB, however, retains the authority to accept or reject CSIM’s Schwab effects securities transactions for clients in the SMP recommendations. In addition, CSIM provides administrative and Program, UMP Program, Windhaven Strategies, ThomasPartners proxy voting services to, and receives compensation from, CSTB. CSTB Strategies and Wasmer Schroeder Strategies on an agency basis. further provides custodial and other trust services to certain of Windhaven Strategies and ThomasPartners Strategies wrap fee Schwab’s customers and affiliates. CSTB provides directed trust and program clients should note that over time only a small portion custody services to employee benefit or similar types of plans, of transactions, specifically maintenance trades, are executed for and makes certain Registered Funds advised by CSIM available to their accounts through the program sponsor. these clients.

10 Charles Schwab Asset Management (Ireland) Limited investment in the Schwab Fund for Charitable Giving, and shares of affiliated and non-affiliated money market funds. The Code may CSIM provides discretionary investment advisory services to CSAMIL, be changed as necessary to remain current with regulatory an Irish limited liability management company under common requirements and internal policies and procedures. control with CSIM, with respect to a non-U.S. pooled investment vehicle (“non-U.S. fund”) managed by CSAMIL and receives A client or prospective client may obtain a copy of CSIM’s Code compensation from CSAMIL with respect to the non-U.S. fund. without charge by calling CSIM at (877) 824-5615. Material Non-Public Information Charles Schwab Trust Company The Code prohibits access persons from disclosing portfolio CSIM is under common control with CSTC. Upon request from CSTC, transactions or any other material non-public information to anyone CSIM may offer access to some of its model portfolios, SMP outside of CSIM, except as required to effect securities transactions Program strategies and ThomasPartners Strategies to CSTC in for clients, and from using material non-public information for personal connection with the management of trust assets. CSIM also provides profit or to cause others to profit. Employees are also prohibited trading services and proxy voting guidance to CSTC under an from engaging in deceptive conduct in connection with the purchase inter-company agreement. or sale of securities for client accounts. Gifts and Business Entertainment TD Ameritrade Investment Management, LLC CSIM access persons may not give or accept gifts or business CSIM is under common control with TDAIM. CSIM provides entertainment that violate applicable laws or create a conflict of non-discretionary investment management advice to TDAIM pursuant interest or the appearance of impropriety. to an agreement between CSIM and TDAIM with respect to certain Participation or Interest in Client Transactions SMAs advised by TDAIM. TDAIM, however, retains the authority to accept or reject CSIM’s recommendations. CSIM or Schwab may recommend that a client purchase securities of CSC, the parent company of both CSIM and Schwab. Certain TD Ameritrade, Inc. Registered Funds managed by CSIM may purchase securities in an underwriting in which Schwab participates, to the extent consistent CSIM is under common control with TD Ameritrade, Inc. (“TDA”), with the Investment Company Act of 1940, as amended, and the which is both a registered broker-dealer and a registered investment rules and regulations thereunder. Schwab, as an insurance agency, adviser, and a subsidiary of CSC. TDA acts as custodian for certain may offer to advisory clients of Schwab insurance products that offer of CSIM’s SMA clients. Also, CSIM participates in a Broker/ Registered Funds managed by CSIM as part of the insurance Custodian-Related Program sponsored by TD Ameritrade Institutional, product offerings. a division of TDA, and CSIM receives a fee for the investment management services it provides. Schwab sponsors the SMP Program and receives compensation from ETFs and mutual funds held in SMP Program accounts. This TDA receives recordkeeping, shareholder servicing and other compensation is in addition to the explicit asset-based fee that the administrative servicing fees from certain Registered Funds managed SMP Program clients pay to Schwab. In addition, CSIM earns by CSIM that are available through TDA’s platform. compensation from any Registered Funds managed by CSIM held in CSIM provides model portfolios to TDA. CSIM is not responsible for the SMP Program. As a result, CSIM has a conflict of interest in determining which securities to buy or sell for TDA. selecting such Registered Funds, which pay compensation to CSIM. SMP Program clients receive detailed disclosures about Schwab’s Representatives of TDA receive a payment from TDA for introducing and CSIM’s SMP Program-related compensation in Schwab’s clients to Schwab for services not available through TDA, including Disclosure Brochure for Schwab Managed Portfolios™. the SMP Program, Windhaven Strategies, ThomasPartners Strategies and Wasmer Schroeder Strategies, but excluding the UMP Program. CSIM has a conflict of interest because it selects ETFs and mutual Representatives of TDA receive this payment regardless of whether funds, including Registered Funds, for various client accounts in such clients avail themselves of the Schwab service to which they were the UMP Program, SMP Program, ThomasPartners Strategies, introduced. Windhaven Strategies and Wasmer Schroeder Strategies and also for certain funds-of-funds. Other affiliates of CSIM may buy or sell the same securities for client accounts. These are all inherent conflicts Code of Ethics, Participation or Interest in Client of interest within and among CSIM, Schwab, and its affiliates. Transactions and Personal Trading CSIM mitigates these conflicts of interest through its policies and procedures, which include the evaluation of the selection and Code of Ethics investment in ETFs and mutual funds, including Registered Funds, General consistent with CSIM’s fiduciary duty. Subject to Schwab’s oversight as the SMP Program sponsor, the investment decision-making CSIM has adopted a code of ethics (the “Code”) pursuant to processes of CSIM portfolio management teams are separate and Rule 204A-1 under the Investment Advisers Act of 1940, as amended independent from Schwab. from time to time. The Code sets forth standards of business conduct that reflect CSIM’s fiduciary obligations to its clients and When recommending that client accounts invest in Registered Funds requires CSIM employees to comply with all applicable laws, rules and managed by CSIM with multiple share classes, CSIM will recommend regulations and promptly report any violation of the Code to a that such client accounts invest in the lowest cost share class for which supervisor or CSIM’s CCO or their designee. The Code also requires the client accounts are eligible. As noted above, the fees CSIM CSIM’s officers, directors, employees, contractors and any person receives from the SMAs will be adjusted relative to the CSIM managed who is determined to have access to non-public information regarding Registered Funds for retirement accounts, including IRAs and any client or CSIM (“access persons”) to (i) report, and CSIM to accounts subject to ERISA. review, personal securities transactions and securities holdings Schwab, a related person of CSIM, is a registered broker-dealer that periodically, (ii) pre-clear transactions in covered securities, and effects securities transactions for its brokerage customers. Schwab (iii) confirm compliance with the provisions of the Code on a periodic may act as a principal or agent in these transactions. In the normal basis. Covered securities do not include direct obligations of the course of the conduct of its business as a broker-dealer, Schwab may U.S. government, high quality short-term debt instruments, enter into purchase and sale transactions in securities that CSIM investments in non-Schwab affiliated 529 college savings plans, has recommended to its clients.

11 CSC, Schwab and CSTB may invest for the benefit of their own activities of a product or strategy such personnel support (including accounts in the same securities that CSIM recommends to its clients. information regarding pending orders for clients) to other personnel These affiliates may buy or sell securities at the same time that within the Trading Group that should not be privy to such information. CSIM clients are buying or selling the same security and may take When CSIM personnel are part of two distinct Trading Groups or positions that are the same or contrary to one that CSIM has trade for products and strategies for which they are not the designated recommended. In addition, directors, officers and employees of CSIM Trading Group or portfolio management, CSIM has adopted may buy or sell for themselves (through personal accounts or procedures governing such trading activities to seek to ensure such through accounts of which they are direct or indirect beneficiaries) CSIM personnel are not communicating or distributing any securities that are also recommended to, or purchased or sold non-public information related to their trading activities of a product on behalf of, clients. or strategy (including information regarding pending orders for Personal Trading clients) to personnel on either a Trading Group or portfolio management team that are not involved in trading for and management CSIM and its affiliates have established policies and procedures of that product or strategy or utilize such non-public information designed to prevent the exchange of information between employees among products or strategies in a manner that is not consistent with at each organization relating to securities holdings and possible policies and procedures. trades. Additionally, the personal securities transactions of CSIM’s access persons are subject to the Code, which is designed to detect CSIM generally does not coordinate trading among Trading Groups and mitigate or prevent conflicts of interest and unlawful practices and, therefore, will at times execute trades for one client from that may arise in connection with an access person’s personal one Trading Group that differ from, or take the opposite side of, trades securities transactions. For example, as described above, the Code executed on behalf of another client from another Trading Group. requires periodic reporting and review of personal securities Each Trading Group seeks to obtain best execution on all orders transactions and securities holdings. Furthermore, the Code requires it originates; however, clients serviced by different Trading Groups access persons to obtain prior approval from the compliance could receive or appear to receive more favorable outcomes. As noted department prior to engaging in a security transaction except for above, to the extent personnel are aware of trading for accounts certain types of transactions deemed not to present conflicts serviced by more than one Trading Group, CSIM has adopted of interest with CSIM’s advisory activities on behalf of its clients procedures requiring such personnel to refrain from coordinating (“Exempted Transactions”), such as purchases pursuant to an trading for accounts on separate Trading Groups. automatic investment plan. Access persons are restricted from Generally, CSIM does not aggregate trades or seek opportunities for executing personal transactions in securities, except for Exempted cross-transactions between client accounts serviced by different Transactions, when they know or should have known at the time that Trading Groups. Accordingly, each Trading Group will generally there is a pending “buy” or “sell” order in the same security for any aggregate and allocate orders only among those clients that it services client account. Portfolio managers are subject to a blackout period of and independently of the other Trading Group. However, at times a 7 calendar days for both when a security is traded, or is expected Trading Group that trades for client accounts for which it is not to be traded on behalf of a client account and after a security has been the designated Trading Group may aggregate trades for those client traded on behalf of a client. In addition, certain access persons are accounts with trades for client accounts for which the Trading prohibited from realizing a profit from purchasing and selling, or selling Group is the designated Trading Group. A Trading Group will do so and purchasing, the same security on a short term basis. All access only if it is in the best interests of one or more clients to execute their persons are also restricted from executing a personal transaction trades on an aggregated basis. in securities when the access person has material non-public information regarding the security or issuer, including affiliated money The following discusses CSIM’s trading practices with respect to the market funds. Certain personal transactions in securities may be SMP Program. A discussion of the other Trading Groups’ trading subject to further review by CSIM’s CCO or their designee. practices is included in the disclosure brochures for the products and strategies they support. Brokerage Practices Selecting or Recommending Broker-Dealers CSIM operates separate trading groups (the “Trading Groups”). For equity and multi-asset SMA strategies, Registered Funds and CSIM seeks to obtain the best execution for clients’ portfolio collective investment trusts, CSIM has separate portfolio management transactions and will evaluate the quality and cost of services received teams and Trading Groups. For fixed income SMA strategies, from broker-dealers/custodians on a periodic and systematic Registered Funds, and the non-U.S. Fund, the portfolio managers basis. Factors evaluated include execution price, transaction fees, conduct the trades. Each SMA strategy, Registered Fund, the non-U.S. commissions, mark-ups and mark-downs, or brokerage fees fund and/or collective investment trust has its designated portfolio (“Brokerage Fees”), promptness and reliability of execution, accuracy management team and/or Trading Group. A Trading Group may support of trades, ability to place trades in difficult markets, ability to multiple portfolio management teams. Generally, each Trading source liquidity, and confidentiality. In seeking best execution, CSIM Group trades the products and strategies for which it is designated considers whether the transaction represents the best qualitative and each portfolio management team provides advice to the products and quantitative execution under the circumstances, which is not solely and strategies for which it is designated. However, a Trading Group determined by the lowest brokerage fee available. Brokerage Fees or portfolio management team may provide services to products and are generally considered to include transaction fees, commissions, or strategies for which it is not the designated portfolio management mark-ups and mark-downs on the purchase and sale of securities. team or Trading Group. For example, a portfolio management team may CSIM does not consider the receipt of client referrals when selecting determine to use a Trading Group or another portfolio management or evaluating broker-dealers used for client transactions. team that specializes in a particular segment of the financial markets to provide trading services and/or portfolio management for Soft Dollars that segment of the financial market within its designated product CSIM generally will not enter into formal soft-dollar arrangements or strategy. In addition, the head of a Trading Group or portfolio with brokers or third parties to obtain brokerage or research services management team has discretion to assign the necessary personnel in exchange for brokerage commissions paid by advised accounts. to trade and/or provide investment advice for a specific strategy. However, CSIM does receive various forms of eligible proprietary CSIM has established informational barriers and procedures that seek research that is bundled with brokerage services at no additional cost to prohibit personnel within a Trading Group from communicating from certain of the brokers with whom CSIM executes equity or or distributing any non-public information related to the trading fixed income trades. These include brokers CSIM is affiliated with such

12 as Schwab or from participation Broker/Custodian-Related Programs account, the value of custodial and other services provided by for certain separately managed account strategies. These services Schwab, the wrap fee could exceed the aggregate cost of such services or products can typically include: company financial data and if they were to be provided separately and if CSIM negotiated economic data (e.g., unemployment, inflation rates and GDP figures), Brokerage Fees and sought best price and execution on a transaction stock quotes, last sale prices and trading volumes, research reports by transaction basis. analyzing the performance of a particular company or stock, access to websites that contain data about various securities markets, Trading Process narrowly distributed trade magazines or technical journals covering Trade orders for the different strategies CSIM manages are generated specific industries, products, or issuers, seminars or conferences by each strategy’s portfolio management team and/or Trading registration fees which provide substantive content relating to eligible Group, on various systems, and may utilize one or more trading research, discussions with research analysts or meetings with strategies (e.g., price at the time of order arrival, market closing price, corporate executives which provide a means of obtaining oral advice volume weighted average price over some specified period). Certain on securities, markets or particular issuers, short-term custody trading strategies place relatively greater emphasis on timing, related to effecting particular transactions and clearance and others on speed of execution, while others place greater emphasis settlement of those trades, lines between the broker-dealer and on reducing market impact cost. As a result, the speed of trade order order management systems operated by a third party vendor, fulfillment and the prices achieved for the same security are likely dedicated lines between the broker-dealer and CSIM’s order to vary in different programs or strategies and among Trading Groups. management system, dedicated lines providing direct dial-up service Certain strategies or different Trading Groups, which include between CSIM and the trading desk at the broker-dealer, and accounts in programs with different fee structures, may trade in message services used to transmit orders to broker-dealers for advance of other strategies or their trades could be completed more execution. CSIM can use research services furnished by brokers or quickly, and, in these cases, could achieve different execution on dealers in servicing all client accounts, and not all services will the same or similar securities. In addition, market, regulatory, and/or necessarily be used in connection with the account that paid country limitations (especially in the case of emerging markets) commissions or spreads to the broker or dealer providing such may contribute to differences in security prices. services. For Windhaven Strategies, ThomasPartners Strategies, the SMP Although CSIM does not have arrangements to cause a client to pay Program, the UMP Program and SIP,CSIM typically performs higher commissions to obtain soft dollar benefits, CSIM benefits maintenance trades and strategy trades. Maintenance trades reflect from its receipt of bundled research because it does not have individual activity in a client account, such as initial contributions, to produce or pay for the research, products or services. Consequently, additional account contributions, or raising cash for withdrawals CSIM has an incentive to select or recommend a broker-dealer (“Maintenance Trades”). Strategy trades impact nearly all client based on its interest in receiving the proprietary research or other accounts within a strategy and are directed by that strategy’s portfolio products or services. management team (“Strategy Trades”). CSIM will sometimes purchase for clients new issues of securities in SMP Program, SIP and CSTC clients direct CSIM, CSIA and CSTC, as a fixed price offering. In these situations, the seller may be a applicable, to use Schwab to effect securities trades for their member of the selling group that will, in addition to selling securities, account. Large share trade orders can occur when there are large provide CSIM with research services, in accordance with applicable daily flows into or out of the program, CSIM reallocates/ rules and regulations permitting these types of arrangements. rebalances clients’ accounts, or CSIM replaces an ETF with another Generally, the seller will provide research “credits” in these situations ETF across all applicable client accounts. For these large trade at a rate that is higher than that which is available for typical orders, Schwab may solicit bids from other broker-dealers that may secondary market transactions. act as principal in the transaction, meaning that the other broker-dealer executes the trade in an account in which the CSIM has an internal committee to oversee trading practices, and broker-dealer has a beneficial ownership interest or may execute a has established policies and procedures applicable to best execution, riskless-principal trade where the other broker-dealer buys (sells) soft dollars and other client commissions practices. The policies a security from (to) a third party (e.g., another customer or and procedures require CSIM portfolio management to obtain approval broker-dealer). from that committee for certain arrangements with a broker to obtain a research product or brokerage services. CSIM is not obligated Aggregation and Allocation of Securities Transactions to direct client transactions to broker-dealers that provide research information. During its last fiscal year, CSIM did not pay commissions For the SMA strategies, CSIM will not aggregate trades unless it to a particular broker-dealer in return for brokerage and research believes that aggregation is consistent with its duty to seek best services but, as noted above, CSIM may have executed through “full execution for affected clients in the aggregate and consistent with service” broker dealers at a rate higher than might otherwise be the terms of the client’s investment advisory agreement. If the Trading available. Group aggregates trades, it can aggregate securities sales or purchases across the strategies and products for which it provides Directed Brokerage trading services. If trades are not aggregated, clients could pay prices for the transactions that are different from what they might have Clients in the SMP Program and SIP Solutions agree in their account paid had the trades been aggregated. When aggregating, CSIM can, agreements with Schwab that all brokerage transactions for equity consistent with its policies and procedures and fiduciary duties, securities will be executed by Schwab. SMA clients of CSTC for which include employee accounts in an aggregated order. CSIM can exclude CSIM provides trading services agree in their account agreements from aggregation those client accounts that have relevant restrictions with CSTC that all brokerage transactions for equity securities will be or client activity (e.g., withdrawals pending). In addition, CSIM executed by Schwab. As a result, a client might not always obtain has discretion not to aggregate certain securities in client accounts as favorable a price or execution as could have been available through that could at times be executed through aggregation (e.g., individual another broker-dealer. Not all investment advisers require their bonds). Trade allocation procedures for the SMA strategies are clients to direct brokerage. Because Schwab receives a portion of reasonably designed to provide that trade allocations are timely, that the wrap fee for its brokerage and other services in the SMP Program, no set of trade allocations is accomplished to the unfair advantage CSIM and its affiliates could make more money than if CSIM of one client over another, and that over time client accounts provided its investment advisory services outside of the SMP Program. are treated fairly and equitably, even though a specific trade may Clients should consider that, depending upon the level of the wrap have the effect of benefiting one account over another when viewed fee charged by Schwab, the amount of portfolio activity in the client’s in isolation.

13 Trading orders that can be only partially filled are generally allocated error does occur, CSIM will use reasonable efforts to identify and on a pro rata basis or allocated on some other basis consistent resolve errors as promptly as possible. CSIM will address and resolve with the goal of giving all clients equitable opportunities over time. errors on a case-by-case basis, in its discretion, based on the CSIM could elect to execute trades in a single aggregated trade over facts and circumstances. CSIM is not obligated to follow any single multiple days due to volume, liquidity, or other factors. This could method of resolving errors but will seek to treat all clients fairly in the include an aggregated trade that is executed over multiple days, where resolution of trade errors. at the end of each day, whatever portion of the trade has been executed is allocated to client accounts, or it could include an aggregated trade that is executed over multiple days, where the full Review of Accounts order is held and not allocated to client accounts until fully executed CSIM periodically reviews client accounts, including Registered on the final day. Client accounts will receive the average price for those Funds, utilizing product-specific review processes. Accordingly, aggregated trades allocated to their account(s), whether at the end account review may differ across client and product types. CSIM’s of each day of the trade or when the trade is fully completed. There can portfolio managers are generally responsible for the daily management be some variations in allocations based on account size and security and review of the client accounts under their supervision. Such price due to full share allocation methodology. In some cases, reviews may examine compliance with client’s investment objectives CSIM could execute a trade order at the same time it is executing a and account guidelines, account performance and CSIM’s current different trade order for the same security, with the same or a investment process and practices, as applicable. Below is a more different broker, to meet account or strategy-specific requirements, detailed description of account reviews conducted by CSIM. in which case the two trades would be treated as distinct trades and may not be subject to pro rata allocation. CSIM’s portfolio managers review, at least quarterly, the performance of SMP Program investment strategies against their applicable When opportunities are limited (collectively, “limited opportunities”), benchmarks. Schwab contacts clients participating in the SMP CSIM will generally consider the needs of clients across programs. Program at least annually to determine whether there have been any When it is not practicable to allocate an opportunity across all eligible accounts, CSIM uses various methods to give all accounts using changes in their financial situation or investment objectives and the same trading strategy equitable opportunities for allocation over whether clients wish to impose any reasonable restrictions on the time. This would result in a limited opportunity being allocated to management of their accounts or reasonably modify existing only some of the eligible accounts. restrictions. Schwab communicates the information obtained from clients to CSIM as necessary for the management of the account. Program Fees — SMP Program For the SMP Program, in transactions where Schwab uses another Client Referrals and Other Compensation broker-dealer acting as principal, the other broker-dealer typically CSIM does not make payments to its representatives or those of its accepts the risk of market price and liquidity fluctuations of executing affiliates for referring clients to the SMP Program. Schwab makes the transactions. The broker-dealer adds a Brokerage Fee to payments to its representatives for referring clients to the SMP compensate for this risk. Schwab does not act as principal for ETF Program, as described in a separate Schwab Managed Portfolios™ trades in the SMP Program and does not receive the third-party’s Disclosure Brochure. Brokerage Fee. In SMP Program transactions where Schwab uses another broker-dealer acting as an agent, the other broker-dealer Schwab provides CSIM, its affiliate, with access to its institutional will generally charge a Brokerage Fee. Brokerage Fees for any trading and operations services, which are typically not available trades where Schwab uses another broker-dealer acting as either to Schwab clients. Schwab’s services include research, brokerage, principal or agent are not shown separately on a client’s trade custody, and access to mutual funds and other investments that confirmation or account statements. Schwab does not charge a are otherwise available only to institutional investors or would require commission itself or receive the third-party broker-dealer’s a significantly higher minimum initial investment. Schwab also fee or commission. makes available to CSIM other products and services that benefit CSIM but may not benefit clients’ accounts. Some of these other Schwab receives remuneration such as liquidity or order flow rebates products and services assist CSIM in managing and administering from a market or firm to which some orders are routed, but its trading practices are designed to seek best execution. The SMP clients’ accounts. These include software and other technology Program fee will not be reduced or offset by third-party Brokerage that provide access to client account data (such as trade confirmations Fees. Instead, any Brokerage Fees will reduce the overall return and account statements); facilitate trade execution (and allocation of a client’s account. of aggregated trade orders for multiple client accounts); provide research, pricing information, and other market data; facilitate payment Trade Rotation of CSIM’s Fees from its clients’ accounts in the Windhaven Strategies and ThomasPartners Strategies; and assist with back-office For the SMA strategies (the SMP Program, UMP Program, SIP, support, recordkeeping, and client reporting. Many of these services ThomasPartners Strategies, Windhaven Strategies and any model generally may be used to service all or a substantial number of portfolios), CSIM has a trade rotation process for Maintenance Trades Wasmer Schroder Strategies, Windhaven Strategies, ThomasPartners that it uses among client accounts within a single program or Strategies, UMP Program and SMP Program client accounts, across programs to prevent any client from being systematically including accounts not maintained at Schwab. disadvantaged. For Strategy Trades, if more than one program wants to trade securities in the same direction that are similar or the Schwab may also provide CSIM with other services intended to help same, the Trading Group will conduct an analysis and then escalate CSIM manage and further develop its business. These services the findings for further instructions on how to proceed with the may include consulting, publications and presentations on practice trades. Trades done on the same day or on different days are not management, information technology, business succession, regulatory guaranteed to receive the same trading price. CSIM will review compliance, and marketing. In addition, Schwab may make available, the Trading Group’s rotation procedures at least annually to confirm arrange, and/or pay for these types of services to CSIM by that they are adequate to prevent any client from being systematically independent third parties. Schwab may discount or waive fees it disadvantaged. would otherwise charge for some of these services or pay all or a part of the fees of a third party providing these services to CSIM. Trade Errors Representatives of TDA receive a payment from TDA for referring CSIM maintains policies and procedures that address the identification clients to Schwab for services not available through TDA, including the and correction of trade errors. On those occasions when such an SMP Program, Windhaven Strategies, ThomasPartners Strategies

14 and Wasmer Schroeder Strategies, but excluding the UMP Program. economic impact of the ballot items. Therefore, shares for these Representatives of TDA receive this payment regardless of whether separate account clients may be voted differently from those voted referred clients avail themselves of the Schwab service for which they solely under the guidance of the Investment Stewardship Team. have been referred. As a leading asset manager, it is CSIM’s responsibility to use its proxy votes to encourage transparency and corporate governance Custody structures that it believes protect or promote shareholder value. CSIM takes a long-term, measured approach to investment Clients use Schwab as custodian for their SMP Program accounts stewardship. CSIM’s client-first philosophy drives all of its efforts, and Schwab, on at least a quarterly basis, will send clients account including its approach to decision making. In the investment statements detailing account positions and activities during the stewardship context, that unfolds through CSIM’s efforts to preceding period. Clients should review these statements carefully. appropriately manage risk by encouraging transparency and focusing on those corporate governance structures that will help protect or Investment Discretion promote shareholder value. In general, CSIM believes corporate directors, as the elected representatives of all shareholders, are best When clients choose the SMP Program, they sign the custodian’s positioned to oversee the management of their companies. applicable new account paperwork giving CSIM authorization to make Accordingly, CSIM typically supports a board of directors’ and trades in their account. This investment management discretion is management’s recommendations on proxy matters but may not always limited to the purchase and sale of securities and investment of cash, do so. and does not include discretion for distributions of cash or securities (except for limited grants of authority to facilitate withdrawal of CSIM invests on behalf of its clients in companies domiciled all over money and direct payments to third parties according to clients’ the world. Since corporate governance standards and best practices instructions). Clients may impose reasonable restrictions on differ by country and jurisdiction, the market context is taken the management of their account, subject to the acceptance of CSIM. into account in the analysis of proposals. Furthermore, there are Clients invested in SMP-MF may restrict up to three mutual funds instances where CSIM may determine that voting is not in the best in each Program account. Clients invested in SMP-ETF may restrict up interests of its Delegating Clients (typically due to costs or to trading restrictions) and will refrain from submitting votes. to three ETFs in each Program account. Mutual funds and ETFs designated for restriction by clients will be replaced with alternatives The Proxy Committee reviews the Service’s written proxy voting selected by CSIM. Clients who enrolled in SMP-MF prior to July 23, guidelines (the “Service’s Proxy Guidelines”) with input from 2010, may also restrict third-party mutual fund families, but not mutual the Investment Stewardship Team. CSIM generally utilizes the Service’s fund families managed by CSIM. Proxy Guidelines to vote. However, CSIM may create custom voting guidelines where its view does not align with the Service’s Proxy Investments will not exceed the client’s funds in the account and a Guidelines. Further, the Proxy Committee may delegate voting margin balance will not be maintained, unless allowed by CSIM. decisions on particular types of votes to the Investment Stewardship Subject to meeting minimum security gain/loss thresholds and CSIM’s Team, and the Investment Stewardship Team may vote differently approval, CSIM can accommodate client requested tax gain/loss than the Service’s Proxy Guidelines suggest, to the extent they believe harvesting. CSIM reserves the right to decline the request. CSIM will it is in the best interest of a Delegating Client. Contested director harvest gains and/or losses at the security level only and will not elections, mergers and acquisitions, and most shareholder proposals take tax lots into consideration. See the “Tax Gain/Loss Harvesting requesting additional environmental and social disclosures are Risks” section for more details on the risks associated with client tax voted on a case-by-case basis by CSIM’s Investment Stewardship gain/loss harvesting for the SMP Program. Team. In addition, securities held in separately managed accounts may be voted on a case-by-case basis by the portfolio manager for the Voting Client Securities account. CSIM has adopted proxy voting principles on key proposals, including The following is a summary of CSIM’s Proxy Voting Policy (the “Proxy election of directors, ratification of auditors, contested directors Policy”) concerning proxies voted by CSIM on behalf of each elections, classified boards, majority/cumulative voting, proxy access, investment advisory client who delegates voting authority to CSIM independent chair, executive compensation and frequency, equity (“Delegating Client”). The Proxy Policy may be changed as necessary compensation plans, employee stock purchase plans, re-price/ to comply with regulatory requirements and internal policies and exchange option plans, shareholder rights plans, right to call special procedures. An internal proxy committee (the “Proxy Committee”) meetings, right to act by written consent, supermajority voting, exercises and documents CSIM’s responsibility with regard to voting increase in authorized common shares, preferred shares, mergers of client proxies. and acquisitions, environmental and social proposals, and To assist CSIM and the overall proxy voting process, CSIM has political contributions. elected to retain an unaffiliated third party proxy voting service as an CSIM maintains the following practices that seek to prevent undue expert in the proxy voting and corporate governance area (the influence on its proxy voting activity. Such influence might arise from “Service”). The services provided by the Service include in-depth any relationship between the company holding the proxy (or any research, global issuer analysis and voting recommendations, as well shareholder or board member of the company) and CSIM, CSIM’s as vote execution, reporting and record keeping. CSIM may retain affiliates, a client or client’s affiliate, or a CSIM employee. additional experts in the proxy voting and corporate governance area From time to time, client accounts may hold securities issued by a in the future. Registered Fund advised by CSIM or securities issued by CSC, CSIM’s The Proxy Committee has the ultimate responsibility for developing parent company. Because CSIM has an inherent conflict of interest the Proxy Policy to determine how to vote the shares. CSIM’s with respect to such proxies, CSIM will “echo vote” proxies solicited by Investment Stewardship Team has the primary responsibility to oversee a Registered Fund or by CSC, unless otherwise required by law. that voting is carried out consistent with the Proxy Policy. The When required by law or applicable exemptive order, CSIM will also Investment Stewardship Team also conducts research into proxy “echo vote” proxies of an unaffiliated mutual fund or ETF. Echo issues and carries out engagement activities with companies. voting means that proxies for CSIM clients will be voted for and against The Proxy Committee receives reports from the Investment management in the same proportion as proxies are voted by all of Stewardship Team on these activities. However, portfolio managers the other shareholders of the relevant issuer. Echo voting allows shares of separately managed account clients maintain full discretion to vote held by CSIM to count towards any necessary quorum without the shares held by these clients based on their analysis of the otherwise influencing the outcome of a proxy measure.

15 Where the Proxy Committee has delegated an item to the Investment Stewardship Team or a portfolio manager of a separately managed separate account, CSIM has taken certain steps to mitigate perceived or potential conflicts of interest, including, but not limited to, the following: (i) maintaining a reporting structure that separates employees with voting authority from those with sales or business relationship authority; (ii) reporting of potential conflicts to the Proxy Committee to review the conflict and provide final vote determination; and (iii) defaulting to CSIM’s Proxy Policy. In all other cases, proxy issues that present material conflicts of interest between CSIM and/or any of its affiliates, and its clients, will be delegated to the Service to be voted in accordance with CSIM’s Proxy Policy which is set each year based on governance criteria and not influenced by any individual issuer or ballot item. Voting proxies with respect to shares of foreign securities may involve significantly greater effort and corresponding cost than voting proxies with respect to domestic securities due to the variety of regulatory schemes and corporate practices in foreign countries with respect to proxy voting. In consideration of the foregoing issues, the Service uses its best efforts to vote foreign proxies. As part of its ongoing oversight, the Proxy Committee will monitor the voting of foreign proxies to determine whether all reasonable steps are taken to vote foreign proxies. If the Proxy Committee determines that the cost associated with the attempt to vote outweighs the potential benefits Delegating Clients may derive from voting, the Proxy Committee may decide not to attempt to vote. In addition, certain foreign countries impose restrictions on the sale of securities for a period of time before and/or after a shareholder meeting. To avoid these trading restrictions, the Proxy Committee instructs the Service not to vote such foreign proxies (share-blocking). Where CSIM has delegated day-to-day investment management responsibilities for a client account to a sub-adviser, CSIM may (but generally does not) delegate proxy voting responsibility to the sub-adviser. However, each sub-adviser to whom proxy voting responsibility has been delegated will be required to review all proxy solicitation material and to make voting decisions associated with the securities it has been allocated in the best interest of such Delegating Client. Prior to delegating the proxy voting responsibility, CSIM will review each sub-adviser’s proxy voting policy to determine whether it believes that each sub-adviser’s proxy voting policy is generally consistent with the maximization of the value of CSIM’s clients’ investments by protecting the long term best interests of a company’s shareholders. Additional information about CSIM’s proxy voting practices with respect to the Registered Funds is included in their respective prospectuses and statements of additional information. A client may obtain a copy of CSIM’s Proxy Policy, or information regarding how his or her securities were voted, by calling CSIM at 617-960-5300. Delegating Clients may not direct voting in a particular solicitation. Clients wishing to retain the ability to vote proxies must submit a separate form to their custodian.

Financial Information CSIM does not require nor solicit prepayment of investment advisory fees from its clients. CSIM (and historically CSIA, Windhaven Investment Management, Inc. and ThomasPartners, Inc.) is not aware of any financial condition that is reasonably likely to impair its ability to meet its contractual commitments to clients, nor has CSIM been the subject of a bankruptcy petition at any time during the past ten years.

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