Advice Guidelines

Schwab has a number of policies and guidelines that govern the advice that our representatives give clients about which investments or products to buy and sell. Whether Schwab is acting in an investment advisory or broker-dealer capacity, our recommendations are intended to:

• Provide advice across the company that is similar for like investors.
• Be suitable for each individual investor.
• Be efficient for us to create and deliver.
• Comply with all applicable laws and regulations.

In deciding what products our representatives can recommend, Schwab considers our clients' interests as well as the compensation that may be earned by our representatives, Schwab, and our affiliates.

Schwab's advice policies and guidelines include the following:

Asset Allocation

When giving asset allocation advice, Schwab representatives gather or review information from their clients to determine which model portfolio is best aligned with the client’s overall financial objectives, time horizon, tolerance for risk and investment preferences.

With exceptions for certain client preferences, each model portfolio specifies targeted percentages of large-cap, small-cap and international equities, fixed income and cash investments. The model portfolios do not specify which specific products or even product types (e.g., mutual funds versus individual equity or fixed income securities) should be used to fill out each asset category.

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Equities

Schwab representatives may recommend purchases of individual equities that are either:

1. Rated "A" or "B" by the Schwab Equity Ratings® (SER) stock rating methodology;
2. Or, if not rated by SER, are rated 4 or 5 Stars by Standard & Poor's.

SER is Schwab's proprietary rating system based upon a disciplined, systematic approach that evaluates each stock on the basis of a wide variety of investment criteria. Schwab Equity Ratings are assigned to approximately 3,000 of the largest (by market capitalization) U.S.-headquartered stocks using a scale of "A," "B," "C," "D," and "F."

Options

Schwab representatives may recommend options trading strategies that may include the following:

1. The purchase of put options to reduce portfolio risk;
2. The establishment of equity collars to reduce portfolio risk;
3. The sale of covered puts or calls to clients who are, respectively, short or long the underlying shares and able to assume the risk of buying or selling those shares; and
4. The sale of cash-secured puts on individual equities rated A or B by SER.

Mutual Funds

Schwab representatives may recommend mutual fund strategies that may include the purchases of:

1. Mutual funds appearing on one of several regularly updated recommendable lists maintained by Charles Schwab Investment Advisory, Inc., following rules specific to each list;
2. Most funds managed by Charles Schwab Investment Management, Inc. (Schwab Affiliate Funds);
3. Any index fund; or
4. Certain other funds whose recommendable status is contingent on the client already owning or proactively mentioning them. Funds in this last category must meet certain minimum quantitative and qualitative criteria, in addition to being owned by or proactively mentioned by a client, before they can be recommended.

By design, the majority of mutual funds on the recommendable lists are no-load, no-transaction-fee funds that are part of the Schwab Mutual Fund OneSource® service, with some prominence given to Schwab Affiliate Funds. Schwab or its affiliates can earn more money from third parties and affiliates when clients purchase and hold OneSource and Schwab Affiliate Funds.

However, Schwab also maintains a Transaction Fee/Load Mutual Fund List that includes recommendable third-party funds that are not in OneSource. The only lists that are not available directly to our clients are a special internal list for clients enrolled in our non-discretionary advisory service, Schwab Private Client™, which includes load-waived institutional mutual funds, and the list of funds held in the Schwab Managed Portfolios™, a discretionary mutual fund wrap program.

Funds selected for these lists must meet list eligibility rules and quantitative and qualitative criteria. Eligibility rules include limiting the number of funds per category in each list, requiring a minimum asset level for each fund, and, for certain lists, selecting only OneSource funds and/or Schwab Affiliate Funds. The quantitative criteria examine such factors as a fund's expense ratio, risk- and style-adjusted performance, assets under management, and cash flows. Qualitative criteria include Schwab's evaluation of a fund manager's strategy and style consistency. Each published list contains more detail on selection criteria. Lists and criteria are reviewed and approved by a policy committee at Schwab.

Exchange-Traded Funds

Schwab representatives may recommend purchases of exchange-traded funds (ETFs) that appear on Schwab's Approved ETF List. The list, which is not published to clients, consists of ETFs in various asset categories that generally satisfy the following minimum criteria:

1. At least 12 months of performance history;
2. Availability of historical monthly returns data for the ETF's underlying index available from an acceptable source;
3. A tracking error to the underlying index no greater than certain thresholds that vary by fund category for a 12-month period;
4. A minimum of $20 million in assets;
5. A minimum 3-month average daily traded dollar-volume of $1 million for most categories, or $500,000 for core fixed income categories; and
6. The fund is not an exchange-traded note (ETN), leveraged ETF, or inverse ETF.

Fixed Income

Schwab representatives may recommend purchases of individual fixed income securities that are rated investment grade by both Standard & Poor's and Moody's Investors Service and that are found on the Schwab Bond Source trading platform or by contacting a Schwab Fixed Income Specialist.

Schwab Fixed Income Specialists may also recommend purchases of investment-grade fixed income securities and closed-end funds found on alternative sources like Bloomberg. Recommendations based on these factors are further limited by market availability.

Structured Products

Schwab representatives may recommend purchases of approved principal-protected notes, structured certificates of deposit, and buffered notes.

Recommendations of structured products are subject to criteria such as alignment of the client's investing needs with the specific features offered by structured products (e.g., the desire to capitalize on a particular market view or sector while maintaining some capital preservation) and the client's ability and willingness to bear the liquidity and issuer-default risks that may be associated with the product in question. Recommendations based on these factors are further limited by market availability.

Cash Investments

Schwab representatives may recommend that clients allocate cash investments into three categories:

• Long-term cash as part of one of the strategic asset allocations described above;
• Everyday cash for recurring expenses like monthly bill-paying; and
• Cash pending investment.

Recommendations of specific investment products for each of these categories are subject to the policies and guidelines applicable to the product in question.

Credit Products and Margin

Schwab representatives may talk to Schwab clients about mortgages and home equity lines of credit offered by Charles Schwab Bank.

Schwab representatives may recommend the use of margin loans for the purpose of buying securities and for certain other alternative uses like education or home improvement expenses.

529 Plans

Schwab representatives may recommend a 529 plan if it is suitable for the client's circumstances and education savings needs in light of income tax treatment, annual and lifetime funding limits, estate planning considerations, and the client’s need for flexibility and/or control.

The only 529 plan currently available through Schwab is the Schwab 529 College Savings Plan (the "Plan"), for which Schwab receives remuneration. The Plan is sponsored by the state of Kansas and managed by American Century Investment Management, Inc. Investment choices within the Plan are limited to six portfolios corresponding to Schwab's asset allocation models and the underlying mutual funds that fill the asset allocation categories within each portfolio.

Before recommending the Plan, Schwab representatives should consider whether Plan contributions are tax-deductible or subject to a tax credit in the client's state of residence. Representatives should also compare the Plan’s performance, level of fees and the suitability of its investment options with the features of other 529 plans, and other college savings investments, available to the client.

Annuities

Appropriately licensed Schwab representatives may recommend purchases of fixed and variable annuities and exchanges of variable annuities.

These purchases are subject to key criteria such as: the client's age, financial and tax status, investment experience, time horizon, need for a minimum fixed rate of return, and potential need to make withdrawals before age 59 and 1/2; the percentage of the client's total assets that the annuity would comprise; and the features, fees, surrender charges, and performance of the annuity.

Annuities available through Schwab are limited to those offered by insurance companies that compensate Schwab for its role as agent for the sale and servicing of annuity contracts.

Investment Advisory Services

Schwab representatives may recommend that clients enroll or open accounts in fee-based investment advisory services available through Schwab, including: Schwab Private Client, Schwab Managed Portfolios, Schwab Managed Account Services™, financial planning services, and the Schwab Advisor Network®.

Such recommendations are subject to criteria that take into account:

1. The client's assets, financial situation, risk tolerance, willingness to pay a fee and desire for discretionary or non-discretionary advice; and
2. The cost and benefits of the investment advisory services relative to other investment advisory or brokerage services available through Schwab.

Limitations on the specific investment recommendations made in the Schwab Private Client, Schwab Managed Portfolios, and Schwab Managed Account Services programs are described in detail in their respective disclosure brochures.

Independent investment advisors to whom Schwab refers its clients through the Schwab Advisor Network program are limited to those advisors participating in that program. Details about the Schwab Advisor Network and the independent investment advisors who participate in that program and pay Schwab a fee to participate are in the Schwab Advisor Network Disclosure Document.

Additional Information

In addition to the factors summarized above, Schwab representatives are trained to consider what’s best for an individual client's situation and generally can recommend the sale of any security that no longer fits the client's needs or circumstances. Please note that there is an exception process for review of buy recommendations made outside of these guidelines.

The company also provides the following compensation disclosures to help clients and prospects make informed decisions about investing at Schwab:

• Investment Professionals’ Compensation
• Schwab Compensation

These disclosures may change from time to time, and updates are published on this website as they are available. Please call 800-785-3965 if you have any questions or would like to request copies of any documents.

Additional information on Schwab investment products, fees and commissions may be found on www.schwab.com.