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Schwab's Financial and Other Relationships with Mutual Funds

No Transaction Fee Funds
Transaction Fee Funds
Load Funds
Schwab-Affiliated Funds
Share Classes, Investment Minimums, Fees and Expenses
Fund Marketing and Sponsorships
Fund Education
Additional Information

Share Classes, Investment Minimums, Fees and Expenses

A.  Share Classes.  Some mutual fund companies offer separate retail, institutional and other share classes of the same fund.  Retail funds are primarily built for and made available to individual investors, who may invest directly with the fund or through a financial intermediary like Schwab.  Institutional shares generally are made available by the fund to investors such as large companies and organizations which tend to make larger investments in a fund.

B. Fees and Expenses.  Regardless of share class, fund shareholders pay the expenses associated with their particular share class indirectly.  These expenses include fund management, recordkeeping, accounting and taxes, and together are often referred to as an Operating Expense Ratio ("OER").  The OER is deducted from fund assets on a daily basis, which effectively reduces returns to investors.  Institutional share classes typically have lower overall expenses reflecting lower fees associated with larger accounts. 

C.  Investment Minimums.  Schwab, as a broker-dealer, sets its own purchase investment minimums which may be higher or lower than the minimum a fund company sets for one or more of its share classes.  Generally there are three categories of fund minimums at Schwab:

Having three categories enables Schwab to offer clients the choice of either paying or not paying a commission, "load," or transaction fee on a mutual fund purchase.  Choosing a OneSource fund avoids a transaction fee but, depending on the fund, can result in paying a comparatively higher OER over time. 

Some funds may make their institutional share classes available to investors at lower investment minimums than Schwab's.  An investor purchasing less than $100,000 in such a fund at Schwab would need to purchase the corresponding share class in OneSource®.   This purchase would not be subject to a transaction fee; however the investor indirectly would pay a higher OER when compared to the institutional share class.  In some cases Schwab may waive its $100,000 minimum for accounts managed by certain registered investment advisors.

D. Schwab's Compensation.  Schwab receives greater compensation from fund share classes participating in the OneSource platform than it receives from comparable investments made in the Transaction Fee Fund category.  In OneSource, Schwab does not charge clients a transaction fee.  Instead, Schwab charges the funds a fee that compensates Schwab for the shareholder services Schwab provides to the fund company for record-keeping, processing transactions, paying distributions, preparing statements and tax documents, and answering client questions about the fund.