Certified Annual Shareholder Report of a Management Investment Company — Form N-CSR Filing Table of Contents
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Management Investment Company
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THE SCHWAB FUNDS
CODE OF BUSINESS CONDUCT AND ETHICS
FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
OUR VISION
Provide shareholders with the most useful and ethical Mutual Funds in the world.
OUR VALUES
Be fair, empathetic and responsive in serving our shareholders.
Strive relentlessly to innovate what we do and how we do it.
Always earn and be worthy of our shareholders’ trust.
SHAREHOLDER VALUE
The Schwab Funds’ Principal Executive Officer and Principal Financial Officer and any other
officers who serve a similar function shall endeavor to act in the best interests of the Schwab
Funds and their shareholders.
Introduction
The Schwab Funds Code of Business Conduct and Ethics (“Code”) covers all of the investment
companies within the Schwab Funds’ complex. This Code applies to the Schwab Funds’ Principal
Executive Officer and Principal Financial Officer and any other officers who serve a similar
function (each an “Officer”).
The Schwab Funds are committed to the highest standards of ethical conduct in the fulfillment of
our Vision and Values. We are proud of our long-standing reputation for integrity and honesty that
strengthens our Vision to provide our shareholders with the most useful and ethical mutual funds in
the world. This reputation is not just a source of competitive advantage in the financial services
industry; it is fundamental to the way we do business.
This Code provides guidance on how you, as an Officer, uphold these ethical standards. It applies
to your service to the Schwab Funds.
The Code consists of an outline of policies regarding conduct in several key areas: ethical
behavior and legal compliance, conflicts of interest, confidentiality and business practices. You
are responsible for reviewing the Code and for acting in compliance with the Code in your daily
activities.
The Code is not exhaustive; it provides guidance for carrying out your responsibilities on behalf
of the Schwab Funds and observing the highest standards of ethical conduct. Because the Code does
not address every possible situation that may arise, you are responsible for exercising good
judgment, applying ethical principles, and raising questions when in doubt. Your integrity and good
judgment enhance the Schwab Funds’ brand, build the Schwab Funds’ reputation, and are the
foundation of trust for our shareholder and business relationships.
General Schwab Funds and Personal Standards of Conduct
As an Officer you have a responsibility to act in a manner in which you earn the public’s trust and
confidence. Your conduct is guided by our values, which are to:
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Be fair, empathetic and responsive in serving our shareholders.
§
Strive relentlessly to innovate what we do and how we do it.
§
Always earn and be worthy of our shareholders’ trust.
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Schwab Funds Conduct
The following general principles guide our Schwab Funds conduct:
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You will act in accordance with applicable laws and regulations and will not tolerate
behavior that is otherwise.
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You will make public disclosures as required by law and regulation and as deemed
appropriate to enable reasonable evaluation of the Schwab Funds.
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You will strive to provide an equitable return for our investors.
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You will provide products and services designed to help shareholders achieve their
financial goals.
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You will conduct business fairly, in open competition.
Individual Conduct
The following general principles guide your individual conduct:
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You will not take any action that will violate any applicable law or regulation.
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You will adhere to the highest standards of ethical conduct.
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You will maintain the confidentiality of all information you obtain in the course of
your employment.
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You will escalate issues which you reasonably believe may place the Schwab Funds at
risk, and report any behavior you reasonably believe is wrong.
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You will not abuse or take the Schwab Funds’ assets or use them for your personal gain.
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You will not engage in any activities that create a conflict of interest (as defined
below) between you and the Schwab Funds.
§
You will comport yourself publicly in a manner that does not bring discredit on the
Schwab Funds.
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You will deal fairly with shareholders, colleagues and others.
§
You will comply with this Code.
You have personal responsibility to conduct the Schwab Funds’ business in a manner consistent with
these principles, and you cannot avoid this responsibility by contrary instructions from a
supervisor or by turning a blind eye. Many of these principles are explained in more detail below
and in the Schwab Funds’ other polices and procedures. If you have questions on any of them, you
should consult with the Chief Legal Officer of the Schwab Funds or the Chief Compliance Officer of
Charles Schwab Investment Management, Inc. (“CSIM”).
Ethical Behavior
Your decisions and behavior have far-reaching implications. Standards of ethical and professional
conduct reflect on the individual, on the Schwab Funds brand, and on the investment industry as a
whole. A strong personal sense of ethics should always play a significant role in guiding you
towards a proper course of action.
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Compliance with Laws, Rules, Regulations and Policies
The foundation of the Schwab Funds’ ethical standards is compliance with the letter and spirit of
the law. You must respect and obey all of the laws, rules and regulations applicable to our
business, including among others, securities and other federal, state and local laws. You are
responsible for being familiar and complying with the Schwab Funds’ policies and procedures.
Although you are not expected to know the details of each law governing our business, you are
expected to be familiar with and comply with the Schwab Funds’ policies and procedures and, when in
doubt, to seek advice from the Chief Legal Officer or Chief Compliance Officer as outlined in this
Code.
Consequences for Failure to Comply and Reporting Certain Conduct
You can be subject to discipline up to and including termination of employment if you violate this
Code. If you know of, or reasonably believe there is, a violation of applicable laws or this Code,
you must report that information immediately to the Chief Legal Officer. You should not conduct
preliminary investigations, unless authorized to do so by the Chief Legal Officer. Anyone who in
good faith raises an issue regarding a possible violation of law regulation or Schwab Funds policy
or any suspected illegal or unethical behavior will be protected from retaliation.
Conflicts of Interest
To maintain the highest ethical standards in conducting our business, it is important that you do
not place yourself in a position that would cloud your judgment in carrying out the business
affairs of the Schwab Funds. A “conflict of interest” occurs when your private interest interferes
in any way — or even appears to interfere — with the interests of the Schwab Funds. You have a
duty to report any material transaction or relationship that reasonably could be expected to be or
to create a conflict of interest with the Schwab Funds. If you have any questions regarding what
might constitute a conflict of interest, or to report any transaction or relationship that you
believe has occurred or may occur that might constitute a conflict of interest, contact the Chief
Legal Officer or Chief Compliance Officer.
Certain conflicts of interest arise out of the relationships between Officers and the Schwab Funds
and already are subject to conflict of interest provisions in the Investment Company Act of 1940
(“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”).
For example, Officers may not individually engage in certain transactions (such as the purchase or
sale of securities or other property) with the Schwab Funds because of their status as “affiliated
persons” of the Schwab Funds. The Schwab Funds’ and CSIM’s compliance programs and procedures are
designed to prevent, or identify and correct, violations of these provisions. This Code does not,
and is not intended to, repeat or replace these programs and procedures, and such conflicts fall
outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise
from, or as a result of, the contractual relationship between the Schwab Funds and CSIM. Each
Officer may also be an officer or employee of CSIM or Schwab. As a result, this Code recognizes
that the Officers will, in the normal course of their duties (whether formally for the Schwab Funds
or for CSIM, or for both), be involved in establishing policies and implementing decisions that
will have different effects on CSIM and the Schwab Funds. The participation of the Officers in
such activities is inherent in the contractual relationship between the Schwab Funds and CSIM and
is consistent with the performance by the Officers of their duties as officers of the Schwab Funds.
Thus, if performed in conformity with the provisions of the Investment Company Act and the
Investment Advisers Act, such activities will be deemed to have been handled ethically. In
addition, it is recognized by the Trustees that the Officers may also be officers or employees of
one or more other investment companies covered by this or other codes.
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Inside Information
It is unlawful to trade in the securities of any Schwab Funds on the basis of material nonpublic
(or inside) information or to disclose such information to others who may profit from it.
Generally, material information is any information that an investor would likely consider important
in deciding whether to buy, sell or hold securities or that could affect the market price of the
securities. Examples include actual or estimated financial results or change in dividends;
significant discoveries or product developments; possible mergers, acquisitions or divestitures;
major changes in business strategies; obtaining or losing significant contracts; and threatened
major litigation or related developments. Do not disclose inside information to anyone except those
who have a need to know it in order to fulfill their responsibilities for the Schwab Funds and in
accordance with Schwab Funds policy. If you have or receive information and are unsure whether it
is within the definition of inside information or whether its release might be contrary to a
fiduciary or other obligation, contact the Chief Legal Officer prior to disclosing any such
information.
Acceptance of Gifts or Entertainment
The acceptance of gifts or excessive entertainment from shareholders, vendors, suppliers,
competitors or other employees must not constitute a conflict of interest or create the appearance
of impropriety. You may accept small gifts and entertainment that are worth less than the amount
Charles Schwab Corporation policy sets as a limit, but you must be personally satisfied that the
gift or entertainment is not intended to influence your judgment or the performance of your duties.
If you have any questions regarding the appropriateness of a gift, you must obtain approval from
the Chief Compliance Officer before accepting it.
Confidentiality of Information
As mutual funds, we have particular responsibilities for safeguarding the information of our
shareholders and the proprietary information of the Schwab Funds. You should be mindful of this
obligation when you use the telephone, fax, telex, electronic mail, and other electronic means of
storing and transmitting information. You should not discuss confidential information in public
areas where it can be overheard, read confidential documents in public places, nor leave or discard
confidential documents where they can be retrieved by others.
Confidentiality of Shareholder Information
Information concerning the identity of Schwab Funds’ underlying shareholders and their transactions
and accounts is confidential. Such information may not be disclosed to persons working on behalf of
the Schwab Funds except as they may need to know it in order to fulfill their responsibilities to
the Schwab Funds. You may not disclose such information to anyone or any firm outside the Schwab
Funds unless (i) the outside firm needs to know the information in order to perform services for
the Schwab Funds and is bound to maintain its confidentiality; (ii) when the shareholder has
consented or been given an opportunity to request that the information not be shared; (iii) as
required by law; or (iv) as authorized by the Chief Legal Officer or Chief Compliance Officer.
Information regarding shareholder or Schwab Funds transactions must not be used in any way to
influence trades in personal accounts or in the accounts of other shareholders, including those of
other employees, officers and directors. Trading ahead of shareholder or Schwab Funds transactions
is known as frontrunning and is prohibited. Following shareholder or Schwab Funds transactions with
your trading activity is known as piggybacking or shadowing and is likewise prohibited. If you
reasonably believe improper trading in personal, shareholder or Schwab Funds accounts has occurred,
you must report such conduct to the Chief Legal Officer.
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Privacy
The Schwab Funds is committed to safeguarding its customers’ privacy. We do not sell any personally
identifiable customer information. Sharing of such information with third parties is limited to
situations related to the processing and servicing of customer accounts, and to specifically
delineated exceptions in the federal privacy law. We share information with our affiliates as
allowed by federal law. You must be familiar with the procedural and systemic safeguards we
maintain to protect this information and report any breaches of these safeguards to the Chief Legal
Officer or Chief Compliance Officer.
Proprietary Information of the Schwab Funds
You have the responsibility to safeguard the Schwab Funds’ proprietary information. Proprietary
information includes intellectual property (copyrights, trademarks or patents or trade secrets),
particular know-how (business or organizational designs, or business, marketing or service plans or
ideas) and sensitive information about the Schwab Funds (databases, records, salary information or
unpublished financial reports). If you have any questions about what constitutes proprietary
information, or if you believe such information has been compromised, contact the Chief Legal
Officer.
Protection and Use of Schwab Funds Assets
You are obligated to protect the Schwab Funds’ assets and ensure their efficient use. Theft,
carelessness and waste have a direct impact on the Schwab Funds. Schwab Funds equipment should not
be used for non-Schwab Funds business, though incidental personal use may be permitted. Breaches of
this obligation must be reported to the Chief Legal Officer.
Non-Retaliation
It is your obligation to report issues regarding possible violations of business regulations or
this Code when you suspect in good faith that a violation may have or might occur. No Officer will
be retaliated against for making a good faith complaint or bringing inappropriate conduct to the
Schwab Funds’ attention, for assisting another Officer in making a good faith report, for
cooperating in an investigation, or for filing an administrative claim with a state or federal
governmental agency. Any employee who engages in retaliatory conduct in violation of our policies
will be subject to disciplinary action, up to and including termination of employment. If you
reasonably believe retaliatory conduct has occurred, you must report such conduct to the Chief
Legal Officer.
Business Practices
It is your obligation to report issues regarding possible violations of business regulations or
this Code when you suspect in good faith that a violation may have or might occur. As a financial
institution, it is imperative that we operate with efficiency, and the highest business standards
and that we maintain and provide accurate information.
Financial Disclosures
The Schwab Funds are committed to providing full, fair, accurate, timely and understandable
disclosure in reports and documents that the Schwab Funds file with, or submit to, the Securities
and Exchange Commission and other regulatory agencies and in other public communications made by
the Schwab Funds. You are required to comply with Schwab Funds policies and procedures to provide
such full, fair, accurate, timely and understandable disclosure. If you have any questions about
your duties in supporting the Schwab Funds’ financial reporting processes, contact the Chief Legal
Officer or Chief Compliance Officer.
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Conduct of Audits
Neither you nor any other person acting under your direction shall directly or indirectly take any
action to fraudulently influence, coerce, manipulate, or mislead any independent public or
certified public accountant engaged in the performance of an audit or review of the Schwab Funds’
financial statements.
Types of conduct that constitute improper influence include, but are not limited to, directly or
indirectly:
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Offering or paying bribes or other financial incentives, including offering future
employment or contracts for non-audit services;
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Providing an auditor with inaccurate or misleading legal analysis;
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Threatening to cancel or canceling existing non-audit or audit engagements if the
auditor objects to the issuer’s accounting;
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Seeking to have a partner removed from the audit engagement because the partner objects
to the Schwab Funds’ accounting;
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Blackmailing; and
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Making physical threats.
If you reasonably believe improper influence has occurred, you must report such conduct to the
Chief Legal Officer or the Chief Compliance Officer.
Record-Keeping
We require honest and accurate recording and reporting of information to maintain the integrity of
our business records and to make responsible business decisions. The Schwab Funds’ books, records
and accounts must (i) accurately reflect all transactions of the Schwab Funds and all other events
that are subject of a specific regulatory record-keeping requirement; (ii) be maintained in
reasonable detail; and (iii) conform both to applicable legal requirements and to the Schwab Funds’
system of internal controls. Unrecorded or “off the books” funds or assets are prohibited unless
permitted by applicable law or regulation. Business records must not contain exaggeration,
derogatory remarks, guesswork, or inappropriate characterizations of people and companies. This
applies equally to e-mail, internal memoranda, formal reports, and all other forms of business
records. You must be familiar with the Schwab Funds’ record retention policies and always retain or
destroy records according to them. In the event of litigation, governmental investigation or the
threat of such action, you should consult the Chief Legal Officer or the Chief Compliance Officer
regarding record retention.
Sales Practices
If you transact business for shareholders, you are required to know and observe the Schwab Funds’
specific policies and procedures for shareholder sales and transactions, such as the content and
use of sales materials, documentation for transactions, quotations and suitability. Likewise, if
you transact business with third parties (such as vendors or suppliers), you will be required to
know and observe the Schwab Funds’ policies and procedures for such transactions, such as marketing
policies, procedures for performing due diligence on third parties, and obtaining proper
authorizations for any agreements. You must be familiar with any enumerated policies and procedures
governing your sales activities and use good judgment in complying with them. You must seek advice
from the Chief Legal Officer or the Chief Compliance Officer if you have any questions.
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Competition and Fair Dealing
We operate our business fairly and honestly. We seek competitive advantage through performance and
dedication to our Vision and Values and never through unethical or illegal business practices. It
is our policy to comply with anti-trust laws. These laws are complex and not easily summarized but
at a minimum require that there be no agreement or understanding between the Schwab Funds and their
competitors that affect prices, terms or conditions of sale or that unreasonably restrain full and
fair competition. You must always respect the rights of and deal fairly with the Schwab Funds’
shareholders and competitors. You must never take unfair advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of material facts, or any other
unfair dealing practice. If you have any question about what constitutes an unfair business
practice, you should consult the Chief Legal Officer.
Prohibition of Bribery and Kickbacks
Our policies prohibit bribery or kickbacks of any kind and to anyone in the conduct of our
business. The U.S. government has a number of laws and regulations applicable specifically to
business gratuities that may be accepted by U.S. and foreign government personnel. The promise,
offer or delivery to an official or employee of the U.S. government or an official, employee or
candidate of a foreign government of a gift, favor, payment or other gratuity in violation of these
rules would not only violate Schwab Funds policy but could also be a criminal offense. Similarly,
federal law, as well as the laws of many states, prohibits engaging in “commercial bribery.”
Commercial bribery involves soliciting, demanding or agreeing to accept anything of value from any
person intending to influence or be rewarded in connection with any business or transaction, and
prohibits all such behavior, for example, with respect to vendors, competitors, shareholders, and
government employees. If you have any questions or need any guidance, you should contact the Chief
Legal Officer.
Compliance Procedures
We will work together to ensure compliance with the Code and to take prompt action in response to
reported violations of the Code.
Seeking Guidance
If you are unsure of what to do in any situation, seek guidance before you act. Use the Schwab
Funds resources, including the Chief Legal Officer or the Chief Compliance Officer. If you feel
that it is not appropriate to discuss a matter with the Chief Legal Officer or the Chief Compliance
Officer, you may contact the Ombudsperson for the Charles Schwab Corporation. Remember that you
must report all incidents of misconduct, and you may do so without fear of retaliation. If you have
violated the Code, however, making a report will not protect you from the consequences of your
actions.
Reporting Conduct that May be in Violation of the Code
You must report conduct that you believe to be in violation of the Code, Schwab Funds policy, law
or regulation. Reports should be escalated in the following manner:
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If you have a reasonable belief that a violation has occurred, or may occur, you must
report the conduct to the Chief Legal Officer.
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The Chief Legal Officer will take all appropriate action to investigate any potential
violation reported to the Chief Legal Officer and will notify counsel for Schwab Funds
independent Trustees (“Trustees”) and counsel for the Schwab Funds of the substance of the
potential violation.
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If after investigation, the Chief Legal Officer reasonably believes that no violation
has occurred, the Chief Legal Officer is not required to take any further action.
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Any matter that the Chief Legal Officer believes is a violation will be reported to the
Trustees.
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If the Trustees concur that a violation has occurred, the Trustees will consider
appropriate action, which may include review of, and appropriate modification to,
applicable policies and procedures; notification to appropriate personnel of CSIM or its
board; notification to appropriate personnel of the Charles Schwab Corporation or its
board; or a recommendation to dismiss the Officer.
Roles in Observing Compliance
As Officer of the Schwab Funds, you have a role in observing compliance with the Code. In general,
that includes:
Role of Officers
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Read and be familiar with conduct rules outlined in this Code and periodically review
them.
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Affirm in writing to the Trustees that the Officer has received, read and understands
the Code.
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Annually affirm to the Trustees that the Officer has complied with the requirements of
the Code.
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Comply with the conduct standards outlined in this Code in all dealings and actions,
including those with shareholders, the public and vendors.
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Report in a timely manner to the Chief Legal Officer any conduct that may constitute a
violation of the Code, Schwab Funds policies, or laws, rules and regulations.
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Raise questions or concerns about conduct issues with your supervisor, the Chief Legal
Officer or Chief Compliance Officer, and seek advice when in doubt.
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Cooperate with management during fact-finding investigations and comply with any
confidentiality rules imposed.
Role of Trustees
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Review the Code annually and recommend any changes.
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Review the Officer reports of compliance with the Code.
Interpretation of Code and Waivers of the Code
The Chief Legal Officer is responsible for applying the Code to specific situations in which
questions are presented under it and has the authority to interpret the Code in any particular
situation. However, waivers of the Code may be made only by the Trustees and will be promptly
disclosed publicly as required by law.
Amendments
This Code may not be amended except in written form, which is specifically approved or ratified by
a majority of the Trustees including a majority of the independent Trustees. Any amendments will,
to the extent required, be disclosed in accordance with law.
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Other Policies and Procedures
This Code constitutes the sole code of ethics adopted by the Schwab Funds for purposes of Section
406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment
companies thereunder. Insofar as other policies or procedures of the Schwab Funds, CSIM, Charles
Schwab & Co., Charles Schwab Corporation or other Schwab Funds service providers govern or purport
to govern the behavior or activities of an Officer who is subject to this Code, they are superseded
by this Code to the extent that they conflict with the provisions of this Code. CSIM’s code of
ethics under Rule 17j-1 pursuant to the Investment Company Act of 1940 and CSIM’s, Charles Schwab &
Co.’s, and the Charles Schwab Corporation’s policies and procedures set forth in their respective
compliance manuals and elsewhere are separate requirements applying to the Officers and are not
part of this Code.
Confidentiality
All reports and records prepared or maintained pursuant to this Code will be considered
confidential and shall be maintained and protected accordingly. Except as otherwise required by
law or this Code, such matters shall not be disclosed to anyone other than the Trustees, CSIM, the
Charles Schwab Corporation and their respective counsel.
Internal Use
This Code is intended for internal use by the Schwab Funds and does not constitute an admission, by
or on behalf of any Schwab Funds, as to any fact, circumstance, or legal conclusion.
Contacts
If you have further questions about the Code, or about its applicability with respect to a
particular matter, please contact the Chief Legal Officer or Chief Compliance Officer. If you feel
that it is not appropriate to discuss a matter with Chief Legal Officer or the Chief Compliance
Officer, you may contact the Ombudsperson.
