Mutual Fund Summary Prospectus (497k)
01 March 2014 - 7:38AM
Edgar (US Regulatory)
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Summary Prospectus
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February 28, 2014
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Schwab
®
Monthly Income Fund — Maximum Payout
Ticker Symbol: SWLRX
Before you invest, you may want to review the fund’s prospectus, which contains more information about the fund and its risks. You can find the fund’s prospectus, Statement of Additional
Information (SAI) and other information about the fund online at
www.schwabfunds.com/prospectus.
You can also obtain this information at no cost by calling
1-866-414-6349
or by sending an email request to
orders@mysummaryprospectus.com.
If you purchase or hold fund shares through a financial intermediary, the fund’s prospectus, SAI, and
other information about the fund are available from your financial intermediary.
The fund’s prospectus dated April 30, 2013, and SAI
dated April 30, 2013, as supplemented February 28, 2014, include a more detailed discussion of fund investment policies and the risks associated with various fund investments. The prospectus and SAI are incorporated by reference into the
summary prospectus, making them legally a part of the summary prospectus.
Investment objective
The fund seeks to provide current income and, as a secondary investment objective, capital appreciation.
Fund fees and expenses
This table describes the fees and expenses you may pay if you buy and hold shares of the fund.
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Shareholder fees
(fees paid
directly from your investment)
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None
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Annual fund operating expenses
(expenses that you pay each year
as a % of the value of your investment)
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Management fees
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—
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Distribution
(12b-1)
fees
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None
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Other expenses
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0.19
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Acquired fund fees and expenses (AFFE)
1
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0.46
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Total annual fund operating expenses
1
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0.65
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Less expense reduction
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(0.19
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)
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Total annual fund operating expenses (including AFFE) after expense reduction
1,2
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0.46
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1
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Acquired fund fees and expenses (AFFE) have been restated to reflect estimated allocations for the current fiscal year. The total annual fund operating expenses
in the fee table may differ from the expense ratios in the fund’s “Financial Highlights” because the financial highlights include only the fund’s direct operating expenses and do not include AFFE, which reflect the estimated
amount of the fees and expenses incurred indirectly by the fund through its investments in the underlying funds.
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2
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The investment adviser and its affiliates have agreed to limit the total annual fund operating expenses (excluding interest, taxes and certain
non-routine
expenses) of the fund to 0.00% for so long as the investment adviser serves as the adviser to the fund. This agreement may only be amended or terminated with the approval of the fund’s Board of
Trustees. This agreement is limited to the fund’s direct operating expenses and does not apply to AFFE.
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This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those time periods. The example also assumes that your investment has a 5%
return each year and that the fund’s operating expenses remain the same. The figures are based on total annual fund operating expenses (including AFFE) after expense reduction. The expenses
would be the same whether you stayed in the fund or sold your shares at the end of each period. Your actual costs may be higher or lower.
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Expenses on a $10,000 investment
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1 year
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3 years
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5 years
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10 years
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$46
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$147
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$257
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$578
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The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may
result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in the annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the
fund’s portfolio turnover rate was 19% of the average value of its portfolio.
Principal investment strategies
The fund seeks to achieve its investment objective by investing primarily in a combination of Schwab Funds
®
and Laudus Funds (the underlying funds) in accordance with its target asset allocation. The investment adviser will
allocate assets among the underlying funds, which will include equity funds, fixed income funds, and money market funds.
The fund intends to
invest in a combination of underlying funds; however, the fund may invest directly in equity and fixed income securities, cash and cash equivalents (including money market securities), futures, exchange traded funds (ETFs) and nonproprietary mutual
funds.
The fund intends to allocate investments among various asset classes such as equity, fixed income and cash and cash equivalents
(including money market funds). The fund has its own distinct asset allocation strategy that is designed to accommodate the fund’s targeted annual payout percentage while taking into account the fund’s specific risk tolerances and desired
level of capital appreciation. The fund’s target asset allocation is not fixed, and the fund has the flexibility to move within the following asset allocation ranges (under normal market conditions) at the discretion of the
investment adviser:
0%-25%
equity;
60%-100%
fixed income; and
0%-15%
cash
and cash equivalents (including money market funds). Market appreciation or depreciation may cause the fund to be temporarily outside these ranges.
The fund is designed to offer investors a targeted annual payout of
5-6%.
The targeted annual payout for the fund is based on historic yield environments over a ten
year period. The fund’s actual annual payout could be higher or lower than the targeted annual payout based on the interest rate environment and other market factors occurring during that year. The fund’s anticipated annual payout during a
low interest rate environment is expected to be 1-5% and, during a high interest rate environment, is expected to be
5-8%.
Although it cannot be guaranteed by the fund, the fund does not expect to make
distributions that will be treated as return of capital.
For temporary defensive purposes during unusual economic or market conditions or for
liquidity purposes, the fund may invest up to 100% of its assets directly in cash, money market instruments, repurchase agreements and other short-term obligations. When the fund engages in such activities, it may not achieve its investment
objective.
Principal risks
The fund is subject to risks, any of which could cause an investor to lose money. The fund’s principal risks include:
Asset Allocation Risk.
The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the
allocation of the fund’s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective.
Affiliated Fund Risk.
The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds may create a conflict of interest
because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the portfolio manager is a fiduciary to the fund and is legally obligated to act in its best interests when selecting underlying
funds, without taking fees into consideration.
Market Risk.
Equity and fixed income markets rise and fall daily. As with any investment
whose performance is tied to these markets, the value of your investment in the fund will fluctuate, which means that you could lose money.
Structural Risk.
The fund’s monthly income payments will be made from fund assets and will reduce the amount of assets available for
investment by the fund. Even if the fund’s capital grows over time, such growth may be insufficient to enable the fund to maintain the amount of its targeted annual payout and targeted monthly income payments. The fund’s investment losses
may reduce the amount of future cash income payments an investor will receive from the fund. The dollar amount of the fund’s monthly income payments could vary substantially from one year to the next and over time depending on several factors,
including the performance of the financial markets in which the fund invests, the allocation of fund assets across different asset classes and investments, the performance of the fund’s investment strategies, and the amount and timing of prior
distributions by the fund. It is also possible for payments to go down substantially from one year to the next and over time depending on the timing of an investor’s investments in
the fund. Any redemptions will proportionately reduce the amount of future cash income payments to be received from the fund. There is no guarantee that the fund will make monthly income payments
to its shareholders or, if made, that the fund’s monthly income payments to shareholders will remain at a fixed amount.
Underlying
Fund Investment Risk.
The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing
in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although
the fund’s exposure to a particular risk will be proportionate to the fund’s overall asset allocation and underlying fund allocation.
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Investment Risk
.
An investment in an underlying fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
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Management Risk
. Generally, the underlying funds are actively managed mutual funds. Any actively managed mutual fund is subject to the
risk that its investment adviser (or
sub-advisers)
will make poor security selections. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions
for the fund, but there can be no guarantee that they will produce the desired results.
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Equity Risk
. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.
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Large-,
Mid-
and
Small-Cap
Risk.
Stocks of different market capitalizations tend to go in and out of favor based on market and economic conditions. Historically,
small-
and
mid-cap
stocks tend to be more volatile than
large-cap
stocks, and
small-cap
stocks have been riskier than
large-
and
mid-cap
stocks. During a period when stocks of a particular market capitalization fall behind other types of investments — bonds or stocks of another
capitalization range, for instance — an underlying fund’s performance could be reduced to the extent its portfolio is holding stocks of the particular capitalization.
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Fixed Income Risk.
Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. The credit
quality of a portfolio investment could also cause an underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make
timely principal or interest payments or otherwise honor its obligations. Fixed income securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of
interest, which could hurt the fund’s yield or share price. Below investment-grade bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price
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declines and may be more susceptible to economic downturns than investment-grade securities.
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Foreign Investment Risk.
An underlying fund’s investments in securities of foreign issuers may involve certain risks that are
greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control
regulations (including limitations on currency movements and exchanges); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be
heightened in connection with investments in emerging markets.
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Derivatives Risk.
An underlying fund’s use of derivative instruments involves risks different from, or possibly greater than, the
risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested. In addition, investments in derivatives may involve leverage, which means a small
percentage of assets invested in derivatives can have a disproportionately large impact on an underlying fund. However, these risks are less severe when the underlying fund uses derivatives for hedging rather than to enhance the underlying
fund’s returns or as a substitute for a position or security.
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Leverage Risk.
Certain underlying fund transactions, such as derivatives, short sales, reverse repurchase agreements, and
mortgage dollar rolls, may give rise to a form of leverage and may expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which
means even a small amount of leverage can have a disproportionately large impact on the fund. The use of leverage may cause the underlying fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its
obligations.
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Money Market Risk.
Although an underlying money market fund seeks to maintain a stable $1 net asset value, it is possible to lose
money by investing in a money market fund. In addition, a money market fund is not designed to offer capital appreciation.
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Liquidity Risk.
A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid
securities at an advantageous time or price.
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ETFs Risk.
When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of
liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.
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Securities Lending Risk.
Certain underlying funds engage in securities lending, which involves the risk of loss of rights in the
collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.
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Direct Investment Risk.
The fund may invest a portion of its assets directly in equity and fixed income securities, as well as other mutual funds
and ETFs to maintain its asset allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same security.
For more information on the risks of investing in the fund and the underlying funds please see the
“Fund details
”
section in the prospectus.
Performance
The chart below shows how the fund’s investment results have varied from year to year, and the following table shows how the fund’s average
annual total returns for the various periods compared to those of two broad based indices and a composite index based on the fund’s target allocations. This information provides some indication of the risks of investing in the fund. All figures
assume distributions were reinvested. Keep in mind that future performance (both before and after taxes) may differ from past performance. For current performance information, please see
www.schwabfunds.com/prospectus
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Annual total returns
(%) as of
12/31
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Best quarter: 5.07% Q3 2009
Worst quarter: (1.25%) Q1 2009
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Average annual total returns
(%) as of 12/31/12
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1 year
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Since
Inception
(3/28/08)
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Before taxes
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4.43%
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4.15%
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After taxes on distributions
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3.60%
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2.92%
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After taxes on distributions and sale of shares
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2.90%
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2.82%
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Comparative Indexes (reflect no deduction for expenses or taxes)
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S&P 500 Index
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16.00%
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3.84%
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Barclays U.S. Aggregate Bond Index
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4.21%
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5.90%
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Maximum Payout Composite Index
1
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5.41%
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5.86%
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1
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The Maximum Payout Composite Index is a custom blended index developed by Charles Schwab Investment Management, Inc. based on a comparable portfolio asset
allocation and calculated using the following portion allocations: 10% S&P 500 Index and 90% Barclays U.S. Aggregate Bond Index.
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The
after-tax
figures reflect the highest individual federal income tax rates in effect during the period and do not reflect the impact of state and local taxes.
Your actual
after-tax
returns depend on your individual tax situation. In addition,
after-tax
returns are not relevant if you hold your fund shares through a
tax-deferred
arrangement, such as a 401(k) plan, an individual retirement account (“IRA”) or other
tax-advantaged
account.
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REG54839-09 00112481
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Schwab
®
Monthly Income Fund — Maximum Payout; Ticker
Symbol: SWLRX
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Investment adviser
Charles Schwab Investment Management, Inc.
Portfolio manager
Zifan Tang, Ph.D., CFA,
Managing Director and Head of Asset Allocation Strategies, is responsible for the day-to-day management of the fund. She
has managed the fund since 2012.
Purchase and sale of fund shares
The fund is open for business each day that the New York Stock Exchange is open. When you place orders to purchase, exchange or redeem fund shares through Charles Schwab & Co., Inc. (Schwab) or
another financial intermediary, you must follow Schwab’s or the other financial intermediary’s transaction procedures.
Eligible
Investors (as determined by the fund and which generally are limited to institutional investors) may invest directly in the fund by placing purchase, exchange and redemption orders through the fund’s transfer agent. Eligible Investors must
contact the transfer agent by phone or in writing to obtain an account application. Eligible Investors may contact the transfer agent:
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by telephone at
1-800-407-0256; or
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by mail in writing to Boston Financial Data Services, Attn: Schwab Funds, P.O. Box 8283, Boston, MA 02266-8323.
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The minimum initial investment for the fund is $100. The minimum may be waived for certain investors or in
the fund’s sole discretion.
Tax information
Dividends and capital gains distributions you receive from the fund will generally be taxable as ordinary income or capital gains, unless you are investing through an IRA, 401(k) or other
tax-advantaged
account.
Payments to financial intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay
the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your salesperson to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more information.
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