October 2011
Important account information you need to know.
• TheConsolidatedStatementofFinancialConditionofCharlesSchwab&Co.,Inc.asofJune30,2011,isavailable.
ClientsmayobtainafreecopyoftheCharlesSchwab&Co.,Inc.ConsolidatedStatementofFinancialConditionasofJune30,2011,byvisitingourwebsiteatwww.schwab.com/sfc,bycalling1-800-435-4000,orbycontactingaSchwabrepresentative.
• NoticeofChangetoSchwab’sCash Features Disclosure Statements
• HowWeCompensateOurInvestmentProfessionals
• AmendmentstoYourAccountAgreements
Contents
Notifications
All InvestorsTheConsolidatedStatementofFinancialConditionofCharlesSchwab&Co.,Inc.asofJune30,2011,isavailable. . . . . . . . . . . . . . . . . 1
NoticeofChangetoSchwab’sCash Features Disclosure Statements. . . . . . . . . . . . . . . . . . . . . . . 3
HowWeCompensateOurInvestmentProfessionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Amendments to the Following Account Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27SchwabOne®AccountSchwabAccountSchwabIRAandESAAccountSchwab403(b)(7)AccountSchwabRetirementPlanBrokerageAccountSchwabIndividual401(k)Account
Securities, products, and services, including Schwab Bank and Schwab Bank High Yield Investor Checking®, are not available in all countries and are subject to country-specific restrictions.
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All Investors
The Consolidated Statement of Financial Condition of Charles Schwab & Co., Inc. (Schwab) as of June 30, 2011, is available.
What this means for you:InaccordancewiththerequirementsoftheSecuritiesandExchangeCommission,clientsmayobtainafreecopyoftheConsolidatedStatementofFinancialConditionofSchwabasofJune30,2011:
• Visitourwebsiteatwww.schwab.com/sfc;
• Callustoll-freeat1-800-435-4000orcontactaSchwabrepresentative;
• Clientsofanindependentinvestmentadvisor,pleasecallusat1-800-515-2157;
• Internationalclients,pleasecallusat+1-415-667-8400;UKresidentsshouldcall00800-0826-5001;Swissresidentsshouldcall0800-563711.
Regulatory RequirementsSchwabissubjecttoRule15c3-1undertheSecuritiesExchangeActof1934(theUniformNetCapitalRule).SchwabcomputesnetcapitalunderthealternativemethodpermittedbytheUniformNetCapitalRule.Thismethodrequiresthemaintenanceofminimumnetcapital,asdefined,ofthegreaterof2%ofaggregatedebitbalancesarisingfromclienttransactionsoraminimumdollarrequirement,whichisbasedonthe
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typeofbusinessconductedbythebroker-dealer.Underthealternativemethod,abroker-dealermaynotrepaysubordinatedborrowings,paycashdividends,ormakeanyunsecuredadvancesorloanstoitsparentcompanyoremployeesifsuchpaymentwouldresultinnetcapitaloflessthan5%ofaggregatedebitbalancesorlessthan120%ofitsminimumdollarrequirement.AtJune30,2011,2%ofaggregatedebitswas$258million,whichexceededtheminimumdollarrequirementforSchwabof$250,000.
AtJune30,2011,Schwab’snetcapitalwas$1.3billion(10%ofaggregatedebitbalances),whichwas$1.0billioninexcessofitsminimumrequirednetcapitaland$649millioninexcessof5%ofaggregatedebitbalances.AtJuly31,2011,Schwab’snetcapitalwas$1.3billion(10%ofaggregatedebitbalances),whichwas$1.1billioninexcessofitsminimumrequirednetcapitaland$677millioninexcessof5%ofaggregatedebitbalances.
For more informationTheannualreportasofDecember31,2010,preparedpursuanttoRule17a-5undertheSecuritiesExchangeActof1934,hasbeenfiledwiththeLosAngelesregionalofficeoftheSecuritiesandExchangeCommission,andisavailableforexaminationandcopyingatourheadquarters:211MainStreet,SanFrancisco,California94105.
The Charles Schwab CorporationFormoreinformationabouttheultimateparentcompanyofCharlesSchwab&Co.,Inc.,writetoTheCharlesSchwabCorporation,InvestorRelations,211MainStreet,SanFrancisco,California94105;call1-415-667-1959;[email protected];orvisitourwebsiteatwww.aboutschwab.com.
©2011CharlesSchwab&Co.,Inc.Allrightsreserved. MemberSIPC.CS15203-01(0811-5359) REG21871-20(10/11)
typeofbusinessconductedbythebroker-dealer.Underthealternativemethod,abroker-dealermaynotrepaysubordinatedborrowings,paycashdividends,ormakeanyunsecuredadvancesorloanstoitsparentcompanyoremployeesifsuchpaymentwouldresultinnetcapitaloflessthan5%ofaggregatedebitbalancesorlessthan120%ofitsminimumdollarrequirement.AtJune30,2011,2%ofaggregatedebitswas$258million,whichexceededtheminimumdollarrequirementforSchwabof$250,000.
AtJune30,2011,Schwab’snetcapitalwas$1.3billion(10%ofaggregatedebitbalances),whichwas$1.0billioninexcessofitsminimumrequirednetcapitaland$649millioninexcessof5%ofaggregatedebitbalances.AtJuly31,2011,Schwab’snetcapitalwas$1.3billion(10%ofaggregatedebitbalances),whichwas$1.1billioninexcessofitsminimumrequirednetcapitaland$677millioninexcessof5%ofaggregatedebitbalances.
For more informationTheannualreportasofDecember31,2010,preparedpursuanttoRule17a-5undertheSecuritiesExchangeActof1934,hasbeenfiledwiththeLosAngelesregionalofficeoftheSecuritiesandExchangeCommission,andisavailableforexaminationandcopyingatourheadquarters:211MainStreet,SanFrancisco,California94105.
The Charles Schwab CorporationFormoreinformationabouttheultimateparentcompanyofCharlesSchwab&Co.,Inc.,writetoTheCharlesSchwabCorporation,InvestorRelations,211MainStreet,SanFrancisco,California94105;call1-415-667-1959;[email protected];orvisitourwebsiteatwww.aboutschwab.com.
©2011CharlesSchwab&Co.,Inc.Allrightsreserved. MemberSIPC.CS15203-01(0811-5359) REG21871-20(10/11)
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Individual Investors and Clients of Investment Advisors
Notice of Change to Schwab’s Cash Features Disclosure Statements
WehavemadeimportantchangestotheCash Features Disclosure Statement for Individual InvestorsandtheCash Features Disclosure Statement for Schwab Institutional®(“DisclosureStatements”).
ThisNoticeamendstheDisclosureStatements,andanycontraryorconflictinglanguageintheDisclosureStatementsisreplaced.Thesechangesareeffectiveimmediately.
The Bank Sweep Feature, Relationship with SchwabReplacethefifthparagraphwiththefollowing:
“WeprovideadministrativeservicestoSchwabBankinsupportoftheoperationoftheBankSweepfea-ture.Wearecompensatedfortheseadministrativeservicesinanamountuptoa$20annualflatfeeforeachsecuritiesaccountthatsweepsintoaDepositAccountatSchwabBank.Wereservetherighttoincrease,decreaseorwaiveallorpartofthisfee.Wewillnotifyyouinadvanceofanyincrease.Weandcertainofouraffiliatesalsoprovideoperational,technologyandotherservicestoSchwabBankandreceivecompensationforthoseservices.Inaddition,certainofouremployeesandregisteredrepresenta-tivesmaybecompensatedinpartbased,directlyorindirectly,onassetsintheBankSweepfeatureortheprofitabilityoftheBankSweepfeatureforSchwab
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Bankandourjointparentcompany,TheCharlesSchwabCorporation.
“Otherthanapplicablefeesandchargesimposedbyusonyoursecuritiesaccounts,whicharedescribedinyourPricingGuide,therewillbenocharge,feeorcommissionimposedonyoursecuritiesaccountwithrespecttotheBankSweepfeature.”
The Bank Sweep Feature, Information About Schwab Bank1. Inthefirstsentence,replace“OfficeofThrift
Supervision”with“OfficeoftheComptrolleroftheCurrency.”
2. Inthethirdsentence,replace“OfficeofThriftSupervision”with“FederalReserveBoard.”
Benefi ts to Schwab Bank, Schwab, and The Charles Schwab CorporationReplacethesecondparagraphwiththefollowing:
“WeprovideadministrativeservicestoSchwabBankinsupportoftheoperationoftheBankSweepfea-ture.Wearecompensatedfortheseadministrativeservicesinanamountuptoa$20annualflatfeeforeachsecuritiesaccountthatsweepsintoaDepositAccountatSchwabBank.Wereservetherighttoincrease,decreaseorwaiveallorpartofthisfee.Wewillnotifyyouinadvanceofanyincrease.Weandcertainofouraffiliatesalsoprovideoperational,technologyandotherservicestoSchwabBankandreceivecompensationforthoseservices.Inaddition,certainofouremployeesandregisteredrepresenta-tivesmaybecompensatedinpartbased,directlyorindirectly,onassetsintheBankSweepfeatureortheprofitabilityoftheBankSweepfeatureforSchwabBankandourjointparentcompany,TheCharlesSchwabCorporation.
“Otherthanapplicablefeesandchargesimposedbyusonyoursecuritiesaccounts,whicharedescribedinyourPricingGuide,therewillbenocharge,feeorcommissionimposedonyoursecuritiesaccountwithrespecttotheBankSweepfeature.”
©2011CharlesSchwab&Co.,Inc.Allrightsreserved. MemberSIPC.CS15123-01(1011-5432) REG63278(09/11)
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How We Compensate Our Investment Professionals
SinceCharlesSchwab&Co.,Inc.(“Schwab”)wasfoundedmorethan30yearsago,we’vebeencom-mittedtoservingtheneedsoftheindividualinvestor.Webelieveitisimportantforallinvestorstounder-standhowthefinancialprofessionalwhoisassistingthemispaid.Thiscanbeonefactoraninvestorconsiderswhenevaluatingtheinformationorrecom-mendationsthataprofessionalprovides.
Inthisbrochure,weidentifythedifferentcategoriesofinvestmentprofessionalswhomayserveyouatSchwab—includingbothSchwabemployeesandindependentcontractorsandtheiremployeesoperat-ingSchwabIndependentBranches—anddescribehowtheyarecompensated.SomeoftheseplansarebasedonrevenueSchwabearnsfromclientsorfromproductsales.SchwabmaypayaSchwabrepresenta-tivemoreforsellingproductsorservicesonwhichSchwabmakesmoremoney.PleasenotethattheinformationbelowdescribeshowSchwabpaysemployeeprofessionalsandsharesrevenuewithindependentcontractorprofessionals,nothowyoupaySchwabfortheservicesyoureceive.InformationaboutwhatyoupaySchwabfortheservicesweprovidecanbefoundatwww.schwab.com/pricing.Weinviteyoutoreadthisinformationcarefullyandtocontactusat1-800-785-3965ifyouhaveanyques-tions.(Formultilingualservices,call1-800-662-6068.ForservicesoutsidetheU.S.,call+1-415-667-8400.U.K.residentsshouldcall00800-0826-5001;Swissresidentsshouldcall0800-563711.)
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Summary of ChangesCompensationplansandrevenue-sharingarrange-mentsforbothemployeeandindependentcontractorinvestmentprofessionalschangefromtimetotime.
EffectiveOctober1,2011,changesweremadetoSchwab’sincentivecompensationplans.Thefollow-ingisasummaryofthechanges:
· AddedActiveInvestorEducationSpecialists,SchwabManagedPortfolioServiceRepresentativesandIndependentBranchServicesRepresentativesasnewcategoriesofinvestmentprofessionals.
· Addedenrollmentofclientsinadvisedoffersandtemporaryincentiveprogramstothelistoftypesofactivitiesforwhichcertaininvestmentprofession-alsmayearnandreceiveincentivecompensation.
· AddedWindhavenPortfolios™tothelistoftypesofproductsforwhichFinancialConsultantsmaybecompensated
· AddednewcriteriaforassistingclientsforcertaininvestmentprofessionalstoqualifyforadditionalcompensationundertheCircleofExcellenceprogram.
Branch Representatives
Client Service Specialists
ClientServiceSpecialistsrespondtothespecificneedsofclientsandmaydirectclientstotheappro-priateSchwabrepresentative.Inadditiontoabasesalary,ClientServiceSpecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofser-vicequality,clientsatisfaction,salessupport,andteamwork.
Associate Financial Consultants
AssociateFinancialConsultantsassistclientsinourbranchoffices.TheymeetwithclientswhoarenotassignedtoaFinancialConsultant’sPracticeaswellaswithpotentialnewclientstoidentifyandanalyzetheirfinancialneeds.Inadditiontoabasesalary,AssociateFinancialConsultantsareeligibleforabonusbasedonthreecomponents:
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Manager Discretion—AnannualbonusprogramfundedbasedonSchwab’sperformanceanddeter-minedbasedonmanagerdiscretion,whichmayincludeconsiderationofservicequality,clientsatis-faction,teamwork,andabilitytoprovidehelpandguidancetoourclients.
Circle of Excellence—AprogramthroughwhichSchwabawardsadditionalcompensationtoalleligibleAssociateFinancialConsultantsbasedonhowwelltheycomparetotheirpeersinbringingNetNewAssetstoSchwab,enrollingclientsinandensuringsatisfactionwithAdvisedOffersandManagedAccounts(whereappropriate),andassistingclientsinutilizingtheproductsandservicesofferedbySchwabBank(whereappropriate).
Client Promoter Score—AprogramthatawardsadditionalcompensationtoAssociateFinancialConsultantsbasedonclientsatisfactioninthebranchaswellasmanagerdiscretion.
VP–Financial Consultants
FinancialConsultantsassistourclientsthroughourbranchofficelocationsandalsobyphone.EachFinancialConsultantsupportsaPractice,whichincludesclientswhoareassignedtothatFinancialConsultantasaprimarypointofcontact.FinancialConsultantsalsoassistclientswhoarenotintheirPractice.FinancialConsultantsarecompensatedbasedonfourcomponents:Service,Sales,CircleofExcellence,andClientPromoterScore.
Service
TheServicecomponentpaysaFinancialConsultant7%oftheapproximateannualrevenueattributedtoclientsintheirPractice.Forcompensationpurposes,Schwabestimatesrevenuebysortingassetsinclients’accountsintothecategoriesinTableA.ThecategoriesdonotcorrespondexactlytotherevenueearnedbySchwabforanyparticularsale,security,orservice.Wecallthis“proxyrevenue.”
SchwabusesproxyrevenueinsteadofrealrevenuesoFinancialConsultantsearnthesamecompensationforsimilarproducts.Forexample,aFinancialConsultantwillearnthesamecompensationforrecommendingaSchwabproprietarymutualfund,aSchwab
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OneSource®mutualfund,oratransaction-feemutualfund,eventhoughSchwabmakesmoremoneyontheSchwabproprietarymutualfunds.FinancialConsultantscouldreceivemorecompensationifaclientacceptscertainrecommendationsthattheymake,asshownbelowbytheproxyrevenuecategories.Forexample,aFinancialConsultantearnsmorefromrecommend-ingamutualfundoverindividualstocks,bonds,orexchange-tradedfunds.Asanotherexample,aFinancialConsultantearnsmoreforrecommendingtheinvestmentofcashinamoneyfundoveracertifi-cateofdeposit.AFinancialConsultantalsoearnsadditionalcompensationforservingclientsenrolledinSchwabPrivateClient™, whichreflectstheaddi-tionaltimethataFinancialConsultantmayspendservingclientsofSchwabPrivateClient™.
Table A
Assets Financial Consultant’s Compensation
Non-Fee-Based Services
StocksOptionsBondsCertificatesofDepositExchange-TradedFundsSchwabBankHighYieldInvestorChecking®AccountSchwabBankHighYieldInvestorSavings®Account
0.0028%ofassets
AllMutualFundsAllMoneyMarketFundsAllOtherCashFixedandVariableAnnuities1MarginBalances2
0.0350%ofassets
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Assets Financial Consultant’s Compensation
Fee-Based Services
AssetsinaccountsenrolledinSchwabPrivateClient™orSchwabAdvisorNetwork®3whereFinancialConsultantdoesnotpro-videongoingservice
0.0350%ofassets
AssetsinaccountsenrolledinSchwabManagedPortfolios™,SchwabManagedAccountSelect®,SchwabManagedAccountConnection™(formerlySchwabManagedAccountAffiliates®),orWindhavenPortfolios™4
0.0595%ofassets
AssetsenrolledinSchwabPrivateClient™whereFinancialConsultantpro-videsongoingservice
0.0770%ofassets
1Applicabletoinsurance-licensedFinancialConsultantsonly.
2Theproxyrevenueformarginappliesonlytomarginbalancesinaclient’saccountgreaterthan$5,000butnotgreaterthan10%ofaclient’smargin-borrowingcapacity.
3ReferralcreditforSchwabPrivateClient™advisedconversionsisonlyavailabletoFinancialConsultantswhorefertheclienttoanotherFinancialConsultantwhomaintainstheSchwabPrivateClient™relationship.ReferralsofSchwabAdvisorNetwork®accountstoSchwabBankAdministrativeTrusteeServicesareeligibleforcreditbasedontheamountofreferredassetswithin90daysoftheinitialfundingdateat85basispointsforthreeyearsfromthecreditstartdate.
4NotethatifanaccountthatisenrolledinSchwabManagedAccountSelect®orSchwabManagedAccountConnection™ispartofahouseholdthatincludesaccountsenrolledinSchwabPrivateClient™,thoseassetswillbemeasuredforcompensationpur-posesattheSchwabPrivateClientcreditrate.
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Example:Aclienthas$100,000instocks,$100,000inmutualfunds,and$100,000incash.Noneoftheassetsareenrolledinafee-basedservice.TheannualizedproxyrevenueSchwabreceivesfromthatclientis$1,040.TheFinancialConsultantreceives7%ofthat$1,040,whichequals$72.80inannualizedcompensation.Thecalculationis($100,000x0.000028forstocks)+($100,000x0.00035formutualfunds)+($100,000x0.00035forcash)=$72.80.
Iftheclientthensells$25,000ofstocksandbuysthesameamountofmutualfundseitherontheirownoraftertalkingtotheirFinancialConsultant,theannualizedproxyrevenueSchwabreceivesincreasesby$115to$1,155,andtheFinancialConsultant’sannualizedcompensationincreasesby$8.05to$80.85.
Sales
TheSalescomponentpaysaFinancialConsultantforNetNewAssets,AdviceEnrollments,andProductConversionsasdefinedinTableBandTableC.AFinancialConsultantcanearnSalesrevenuecreditforanyclientwithwhomtheFinancialConsultanthasarelationship,includingclientsintheFinancialConsultant’sPracticeandnewclientrelationshipsnotintheirPractice.AFinancialConsultantreceivesfrom15%to35%oftheSalesrevenuecreditbasedontheFinancialConsultant’sgraduatedpayoutschedule.Ingeneral,asset-basedrevenuecreditsarepaidoutover12monthsaslongastheFinancialConsultantstaysemployed;othercreditsarepaidinthemonthfollowingtheconversion.
Schwabmaycaptheamountofincentivecompensa-tionthataFinancialConsultantcanearnfromanyoneclientfromtheSalescomponent.
Table B
Asset Consolidation Financial Consultant’s Compensation (DependingontheFinancialConsultant’spayoutrate)
NetNewAssets 0.0375%to0.0875%ofNetNewAssets
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Table C
Advice and Products Financial Consultant’s Compensation (DependingontheFinancialConsultant’spayoutrate)
MutualFunds 0.0375%to0.0875%ofNetMutualFundpurchases—excludesmoneymarketfunds
AdviceReferrals—SchwabPrivateClient™,SchwabAdvisorNetwork®, SchwabManagedPortfolios™,SchwabManagedAccountSelect®,SchwabManagedAccountConnection™,orWindhavenPortfolios™
0.09%to0.21%ofNetAdviceEnrollments
SchwabAdvisorNetwork®, SchwabBankAdministrativeTrusteeServices
0.09%to0.21%ofconvertedreferralforNewtoSchwabAdvisorNetwork®assetswithin90daysofconversiondate
ReferralstoallSchwabManagedPortfolios™orWindhavenPortfolios
$38to$88forclientswhoarenewtoSchwabManagedPortfolios™orWindhavenPortfolios™;limitedtoonecreditperclient
TransfersofClientMarginBalancesintoSchwab
Marginbalancemulti-pliedby0.27%or0.63%
FixedorVariableAnnuitybylicensedFinancialConsultant
0.0375%to0.0875%ofNetAnnuitypurchases
SinglePremiumImmediateAnnuitybylicensedFinancialConsultant
0.105%to0.245%ofcontract
ReferralstoVariable,Fixed,andImmediateAnnuitiesbyunlicensedFinancialConsultants
$38to$88forconvertedreferral
ReferralstoTermLifeInsurance1
$20to$47forconvertedreferral
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Advice and Products Financial Consultant’s Compensation (DependingontheFinancialConsultant’spayoutrate)
IntroductionstoCharlesSchwabBankformort-gage,homeequitylinesofcredit,andpledgedassetloans.
FinancialConsultantswhoarealsoemployeesofSchwabBank:
$126to$1,925forrefer-ringaclienttoSchwabBankwhosubsequentlytakesoutamortgage,basedonthesizeoftheloan
$92to$214forreferringaclienttoSchwabBankwhosubsequentlytakesoutahomeequityloanorpledgedassetloan
Additionalquarterlycompensationbasedonnumberof2010year-to-dateclosedmortgagereferrals;paymentbasedonthehighesttierattainedyear-to-date:
$176for6mortgages
$902for10mortgages
$1,980for15mortgagesCheckingaccountopeningswithCharlesSchwabBank
$17to$40foreachcheckingaccountopened
529Accounts $17to$40foreach529Accountopened
ReferralstoourActiveInvestorSalesTeam
$113to$525dependingonhowmuchmoretheclienttradesafterthereferral
FinancialPlans2 $135to$315forconvertedreferral
EquityCompensationConsultations2
$135to$315forconvertedreferral
RetirementConsultations2
$68to$158forconvertedreferral
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Advice and Products Financial Consultant’s Compensation (DependingontheFinancialConsultant’spayoutrate)
ReferralsforForwardContracts,EquityCollars,andExchange-TradedFunds
Tieredpaymentforconvertedreferral:
0.0690%to0.1610%ofassetsupto$5million,
0.0068%to0.0158%ofassetsover$5million
ReferralsforStructuredNotesandStructuredCDs
Principalvalueofthenotemultipliedby0.075%to0.175%forconvertedreferral
ReferralstoCorporateandRetirementServices
0.105%to0.245%onNetNewAssets,limitedto$10million,forcon-vertedreferral
ReferralstoSchwabAdvisorServices™
ReferralofanAdvisortoSchwabAdvisorServices™basedonconvertedassets:
$341to$795forupto$30million,
$1,500to$3,500for$30+million
1FinancialConsultantsonlyreferclientstoprovidersforwhomSchwabperformsservicesandfromwhomitreceivescompensationforthoseservices.
2FinancialConsultantsarenotcompensatedforprovid-ingcomplimentaryretirementconsultations,financialplans,orequitycompensationconsultationstoclients.
Example:Aclientdeposits$100,000andpurchasesMutualFunds.IftheFinancialConsultant’spayoutrateis15%,theywouldearn$37.50forNetNewAssetSalesand$37.50forMutualFundSales,or$75.00intotal.Thisisbasedonmultiplying$100,000by0.0375%fromTableBandTableCforNetNewAssetsandMutualFundSales,respectively.
Circle of Excellence
TheCircleofExcellenceisaprogramthroughwhichSchwabawardsadditionalcompensationtothetop50%ofitseligiblebranchFinancialConsultants
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basedonhowwelltheycomparetotheirpeersintermsofsalescreditsandassetconsolidation.Thecriteriaaresubjecttochangeperiodically.Currently,eligibleFinancialConsultantsqualifybasedonRevenueCreditsfromtheFinancialConsultant’scombinedPracticeandNon-Practiceclients,salesofBankingProductsaslistedinTableC(excludingmortgageproductioncredit),andNetNewAssetsfromtheFinancialConsultant’sPracticeclients.
Client Promoter Score
TheClientPromoterScoreisaprogramthroughwhichSchwabawardsadditionalcompensationtothetop75%ofitsbranchesbasedonhowwelltheycompareagainsteachotherindelightingclientsasmeasuredbyClientPromoterScoresurveys.Abranchpoolisfundedbasedonbranchresults;thebonusisdeterminedbasedonindividualcontributiontothebranchClientPromoterScoreandmanagerdiscretion.
Financial Consultants (Phone-Based)
SomeFinancialConsultantsprovideservicesprimarilytoourclientswithassetsunder$250,000.Inaddi-tiontoabasesalary,theseFinancialConsultantsareeligibleforSalespaymentasdescribedunderFinancialConsultantSalesandaquarterlybonusdeterminedbymanagerdiscretion,whichmayincludeconsiderationofclientsatisfaction,teamwork,andsuccessfultransitionofclientstoaFinancialConsultantinabranch,whenappropriate.
International VP–Financial Consultants
InternationalFinancialConsultantsprovideservicesprimarilytoourclientsresidingoutsidetheUnitedStatesanditsterritoriesandpossessions.TheseFinancialConsultantsarepaidaccordingtothesameincentiveplanasotherFinancialConsultants,exceptforthesedifferences:TheServiceratesmayvarybasedonmarketlocations,andtherearenoCircleofExcellenceorClientPromoterScorecomponents;instead,thereisadiscretionarycomponentdeter-minedbymanagers,whomayconsiderNetNewAssets,clientsatisfaction,andteamwork.
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Service Representatives
Customer Service Representatives and Brokerage Service Representatives
CustomerServiceRepresentativesandBrokerageServiceRepresentativesprovideserviceoverthephonetomeetclientneeds,respondtotelephoneinquiriesfromclientsabouttheproductsandservicesweoffer,andmaycontactclientsbyphoneoremail.Inadditiontoabasesalary,theserepresentativesareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofproductivity,clientsatisfaction,qualityassurance,referrals,teamwork,andclientfeedback.Inaddition,theserepresentativesareeligibleforadditionalcompensationthatismeasuredatateamlevelandisbasedoncustomersatisfac-tion,internalqualityassessment,andproductivity.
Specialty Representatives
Electronic Acquisition Specialists
ElectronicAcquisitionSpecialistsinteractwithpros-pectsandclientsviaalivewebchannelandmakereferralsviatelephonetothelocalbranchnetworkorothergroupwithinSchwabtomeettheirneedswhenappropriate.Inadditiontoabasesalary,thesespecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofqualityofserviceandappropriatenessofreferrals.
Prospect Development Specialists
ProspectDevelopmentSpecialistsinteractwithprospectsandclientsviathetelephonechannels—primarilythroughinboundcalls—andmakereferralstoalocalbranchwhenappropriate.Theyworktounder-standclientneedsandprovideappropriatesolutions.Inadditiontoabasesalary,thesespecialistsareeligibleforabonusbasedontwocomponents:
• Manager Discretion—AnannualbonusprogramfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,which
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mayincludeconsiderationofservicequality,clientsatisfaction,teamwork,andabilitytoprovidehelpandguidancetoourclients.
• Circle of Excellence—AprogramthroughwhichSchwabawardsadditionalcompensationtoalleligibleProspectDevelopmentSpecialistsbasedonhowwelltheycomparetotheirpeersinbringingNetNewAssetstoSchwab,enrollingclientsinandensuringsatisfactionwithAdvisedOffersandManagedAccounts(whereappropriate),assistingclientsinutilizingSchwabBankLendingProducts(whereappropriate),fundingnewaccounts,andenrollingclientsinSchwab’sActiveInvestorplat-form(whereappropriate).
Investor Development Specialists
InvestorDevelopmentSpecialistsinteractwithpros-pectsandclientsviathetelephonechannels—primar-ilythroughoutboundcalling—andmakereferralstoalocalbranchwhenappropriate.Theyworktounder-standclientneedsandprovideappropriatesolutions.Inadditiontoabasesalary,thesespecialistsareeligibleforabonusbasedontwocomponents:
• Manager Discretion—AnannualbonusprogramfundedbasedonSchwab’sperformanceanddeter-minedbasedonmanagerdiscretion,whichmayincludeconsiderationofservicequality,clientsatisfaction,teamwork,andabilitytoprovidehelpandguidancetoourclients.
• Circle of Excellence—AprogramthroughwhichSchwabawardsadditionalcompensationtoalleligibleInvestorDevelopmentSpecialistsbasedonhowwelltheycomparetotheirpeersintermsofbringingNetNewAssetstoSchwab,enrollingclientsinandensuringsatisfactionwithAdvisedOffersandManagedAccounts(whereappropriate),assist-ingclientsinutilizingSchwabBankLendingProducts(whereappropriate),fundingnewaccounts,andenrollingclientsinSchwab’sActiveInvestorplatform(whereappropriate).
Financial Consultants (Participant Services)
FinancialConsultantsprovidehelptoparticipantsinretirementplansservicedbySchwabCorporate
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Services,Inc.(“SCS”).Forexample,ifaparticipantiseligibleforadistributionorarollover,theFinancialConsultantdiscussestheparticipant’soptions.Thesemayincludekeepingtheparticipant’sassetsintheirretirementplanorrollingovertoaSchwabIRA.IfaparticipantdecidestoopenaSchwabIRA,oncetheaccountisopenedtheFinancialConsultantmayrecommendinvestmentsorotherproductsandsolutions.Inadditiontoabasesalary,theseFinancialConsultantshavethepotentialtoearnadditionalmonthlyincentivecompensationbasedonthefollowingcriteria:
• Service quality—adiscretionarycomponentthatevaluatestheFinancialConsultant’sperformanceineducatingparticipantsabouttheiroptions,whichmayincludetakingadistribution,leavingtheirmoneyintheirplan,rollingovertoathird-partyplan,oropeningandrollingovertoaSchwabIRA.
• Sales activities—ameasurementofNetNewAssets;referralstoaComplimentaryPortfolioConsultation;referralstoaBranchFinancialConsultant’sPractice;referralstoActiveInvestororSchwabBankProductsthatresultinaconversionorsale;andactivityinAdvisedOffers(whenappro-priate).
SalescompensationmaybeincreasedforclientretentionandNetNewAssetsresultingfromout-boundcallingefforts.
VP–Financial Consultants (Executive Services)
ExecutiveServiceFinancialConsultantsprovidededicatedin-personrelationshipstoExecutivepartici-pantsofSchwabCorporateServices,Inc.(“SCS”)PlanSponsorstoservicetheir401(k)andequitycompensationplanneedsandworkwiththeseExecutivestoidentifyotherSchwabproductsandservicesgiventheirneeds.Inadditiontoabasesalary,ExecutiveServiceFinancialConsultantsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofclientsatisfaction,servicequality,andNetNewAssetstoSchwab.
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Advice Consultants
AdviceConsultantsprovideadviceand/oreducationtoparticipantsofretirementplansservicedbySCS.Servicesmayincludepersonalizedone-on-oneconsultations,evaluationofinvestments,portfolio/assetallocation,anddiscussionoffinancialgoals(includingretirement).Theseservicesrelatetobothinvestmentsinemployer-sponsoredretirementplansand/orotherassetsheldoutsideofthoseplans.Inadditiontobasesalary,AdviceConsultantsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthequalityofrepresentatives’inter-actionswithclients,utilizationofadvice,andbusi-nessdevelopmentopportunities.
Active Investor Representatives
ActiveInvestorRepresentativesidentifyclientswhosetradingneedsareanappropriatematchforanactivetradingservice.Theydonotprovidetradingadvice.ThegroupconsistsofregionallybasedActiveInvestorFieldSalesMarketManagerswhoworkwithlocalbranches,aswellasphone-basedActiveInvestorConsultants.
ActiveInvestorFieldSalesMarketManagerssupportadesignatedregionwhichconsistsofclientsassignedtolocalFinancialConsultants’Practices.TheseManagersworkwithFinancialConsultantsbyservingastheirprimarypointofcontactforActiveInvestorservices.ActiveInvestorFieldSalesMarketManagersalsoassistclientsnotassignedtoaFinancialConsultant’sPractice.Inadditiontoabasesalary,MarketManagersareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationoffre-quencyofone-on-oneclientconsultations,localmarketseminarsandeventshosted,marketarealead-flowgeneration,andqualityofinteractionswithclientsandbranches.
ActiveInvestorConsultantsinteractwithprospectsandclientsviathetelephonechannels,throughinboundandoutboundcalling.TheyworktounderstandclientneedsandmakereferralstotheActiveInvestor
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offer,whenappropriate.Inadditiontoabasesalary,theseconsultantshavethepotentialtoearnaddi-tionalmonthlyincentivecompensationbasedonthefollowingcriteria:
• IncreasedclienttradingactivityatSchwabduetorepresentativespromotingtheuseofActiveInvestorproductsandservices;
• NetNewAssets;
• NewtoFirmActiveInvestorclientrelationships;
• TransfersofexistingmarginbalancestoSchwab;and
• Referringaclientthatattendsanewclientcon-ciergemeeting,aconsultationwithanActiveInvestorFieldSalesMarketManager,anin-branchworkshop,oraliveonlineevent.
• Inaddition,enrollmentsineducationcanincreasemonthlysalescompensation;conversely,failuretomeetthethresholdofeducationenrollmentscandecreasemonthlysalescompensation.
ActiveInvestorEducationSpecialistspartnerwithActiveInvestorConsultantstohelpon-boardnewclients.EducationSpecialistsconductphone-basedcustomizedone-on-oneconsultationswithnewcli-entstoteachthemhowtoleverageSchwab’stradingplatforms,tools,andresearchresources.Inadditiontoabasesalary,EducationSpecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofquantityofone-on-oneclientconsultations,qualityofconsultationinteractions,clientengagement,andwhetherclientsleveragesubsequenteducation.
Fixed Income Specialists
RegionalBondSpecialistsprovideadviceandservicetoSchwabclientsspecifictotheirfixedincomeinvestingneeds.Inadditiontoabasesalary,thesespecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthesaleoffixedincomeproducts,relationshipmanagement,businessdevelopment,qualityassurance,teamwork,clientreviews,andfieldpartnerships.
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BondInvestmentSpecialistsadviseandserveclientswiththeirfixedincomeinvestingneedsbyrespondingtoinboundphonecalls.Inadditiontoabasesalary,thesespecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperfor-manceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthesaleoffixedincomeproducts,qualityassurance,theprincipalvalueoffixedincomerelatedtransactions,teamwork,andinitiative.
Note:RegionalBondSpecialistsandBondInvestmentSpecialistsdonotearncommissionsoneachtransaction,andtheircompensationisnotaffectedbywhetheranissueisunderwrittenbySchwab.Nordoesitmatterwhetheratransactionisexecutedasagent,risklessprincipal,orfromSchwab’sowninventory.
Insurance Services Annuity Specialists
AnnuitySpecialistsprovideclientswithinformationandadviceonannuitiesavailablethroughSchwab.Theyalsoprovideexistingannuityclientswithongo-ingserviceandsupport.Inadditiontoabasesalary,thesespecialistsareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperfor-manceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofNetNewAssets,individualcontributiontoannuitysalesfortheteam,teamwork,clientfeedback,andtraininginitiatives.
Portfolio Consulting Representatives
Portfolio Consultants
PortfolioConsultantsprovideinvestmentportfolioadvicetoclientswhoareenrolledinSchwabPrivateClient™. Theydonotreceivedifferentialcompensa-tionbasedonthesecuritiesthattheyrecommendtoenrolledclients.PortfolioConsultantsassesstheirclients’financialneeds,analyzetheirportfolios,deliverportfolioadvice,andprovideperiodicportfolioreviewstoclientsenrolledinSchwabPrivateClient™.PortfolioConsultantsarealsoemployeesofCharlesSchwabBank.Inadditiontoabasesalary,PortfolioConsultantsareeligibletoearnabonusthatisfundedbasedonSchwab’sperformanceanddeter-
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minedbasedonmanagerdiscretion,whichmayincludeconsiderationofthequalityoftherepresen-tative’sinteractionswithclients,retainingappropri-ateclientsinadvisedoffers,clientsatisfaction,teamwork,training,professionaldevelopment,accu-racy,andNetNewAssets.
Associate Portfolio Consultants
AssociatePortfolioConsultantsprovideongoingservicetoclientsinSchwabPrivateClient™. Inaddi-tiontoabasesalary,theyareeligibletoearnabonusthatisfundedbasedonSchwab’sperfor-manceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthequalityoftherepresentative’sinteractionswithclients,retainingappropriateclientsinadvisedoffers,clientsatisfac-tion,teamwork,training,professionaldevelopment,andaccuracy.
Financial Planners
FinancialPlannersworkwithourclientstoplanfortheirlong-termfinancialgoals.Inadditiontoabasesalary,theyareeligibletoearnabonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthequalityoftherepresentative’sinteractionswithclients,clientsatisfaction,teamwork,training,professionaldevelopment,andaccuracy.
Investment Consultants (Complimentary Consultations)
InvestmentConsultantsprovideclientswhoarenotcurrentlyassignedtoaFinancialConsultantwithacomplimentaryportfolioanalysisorretirementassessment.Theyconductaone-time,needs-basedportfolioassessmentandmakerecommendationsfromthefullarrayofadvicesolutionsofferedbythecompany.Theyproactivelycontactclientsbytele-phone,receivedirectcallsfromclients,andreceivecalltransfersfromclientswhohaveexpressedinter-estinportfolioconsultationtoanotherSchwabrepresentative.Inadditiontoabasesalary,theserepresentativesareeligibletoearnanannualbonusthatisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmay
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includeconsiderationofthequalityofrepresenta-tives’interactionswithclientsandutilizationofadviceandbusinessdevelopmentopportunities.
Schwab Managed Portfolio Service Representatives
SchwabManagedPortfolioServiceRepresentativesworkwithourclientsthatareinvestedinSchwabManagedPortfolios™, respondingtotelephoneinqui-riesabouttheproductandensuringon-goingsuitabil-ityoftheinvestment.Inadditiontoabasesalary,theyareeligibletoearnabonuswhichisfundedbasedonSchwab’sperformanceanddeterminedbasedonmanagerdiscretion,whichmayincludeconsiderationofthequalityofrepresentative’sinter-actionswithclients,clientsatisfaction,teamwork,training,professionaldevelopment,andaccuracy.
Other Compensation or AwardsFromtimetotime,oneormorecategoriesofourrepresentativesmayparticipateinshort-term,tempo-raryincentiveprogramsthatfocusonaparticularclassofproductsorservices,includingnewaccountsandnewassetstoSchwab.Thegoalofthesepro-gramsistoraiseawarenessaboutproductsandservicesandhowthatmayserveourclients’needsandtherebyincreasesales.
CertainrepresentativeswhodemonstrateexceptionalperformanceduringtheyearmayalsobeeligibletoearnanannualtripthroughSchwab’sChairman’sClub.Schwabmaydevelopadditionalrecognitioneventsorprogramsfromtimetotime.Formoreinformation,pleasevisitourwebsiteathttp://aboutschwab.com/about/compensation/compensation.html.
Schwab Independent Branch Services RepresentativesSchwabIndependentBranchServicesrepresentativesareindependentcontractorswhooperate,withtheiremployees,SchwabIndependentBranchespursuanttoafranchiseagreementwithSchwab.Theseinde-pendentcontractorsarecalledIndependentBranchLeaders,orIBLs.Theiremployeeswhoholdasecuri-tieslicensearecalledIndependentBranchServicesFinancialConsultants,orIBSFinancialConsultants.IBLsandIBSFinancialConsultantsarenotSchwab
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employees,buttheyareregisteredrepresentativesofSchwabforpurposesofsecuritiesregulations.IBLsreceiveaportionoftherevenuegeneratedbytheactivitiesandassetsinaccountsofSchwabclientsassignedtotheirIndependentBranches.IBSEmployeesalsomayshareintherevenueearnedbytheirIBLemployer.SchwabnotifiesclientswhentheyareassignedtoanIBL.
Independent Branch Leaders
IBLsarenotpaidoncommissionsforparticularsales,nordoesSchwabpaythemasalaryortheincentivecompensationearnedbyrepresentativeswhoareemployedbySchwab.Instead,theyearnrevenuefromtheirbusinessbasedontheoverallrevenueSchwabearnsfromclientswhoseaccountsareassignedtotheirIndependentBranch.IBLsthereforehaveanincentivetomakesuretheirclientaccountsintheaggregateholdassetsthatgenerateenoughrevenuesothattheirmonthlypayoutfromSchwab(asdescribedbelow)exceedsthefeesandexpensestheyowetoSchwaborareotherwiseresponsibleforunderthefranchiseagreementwithSchwab.
ForpurposesofrevenueearnedbytheIBLs,theassetsinaccountsassignedtothemaredividedintotwocategories:(1)“AdvisedAssets,”meaningassetsinaccountsenrolledinSchwabPrivateClient™orSchwabManagedPortfolios™,SchwabManagedAccountSelect®orSchwabManagedAccountConnection™(discretionarywrap-feeprograms),oraccountsmanagedbyanindependentthird-partyinvestmentadvisortowhomtheclientwasreferredthroughSchwabAdvisorNetwork®service;and(2)“Non-AdvisedAssets,”consistingofassetsnotintheAdvisedAssetcategorywhichincludestocks,bonds,mutualfundsandETFsaswellaspaymentforprovidingcashmanagementservices.
Eachmonth,SchwabcalculatesandappliesanAdvisedAssetrevenuerateandaNon-AdvisedAssetrevenueratetotheassetsinaccountsassignedtoallSchwabIndependentBranches.Thetworevenueratesarecalculatedbylookingat12-monthtrailingassetsandrevenuefromallSchwabIndependentBranchaccounts.Thisisdonebydividingtheadjustedrevenueamountforeachassetcategoryby
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theassociatedassets.(Certainproduct-levelexpensesaresubtractedandcertainrevenuesnotearnedatanindividualaccountlevelareexcluded.)SchwabthenappliestheserevenueratestothedailyaverageassetsineachcategoryinaccountsassignedtoindividualSchwabIndependentBranches,yieldinganadjustedrevenuefigureforeachassetcategory.Therevenuerateschangemonthly,buttheAdvisedAssetrevenuerateishigherbecauseSchwabgenerallygeneratesmorerevenueonAdvisedAssets.Thisisduetotheasset-basedfeespaidforadvisoryservicesandotherrevenuegener-atedbytheunderlyingassetsintheenrolledaccounts,suchasshareholderservicingfeespaidtoSchwabbycertainmutualfunds.AnIBL,therefore,earnsmoremoneybysuccessfullyrecommendingthataclientenrolloropenanaccountinoneoftheservicesintheAdvisedAssetcategory.
AfteraddingtogethertheadjustedrevenuefiguresforAdvisedandNon-AdvisedAssets,SchwabthenappliesamultiplierbasedonthetenureoftheIBL.Seethetablebelow.Forassetsofclientswhotransi-tiontoSchwabfromanIBL’spriorfirm,theIBLmayelectaconstantmultiplierof50%inexchangeforanincreasedabilitytoasksuchclientstotransitionawayfromSchwabifthefranchiseagreementends.
Tenure of IBL Multiplier
Year1 200%
Year2 150%
Year3 110%
Year4 75%
Year5 55%
Year6+ 50%
Finally,SchwabdeductscertainmonthlyfeesandexpensesfromthetotaladjustedrevenueamountthattheIBLowestoSchwabunderthefranchiseagreement.Thisresultsinanetpayoutforthemonth.
IBS Financial Consultants
IBSFinancialConsultantsreceiveasalarypaidbytheIBLand,asdeterminedbytheIBLastheir
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employer,maybeeligibleforabonusbasedonapercentageofeithertheirsalaryortheIBL’sNetPayout.
ThecriteriausedbytheIBLConsultanttodeterminetheamountofthebonusmayincludesuchfactorsasnetnewassets,netnewclientsacquiredthroughtheeffortsofanIBSFinancialConsultant,ortheportionoftheNetPayoutattributabletoclientsservicedbyanIBSFinancialConsultant.
Ifyouhavequestionsaboutinformationcontainedinthisbrochure,pleasecall1-800-785-3965.
Formediainquiries,pleasecalltheSchwabCorporatePublicRelationshotlineat1-415-667-9500.
Third-partytrademarksappearinginthisdocumentarethepropertyoftheirrespectiveowners.
©2011CharlesSchwab&Co.,Inc.Allrightsreserved. MemberSIPC.CS14361-01(1011-5430) REG31752-20(10/11)
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October 2011
Amendments to theFollowing Account Agreements
• SchwabOne®Account
• SchwabAccount
• SchwabIRAandESAAccount
• Schwab403(b)(7)Account
• SchwabRetirementPlanBrokerageAccount
• SchwabIndividual401(k)Account
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DearInvestor,
ThisdocumenthighlightscertainchangestotheJanuary2011versionofthefollowingsixAccountAgreements:SchwabOne®Account(“SchwabOne®”),SchwabAccount(“SchwabAccount”),SchwabIndividualRetirementAccountandEducationSavingsAccount(“SchwabIRAandESA”),Schwab403(b)(7)Account(“Schwab403(b)(7)”),SchwabRetirementPlanBrokerageAccount(“SchwabRPB”)andSchwabIndividual401(k)Account(“SchwabIndividual401(k)”).
Theseamendments,whichincludebothchangestoandclarificationsofexistinglanguage,applytobothIndividualInvestoraccountsandaccountsmanagedbyInvestmentAdvisorsandenrolledwithSchwabInstitutional®,unlessotherwisenoted.
Effectiveimmediately,theseamendmentsandclarificationsreplaceandsupersedeallpreviouslypublishedportionsoftheAccountAgreementstowhichtheyapply.IntheeventofanyinconsistencyorconflictbetweenthetermsoftheseamendmentsandclarificationsandthetermsofyourexistingAccountAgreement(s),thetermssetforthinthisdocumentwillgovern.
Pleasereviewthisdocumentcarefully.
Ifyouhavequestionsabouttheinformationcon-tainedinthisdocumentoraboutanyofourproductsandservices,callyourSchwabrepresentativeat1-800-435-4000.Ifyouraccount(s)ismanagedbyanInvestmentAdvisorandenrolledinSchwabInstitutional®,pleasecall1-800-515-2157.Internationalclients,call+1-415-667-8400.
ForacurrentcopyofyourAccountAgreement,pleasevisitwww.schwab.com.IfyouraccountismanagedbyanInvestmentAdvisorandenrolledinSchwabInstitutional®,visitwww.schwaballiance.com.Forinternationalclients,visitwww.schwab-global.com.ForUKorSwissclients,visitwww.schwab.co.uk.
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I. Schwab One®, Schwab Account, Schwab IRA and ESA, Schwab 403(b)(7), Schwab RPB and Schwab Individual 401(k)
A. Arbitration
1.Under“Required Arbitration Disclosures,”replacethefourthbulletpointwiththefollowing:
“•The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submit-ted by all parties to the panel at least 20 days prior to the fi rst scheduled hearing date.”
2.Inthefirstsentenceofthefirstparagraphunder“Arbitration Agreement,”insertthephrase“(‘Related Third Parties’)”between“service providers”and“including.”
3.Inthefirstsentenceofthesecondparagraphunder“Arbitration Agreement,”inserttheword“heirs”between“attorneys-in-fact”and“successors.”
4.Under“Arbitration Agreement,”insertthefollowingparagraphafterthefifthparagraphinthissection:
“For FINRA arbitrations, FINRA will appoint a single public arbitrator in customer cases decided by one arbitrator. In customer cases decided by three arbitra-tors, investors have the option of choosing an arbitra-tion panel with two public arbitrators and one non-public arbitrator (Majority-Public Panel Rule) or a panel of all public arbitrators (Optional All-Public Panel Rule). If the customer declines to elect a panel selection method in writing by the applicable dead-line, the Majority-Public Panel Rule for selecting arbitrators will apply.”
5.Insertthefollowingattheendofthissectionafterthe“Arbitration Agreement”:
“Waiver of Class Action or Representative Action. Neither you nor Schwab shall be entitled to arbitrate any claims as a class action or representative action, and the arbitrator(s) shall have no authority to consoli-date more than one parties’ claims or to proceed on a representative or class action basis.
“You and Schwab agree that any actions between us and/or Related Third Parties shall be brought solely in
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our individual capacities. You and Schwab hereby waive any right to bring a class action, or any type of representative action against each other or any Related Third Parties in court. You and Schwab waive any right to participate as a class member, or in any other capacity, in any class action or representative action brought by any other person, entity or agency against Schwab or you.”
[Schwab One® (Brokerage Services, Section 25), Schwab Account (Cash Account, Section 20), IRA and ESA (Cash Account, Section 17), Schwab 403(b)(7) (Cash Account, Section 17), Schwab RPB (Cash Account, Section 16), Schwab Individual 401(k) (Cash Account, Section 16)]
II. Schwab One®, Schwab Account, Schwab IRA and ESA and Schwab RPB
A. Mutual Fund Fees, Orders, Distributions and Redemptions (Schwab One® and Schwab RPB) and Mutual Fund Orders, Distributions and Redemptions (Schwab Account and Schwab IRA and ESA)
Replacetheheadingandfirstfiveparagraphswiththefollowing:
“Mutual Fund Fees, Orders, Distributions and Redemptions
“Youagreethat,inpurchasingandredeemingsharesofamutualfundthroughSchwab,Schwab’spoliciesandprocedureswillgovernsuchtransactionsandnotthoseofthemutualfundasdescribedinitsprospectus,whichmaybeeithermoreorlessbeneficialtoyouasaninvestor.Inparticular,youagreethatSchwab’spoliciesandproceduresonminimuminvestmentrequirements,exchangeoffundshares,dividendaccrualanddateforpaymentofaccrueddividendsuponredemptionofadailydividendfundmayvaryfromthoseapplicabletodirectfundshareholders.Youmayalsobechargedafund’sredemptionfeethatwouldnotbeimposedbythefundondirectshareholdershold-ingfundsharesunderthesamecircumstances.
“Schwabimposesshort-termredemptionfeesoncertainmutualfundtransactionsandreservestherighttorestrictindividualswhoengageinshort-term
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tradingofmutualfundsfrompurchasingsomeorallfundsavailablethroughSchwab.Ourshort-termredemptionpolicy,includingapplicablefeesandotherrestrictions,isavailableatwww.schwab.comanduponrequest.Schwabmayalsochargeatrans-actionfeeforcertainmutualfundtransactions;youwouldnotincurthisfeeifyoupurchasedsharesdirectlyfromafundcompany.Yourpurchaseandsaleofmutualfundsharesmaybesubjecttoaddi-tionalfeesthefundimposes,suchassalesloadsandcontingentredemptionfees,thatareseparatefrom,andinadditionto,thetransactionandotherfeeschargedtoyoubySchwab.Youagreetopay,andaresolelyresponsibleforpaymentof,allfeeschargedtoyoubySchwaband/oranyfund.
“Schwab’sdeadlineforreceivingcustomerorderstoplacewithamutualfundforexecutionatthepricenextcalculatedbythefundmaybeearlierthanthedeadlinesetbythefundinitsprospectus.ItisyourresponsibilitytoverifywithusthedeadlinebywhichyoumustplaceyourorderwithSchwabtoobtainthenextpricecalculated.Wegenerallywillattempttohaveordersreceivedbyuspriortoourdeadlineacceptedbythefundforexecutionatthepricenextcalculatedbythefund.However,youmayreceivealaterpricethanthepricenextcalculatedbythefundif,duetooperationalincompatibilitieswiththefundorotherlimitations,Schwabisunabletosupporttransmissionoftheordertothefundpriortothenextpricecalculatedbythefund.Itisyourresponsi-bilitytoverifywithuswhetheryourorderwillreceivethepricenextcalculatedbythefundpriortoplacingyourorderwithSchwab.
“Inaddition,amutualfundmaydeclinetoexecuteanorderforthepricenextcalculatedbyitifwedonotplacetheorderwiththefundbyaspecifiedtime.Youagreethatwewillnotbeliabletoyouforanylosses,includinglostprofits,ifthemutualfunddoesnotacceptyourorderforexecutionatthepricenextcalculatedbythefundafterourdeadlineforanyreason,including,butnotlimitedto,computersys-temdelaysorfailures,naturalcatastrophesorotheremergencies,orhumanerrorresultinginourlateplacementoftheorderwiththefund.Ifamutualfunddeclinestoacceptyourorderforexecutionatthepricenextcalculatedafterourdeadlinebecause
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wedidnotplacetheorderwiththefundbyaspeci-fiedtime,Schwabreservestheright,butisnotobligated,toplaceyourrejectedorderwiththefundforexecutionatthepricenextcalculatedbythefundafteritsacceptanceoftheorder.”
[Schwab One®(Brokerage Services, Section 38), Schwab Account (Cash Account, Section 33), IRA and ESA (Cash Account, Section 28), Schwab RPB (Cash Account, Section 27)]
III. Schwab One®
A. Security for Indebtedness
Replacetheentirecontentofthesectionwiththefollowing:
“Note:Thissectiondoesnotapplytoanytaxquali-fiedaccountssubjecttotheprohibitedtransactionrulesoftheInternalRevenueCodeorERISA,oranyindebtednessarisingtherefrom.
“AssecurityfortherepaymentofallpresentorfutureindebtednessowedtousbyanyaccountholderundertheSchwabOne®AccountAgreementorotherwise,eachaccountholdergrantstousacontinuingsecurityinterestinandlienon,andarightofsetoffwithrespectto,allSecuritiesandOtherPropertythatare,noworinthefuture,held,carriedormaintainedforanypurposeinorthroughtheSchwabOne®Account,and,totheextentofsuchaccountholder’sinterestinorthrough,anypresentorfutureaccountwithusinwhichtheaccountholderhasaninterest.
“IfyouowemoneytoSchwabastheresultofactiv-ityinyourAccountandthereareassetsavailableinanyaccountthatyouholdatSchwabwhichcouldfullyorpartiallysatisfythedebt,youagreethatuponSchwab’swrittendemand,youwillexecutealldocumentsnecessarytoeffectadistributionfromyouraccountandagreetopayorcausesuchfundstobepaidimmediatelytoSchwabinordertosatisfyyourindebtednesstoSchwab.”
[Schwab One® (Brokerage Services, Section 8), Schwab Account (Cash Account, Section 7)]
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IV. Schwab Account
A. Security for Indebtedness
Replacetheentirecontentofthesectionwiththefollowing:
“Note:Thissectiondoesnotapplytoanytaxquali-fiedaccountssubjecttotheprohibitedtransactionrulesoftheInternalRevenueCodeorERISA,oranyindebtednessarisingtherefrom.
“AssecurityfortherepaymentofallpresentorfutureindebtednessowedtousbyanyaccountholderundertheAccountAgreementorotherwise,eachaccountholdergrantstousacontinuingsecu-rityinterestinandlienon,andarightofsetoffwithrespectto,allSecuritiesandOtherPropertythatare,noworinthefuture,held,carriedormaintainedforanypurposeinorthroughtheSchwabAccount,and,totheextentofsuchaccountholder’sinterestinorthrough,anypresentorfutureaccountwithusinwhichtheaccountholderhasaninterest.
“IfyouowemoneytoSchwabastheresultofactivityinyourAccountandthereareassetsavailableinanyaccountthatyouholdatSchwabwhichcouldfullyorpartiallysatisfythedebt,youagreethatuponSchwab’swrittendemand,youwillexecutealldocu-mentsnecessarytoeffectadistributionfromyouraccountandagreetopayorcausesuchfundstobepaidimmediatelytoSchwabinordertosatisfyyourindebtednesstoSchwab.”
[Schwab Account (Cash Account, Section 7)]
V. Schwab IRA and ESA
A. Introduction
ReplacethecontentoftheIntroductionwiththefollowing:
“ThispublicationcontainsimportanttermsandconditionsthatapplytoSchwabIRAsandservicesforSchwabIRAs,includingtheTraditionalIRAandtheRothIRA.AnylanguageinthisAccountAgreementorrelatedagreementsthatmayconflictorbeinconsistentwiththeCharlesSchwab&Co.,Inc.IndividualRetirementPlan,includingwithoutlimita-
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tionSections5.2or5.8ofthatPlan,orSections408or4975oftheInternalRevenueCode,andtheregulationsthereunder,shallbeinterpretedtobeconsistentandincompliancewiththatPlanandthoseSectionsofthatCodeandregulationsthereun-der.TotheextentitisnotpossibletointerpretsuchlanguagetobeconsistentandcompliantwiththatPlanortheseCodeprovisionsandregulations,thensuchlanguageshallbeofnoforceoreffecttotheextentofsuchinconsistencyornoncompliance.ThisSectionshallbeeffectiveretroactivetothefirstdateonwhichtheagreementconcerningtheSchwabIRAwasenteredintobytheAccountHolder.
“ThispublicationalsocontainsimportanttermsandconditionsthatapplytoSchwabEducationSavingsAccountsandservicesforallSchwabEducationSavingsAccounts.AnylanguageinthisAccountAgreementorrelatedagreementsthatmayconflictorbeinconsis-tentwiththeCharlesSchwab&Co.,Inc.EducationSavingsAccountPlan,includingwithoutlimitationSections5.05or10.03ofthatPlan,orSections530or4975oftheInternalRevenueCode,andtheregu-lationsthereunder,shallbeinterpretedtobeconsistentandincompliancewiththatPlanandthoseSectionsofthatCodeandregulationsthereunder.TotheextentitisnotpossibletointerpretsuchlanguagetobeconsistentandcompliantwiththatPlanortheseCodeprovisionsandregulations,thensuchlanguageshallbeofnoforceoreffecttotheextentofsuchinconsistencyornoncompliance.ThisSectionshallbeeffectiveretroactivetothefirstdateonwhichtheagreementconcerningtheSchwabEducationSavingsAccountwasenteredintobytheAccountHolder.
“Pleasereadthispublicationcarefullyandretainitforfuturereference.”
[Schwab IRA and ESA (Introduction)]
B. Defi nitions
Replacethedefinitionofthefollowingterm:
IRA, IRA Account, and/or Schwab IRA—ThebrokerageAccountestablishedundertheCharlesSchwab&Co.,Inc.IndividualRetirementPlan(excludingSEP-IRAs)and/orEducationSavingsAccountPlan.
[Schwab IRA and ESA (Defi nitions)]
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VI. Schwab RPB
A. Introduction
ReplacethecontentoftheIntroductionwiththefollowing:
“ThispublicationcontainsimportanttermsandconditionsthatapplytoSchwabRetirementPlanBrokerageAccountsandservicesforthefollowingRetirementPlanBrokerageAccounts:theSEP-IRA,SIMPLEIRA,andQualifiedRetirementPlan(QRP)/Keoghbrokerageaccounts(referredtoasRetirementPlanBrokerageAccountsinthisdocument).AnylanguageinthisAccountAgreementorrelatedagree-mentsthatmayconflictorbeinconsistentwiththeCharlesSchwab&Co.,Inc.IndividualRetirementPlan,includingwithoutlimitationSections5.2or5.8ofthatPlan,SchwabSEP-IRABasicPlanDocument,SchwabSIMPLEIRABasicPlanDocument,CharlesSchwab&Co.,Inc.SIMPLEIndividualRetirementAccountCustodialAccountAgreement,anyotherretirementPlantowhichthispublicationappliesorSections401,408or4975oftheInternalRevenueCode,andtheregulationsthereunder,shallbeinter-pretedtobeconsistentandincompliancewiththeapplicablePlanandthoseSectionsoftheCodeandregulationsthereunder.Totheextentitisnotpos-sibletointerpretsuchlanguagetobeconsistentandcompliantwiththeapplicablePlanorthoseCodeprovisionsandregulations,thensuchlanguageshallbeofnoforceoreffecttotheextentofsuchincon-sistencyornoncompliance.ThisSectionshallbeeffectiveretroactivetothefirstdateonwhichtheagreementconcerningtheSchwabIRAwasenteredintobytheAccountHolder.Pleasereadthispublica-tioncarefullyandretainitforfuturereference.”
[Schwab Retirement Plan Brokerage (Introduction)]
B. Defi nitions
Replacethedefinitionofthefollowingterm:
“IRA, IRA Account, and/or Schwab IRA—ThebrokerageAccountestablishedforyourSEPorSIMPLEIRA.”
[Schwab Retirement Plan Brokerage (Defi nitions)]
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VII. Schwab 403(b)(7)
A. Mutual Fund Fees, Orders, Distributions and Redemptions
Replacetheentirecontentofthesectionwiththefollowing:
“Youagreethat,inpurchasingandredeemingsharesofamutualfundthroughSchwab,Schwab’spoliciesandprocedureswillgovernsuchtransactionsandnotthoseofthemutualfundasdescribedinitsprospec-tus,whichmaybeeithermoreorlessbeneficialtoyouasaninvestor.Inparticular,youagreethatSchwab’spoliciesandproceduresonminimuminvestmentrequirements,exchangeoffundshares,dividendaccrualanddateforpaymentofaccrueddividendsuponredemptionofadailydividendfundmayvaryfromthoseapplicabletodirectfundshare-holders.Youmayalsobechargedafund’sredemp-tionfeethatwouldnotbeimposedbythefundondirectshareholdersholdingfundsharesunderthesamecircumstances.
“Schwabimposesshort-termredemptionfeesoncertainmutualfundtransactionsandreservestherighttorestrictindividualswhoengageinshort-termtradingofmutualfundsfrompurchasingsomeorallfundsavailablethroughSchwab.Ourshort-termredemptionpolicy,includingapplicablefeesandotherrestrictions,isavailableatwww.schwab.comanduponrequest.Schwabmayalsochargeatrans-actionfeeforcertainmutualfundtransactions;youwouldnotincurthisfeeifyoupurchasedsharesdirectlyfromafundcompany.Yourpurchaseandsaleofmutualfundsharesmaybesubjecttoaddi-tionalfeesthefundimposes,suchassalesloadsandcontingentredemptionfees,thatareseparatefrom,andinadditionto,thetransactionandotherfeeschargedtoyoubySchwab.Youagreetopay,andaresolelyresponsibleforpaymentof,allfeeschargedtoyoubySchwaband/oranyfund.
“Youalsoacknowledgethatonlycertaininvestmentsqualifyasinvestmentsinregulatedinvestmentcom-panystockunder403(b)(7)oftheCodeandthatSchwaborathirdpartymayberequired,priortoexecutionofyourorder,tomakeadeterminationas
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towhetheraparticularinvestmentsoqualifies.Youacknowledgeandagreethatanysuchrequireddeter-minationmaycauseadelaybetweenthetimeyouinitiallyplaceyourorderandthetimetheordercanbeexecuted.Accordingly,youagreenottoholdSchwabliableforanychangeinthepriceofsuchinvestmentduringtheperiodofdeterminationandpriortotheexecutionofyourorder.
“Schwab’sdeadlineforreceivingcustomerorderstoplacewithamutualfundforexecutionatthepricenextcalculatedbythefundmaybeearlierthanthedeadlinesetbythefundinitsprospectus.ItisyourresponsibilitytoverifywithusthedeadlinebywhichyoumustplaceyourorderwithSchwabtoobtainthenextpricecalculated.Wegenerallywillattempttohaveordersreceivedbyuspriortoourdeadlineacceptedbythefundforexecutionatthepricenextcalculatedbythefund.However,youmayreceivealaterpricethanthepricenextcalculatedbythefundif,duetooperationalincompatibilitieswiththefundorotherlimitations,Schwabisunabletosupporttransmissionoftheordertothefundpriortothenextpricecalculatedbythefund.Itisyourresponsi-bilitytoverifywithuswhetheryourorderwillreceivethepricenextcalculatedbythefundpriortoplacingyourorderwithSchwab.
“Inaddition,amutualfundmaydeclinetoexecuteanorderforthepricenextcalculatedbyitifwedonotplacetheorderwiththefundbyaspecifiedtime.Youagreethatwewillnotbeliabletoyouforanylosses,includinglostprofits,ifthemutualfunddoesnotacceptyourorderforexecutionatthepricenextcalculatedbythefundafterourdeadlineforanyreason,including,butnotlimitedto,computersys-temdelaysorfailures,naturalcatastrophesorotheremergencies,orhumanerrorresultinginourlateplacementoftheorderwiththefund.Ifamutualfunddeclinestoacceptyourorderforexecutionatthepricenextcalculatedafterourdeadlinebecausewedidnotplacetheorderwiththefundbyaspeci-fiedtime,Schwabreservestheright,butisnotobligated,toplaceyourrejectedorderwiththefundforexecutionatthepricenextcalculatedbythefundafteritsacceptanceoftheorder.
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“Afundmayalsodeclineapurchaseorder,initssolediscretion,ifthepurchaseorderexceedsacertainsizeorforanyotherreason,andSchwabwillnotbeliableforanylosses,lostprofits,orotherdamagesthatallegedlyresultfromthefund’srejec-tionofthatpurchaseorder.Ifafunddeclinesyourpurchaseorderforanyreasonotherthanthetimeweplacedtheorderwiththefund,wewillcanceltheorderand,ifpracticable,attempttonotifyyou;wewillnotmakeanotherattempttoplacesuchadeclinedpurchaseorderwiththefund.
“Ifyouplaceanordertobuyorsellaspecificdollaramountofamutualfund,Schwabwillcalculatethenumberofsharesboughtorsoldbydividingthedollaramountoftheorderbythepriceandroundingtothenearestthreedecimalplaces.Duetoround-ing,theactualvalueofthesharesboughtorsoldmaybeslightlygreaterorlessthantheactualdollaramountofyourorder.Ifyouplaceanordertobuyorsellaspecificnumberofsharesofafund,Schwabwillcalculatethedollaramountofthepurchaseorsalebymultiplyingthenumberofsharesbythepriceandroundingtothenearesttwodecimalplaces.Duetorounding,theactualdollaramountmaybegreaterorlessthantheactualshareamountofyourorder.
“Schwabdoesnothaveanyobligationtoadvanceredemptionproceedsanddistributionsrelatedtomutualfundsharestoyouraccountbeforewehavereceivedthemfromthemutualfund.Intheeventwedoadvancesuchproceedsordistributions,suchamountswillconstituteindebtednessowedtousbyyou,securedasdescribedinthesectionentitled“SecurityforIndebtedness”untiltheyarereceivedfromthefund.Wereservetherighttoreversethetransactionpendingreceiptofpaymentfromthefund.Schwabisnotobligatedtopayanyinterestondistributionsfrommutualfundsorotherissuersincluding,butnotlimitedto,issuersofequitysecuri-ties)untilsuchdistributionsarereceivedbySchwab.
“Ifamutualfundexercisesitsrighttoredeemyourshares“inkind”bydeliveringtoSchwabportfoliosecuritiesinpaymentforyoursharesinsteadofcash,Schwabwillholdthesesecuritiesinyouraccountsubjecttoyourinstructions.If,however,Schwabdoesnotnormallycustodyoreffecttransactionsinsecuri-
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tiespaidtoyoubyyourmutualfund,Schwabwilltakesuchactionasitdeemsappropriatetoeffectdeliveryofsuchnon-standardsecuritytoyouortoanentityabletoassumecustodyoreffecttransactionsinthesecurity.Youagreetopayourcommissionandtrans-action,processing,custodyandotherfees,and/orthoseoftheentitytowhichyournon-standardsecurityisdelivered,astheyexistfromtimetotimeandapplytothetransactionsandservicesyoureceiveincon-nectionwiththesesecuritiespaidtoyoubythefund.”
[Schwab 403(b)(7) (Cash Account, Section 28)]
VIII. Schwab Individual 401(k)
A. Mutual Fund Fees, Orders, Distributions and Redemptions
Replacethesecond,thirdandfourthparagraphswiththefollowing:
“Schwabimposesshort-termredemptionfeesoncertainmutualfundtransactionsandreservestherighttorestrictindividualswhoengageinshort-termtradingofmutualfundsfrompurchasingsomeorallfundsavailablethroughSchwab.Ourshort-termredemptionpolicy,includingapplicablefeesandotherrestrictions,isavailableatwww.schwab.comanduponrequest.Schwabmayalsochargeatrans-actionfeeforcertainmutualfundtransactions;youwouldnotincurthisfeeifyoupurchasedsharesdirectlyfromafundcompany.Yourpurchaseandsaleofmutualfundsharesmaybesubjecttoaddi-tionalfeesthefundimposes,suchassalesloadsandcontingentredemptionfees,thatareseparatefrom,andinadditionto,thetransactionandotherfeeschargedtoyoubySchwab.Youagreetopay,andaresolelyresponsibleforpaymentof,allfeeschargedtoyoubySchwaband/oranyfund.
“Schwab’sdeadlineforreceivingcustomerorderstoplacewithamutualfundforexecutionatthepricenextcalculatedbythefundmaybeearlierthanthedeadlinesetbythefundinitsprospectus.ItisyourresponsibilitytoverifywithusthedeadlinebywhichyoumustplaceyourorderwithSchwabtoobtainthenextpricecalculated.Wegenerallywillattempttohaveordersreceivedbyuspriortoourdeadlineacceptedby
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thefundforexecutionatthepricenextcalculatedbythefund.However,youmayreceivealaterpricethanthepricenextcalculatedbythefundif,duetoopera-tionalincompatibilitieswiththefundorotherlimita-tions,Schwabisunabletosupporttransmissionoftheordertothefundpriortothenextpricecalculatedbythefund.ItisyourresponsibilitytoverifywithuswhetheryourorderwillreceivethepricenextcalculatedbythefundpriortoplacingyourorderwithSchwab.
“Inaddition,amutualfundmaydeclinetoexecuteanorderforthepricenextcalculatedbyitifwedonotplacetheorderwiththefundbyaspecifiedtime.Youagreethatwewillnotbeliabletoyouforanylosses,includinglostprofits,ifthemutualfunddoesnotacceptyourorderforexecutionatthepricenextcalculatedbythefundafterourdeadlineforanyreason,including,butnotlimitedto,computersys-temdelaysorfailures,naturalcatastrophesorotheremergencies,orhumanerrorresultinginourlateplacementoftheorderwiththefund.Ifamutualfunddeclinestoacceptyourorderforexecutionatthepricenextcalculatedafterourdeadlinebecausewedidnotplacetheorderwiththefundbyaspeci-fiedtime,Schwabreservestheright,butisnotobligated,toplaceyourrejectedorderwiththefundforexecutionatthepricenextcalculatedbythefundafteritsacceptanceoftheorder.”
[(Schwab Individual 401(k) (Cash Account, Section 27)]
©2011CharlesSchwab&Co.,Inc.Allrightsreserved. MemberSIPC.CS15127-01(1011-5433) REG63279(10/11)
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