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$\"\"$

Asset
\nManagement

Prospectus | March 20, 2026
As Supplemented October 19, 2026

Schwab^® ETFs

Schwab^®International Bond ETF

\n\n

Ticker Symbol

SCIN

\n\n

Principal U.S. Listing Exchange:

NYSE Arca, Inc.

As with all exchange-traded funds, the Securities\nand Exchange Commission (SEC) has not approved these securities or passed on whether the information in this prospectus is adequate\nand accurate. Anyone who indicates otherwise is committing a federal crime.

Schwab International Bond ETF

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n

Fund Summary
Schwab International Bond ETF	1

About the Fund	6

Fund Details	7
Investment Objective and More About Principal Risks	7
Maturity and Duration: A Brief Explanation	12
Portfolio Holdings	14
Financial Highlights	15

Fund Management	16

Investing in the Fund	17
Share Trading Prices	17
Determination of Net Asset Value	17
Purchase and Redemption of Creation Units	18
Additional Policies	19
Distributions and Taxes	20
Additional Information	21

Schwab^®International Bond ETF

Ticker Symbol: SCIN

Investment\nObjective

The fund’s goal is to track as closely\nas possible, before fees and expenses, the total return of an index comprising of international, non-U.S. dollar denominated investment\ngrade debt securities.

Fund Fees\nand Expenses

This table describes the fees and expenses you\nmay pay if you buy, hold and sell shares of the fund. You may pay other fees, such as brokerage commissions and other fees to\nfinancial intermediaries, which are not reflected in the table and Example below.

\n\n\n\n\n\n\n\n

Shareholder Fees (fees paid directly from your investment)
	None

Annual Fund Operating Expenses (expenses that you pay each year as a % of the value of your investment)
Management fees	0.06
Other expenses⁽¹⁾	0.00
Total annual fund operating expenses	0.06

\n\n\n


	⁽¹⁾	“Other expenses” is an estimate based on the expenses the fund expects to incur for its first full fiscal year.

Example

This example is intended to help you compare\nthe cost of investing in the fund with the cost of investing in other funds. The example assumes that you invest $10,000 in the\nfund for the time periods indicated and then sell all of your shares at the end of those time periods. The example also assumes\nthat your investment has a 5% return each year and that the fund’s operating expenses remain the same. Your actual costs\nmay be higher or lower.

\n\n \n\n \n \n\n \n \n

Expenses\n on a $10,000 Investment
1\n Year	3\n Years
$6	$19

Portfolio Turnover

The fund pays transaction costs, such as commissions,\nwhen it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher\ntransaction costs and may result in higher taxes when fund

shares are held in a taxable account. These costs, which are not reflected\nin the annual fund operating expenses or in the example, affect the fund’s performance. The fund is new and therefore does\nnot have a historical portfolio turnover rate.

Principal\nInvestment Strategies

To\npursue its goal, the fund in normal circumstances primarily invests in securities that are included in the ICE Global Broad Market\nExcluding-USD RIC Capped Free-Float Index (USD Hedged)^†.\nICE Global Broad Market Excluding-USD RIC Capped Free-Float Index (USD Hedged) measures the performance of investment grade debt\npublicly issued in global and eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized\nsecurities. The index is rules-based with qualifying securities included in the index having to be issued in currencies other\nthan the U.S. dollar. For example, the index may include U.S. based issuers that have issued non-U.S. dollar denominated debt\nif they meet index inclusion rules. Qualifying securities must have an investment grade rating (based on the middle rating of\nMoody’s, S&P and Fitch). If rated by all three agencies, two of the three ratings must be Baa3/BBB- or higher; if rated\nby two agencies, the lowest rating must be Baa3/BBB- or higher; and if rated by a single agency the security must be rated Baa3/BBB-\nor higher. In addition, qualifying securities must have at least one year remaining term to final maturity, at least 18 months\nto final maturity at point of issuance and a fixed coupon schedule. Callable perpetual securities qualify provided they are at\nleast one year from the first call date. Fixed-to-floating rate securities also qualify provided they are callable within the\nfixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating\nrate security. The index excludes certain types of securities, including, among others, U.S. dollar denominated securities, U.S.\nTreasury bills, Treasury Inflation-Protected Securities (TIPS), and stripped coupon or principal securities; however, original\nissue zero coupon bonds are included in the index. The securities in the index are updated on the last business day of each month.

The fund will attempt to hedge its foreign currency\nexposure, primarily through the use of foreign currency exchange forward contracts and futures contracts, in order

^†

“ICE^®” is a registered trademark\nof ICE Data Indices, LLC or its affiliates and “BofA^®” is a registered trademark of Bank of America\nCorporation licensed by Bank of America Corporation and its affiliates (“BofA”) and may not be used without BofA’s\nprior written approval. These trademarks have been licensed, along with the ICE Global Broad Market Excluding-USD RIC Capped Free-Float\nIndex (USD Hedged) (“Index”) for use by Charles Schwab Investment Management, Inc., dba Schwab Asset Management, in\nconnection with the Schwab International Bond ETF. The Schwab International Bond ETF is not sponsored, endorsed, sold or promoted\nby ICE Data Indices, LLC, its affiliates or its Third Party Suppliers (“ICE Data and its Suppliers”). ICE Data and\nits Suppliers make no representations or warranties regarding the advisability of investing in the Schwab International Bond ETF.

Schwab International Bond ETF | Fund Summary 1

to correlate\nto the returns of the index, which is U.S. dollar hedged and to seek to minimize the currency risk associated with investment in\nbonds denominated in currencies other than the U.S. dollar. The fund may also use derivatives as a substitute for taking a position\nin an underlying asset and to help manage interest rate and credit risk exposure.

It is the fund’s policy that under normal\ncircumstances it will invest at least 80% of its net assets (including, for this purpose, any borrowings for investment purposes)\nin bonds. Under normal circumstances, the fund may invest up to 20% of its net assets in securities not included in its index.\nThe principal types of these investments include those that the investment adviser believes will help the fund track the index,\nsuch as investments in (a) securities that are not represented in the index but the investment adviser anticipates will be added\nto the index; (b) high-quality liquid investments, including obligations that are issued by private issuers; (c) other investment\ncompanies; and (d) derivatives, principally futures contracts. The fund may also invest in cash and cash equivalents, including\nmoney market funds, and lend its securities to minimize the difference in performance that naturally exists between an index fund\nand its corresponding index.

Because it may not be possible or practical to\npurchase all of the securities in the index, the investment adviser will seek to track the total return of the index by using sampling\ntechniques. Sampling techniques involve investing in a limited number of index securities that, when taken together, are expected\nto perform similarly to the index as a whole. These techniques are based on a variety of factors, including interest rate and yield\ncurve risk, maturity exposures, industry, sector and issuer weights, credit quality, and other risk factors and characteristics.\nThe fund generally expects that its portfolio will hold less than the total number of securities in the index, but reserves the\nright to hold as many securities as it believes necessary to achieve the fund’s investment objective. The fund may sell securities\nthat are represented in the index in anticipation of their removal from the index.

The fund will concentrate its investments (i.e.,\nhold more than 25% of its total assets) in a particular industry, group of industries or sector to approximately the same extent\nthat its index is so concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and\ninstrumentalities), and repurchase agreements collateralized by U.S. government securities are not considered to be issued by members\nof any industry. Similarly, tax-exempt obligations of state or municipal governments and their political subdivisions are not considered\nto be issued by members of any industry.

The fund is classified as a “non-diversified”\ninvestment company under the Investment Company Act of 1940, as amended, and, therefore, may invest a greater percentage of its\nassets in a particular issuer than a diversified fund.

Principal\nRisks

The fund is subject to risks, any of which could\ncause an investor to lose money. The fund’s principal risks include:

Market Risk – Financial markets\nrise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political,\nregulatory and other conditions, including economic sanctions, tariffs and other government actions. In addition, the occurrence\nof global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect\nthe financial markets. As with any investment whose performance is tied to these markets, the value of an investment in the fund\nwill fluctuate, which means that an investor could lose money over short or long periods.

New\nFund Risk – The fund is a new ETF and has only recently commenced operations and therefore has limited operating history\non which investors can base their investment decision. Additionally, due to the fund’s small asset base, certain of the fund’s\nexpenses and its portfolio transaction costs may\nbe higher than those of a fund with a larger asset base. There can be no assurance that the fund will grow to or maintain an economically\nviable size, in which case the fund may cease operations. In such an event, your interest in the fund may be liquidated at an inopportune\ntime.

Investment Style Risk – The fund\nis an index fund. Therefore, the fund follows the securities included in the index during upturns as well as downturns. Because\nof its indexing strategy, the fund does not take steps to reduce market exposure or to lessen the effects of a declining market.\nIn addition, because of the fund’s expenses, the fund’s performance may be below that of the index. Errors relating\nto the index may occur from time to time and may not be identified by the index provider for a period of time. In addition, market\ndisruptions could cause delays in the index’s rebalancing schedule. Such errors and/or market disruptions may result in losses\nfor the fund.

Interest Rate Risk – Interest rates\nrise and fall over time. As with any investment whose yield reflects current interest rates, the fund’s yield will change\nover time. During periods when interest rates are low, the fund’s yield (and total return) also may be low. Changes or the\nanticipation of changes in interest rates also may affect the fund’s share price: a rise in interest rates generally causes\nthe fund’s share price to fall. The longer the fund’s portfolio duration, the more sensitive to interest rate movements\nits share price is likely to be. Also, a change in a central bank’s monetary policy or economic conditions, among other things,\nmay result in a change in interest rates, which could have sudden and unpredictable effects on the markets and significantly impact\nthe value of fixed-income securities in which the fund invests. A sudden or unpredictable rise in interest rates may cause volatility\nand the value of fixed-income securities to decline.

2 Schwab International Bond ETF | Fund Summary

Foreign Investment Risk – The fund’s\ninvestments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in\nsecurities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions;\nchanges in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges);\nthe imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and\nlegal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively\nimpact the value or liquidity of the fund’s investments, and could impair the fund’s ability to meet its investment\nobjective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in,\nand/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions,\nthat the U.S. dollar will decline in value relative to the currency hedged, resulting in the dollar value of the fund’s investment\nbeing adversely affected. To the extent the fund’s investments in a single country or a limited number of countries represent\na large percentage of the fund’s assets, the fund’s performance may be adversely affected by the economic, political,\nregulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that\nis geographically diversified.

Emerging Markets Risk – Emerging\nmarket countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more\ndeveloped countries. Emerging market countries often have less uniformity in accounting, auditing, financial reporting and recordkeeping\nrequirements, which may limit the quality and availability of financial information, and greater risk associated with the custody\nof securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more\nprecarious than in developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated\nwith the fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the\nU.S. dollar, and, at times, it may be difficult to value such investments.

Sampling Index Tracking Risk – The\nfund may not fully replicate the index and may hold securities not included in the index. As a result, the fund is subject to the\nrisk that the investment adviser’s investment management strategy, the

implementation of which is subject to a number of\nconstraints, may not produce the intended results. Because the fund utilizes a sampling approach it may not track the return of\nthe index as well as it would if the fund purchased all of the securities in the index.

Tracking Error and Correlation Risk –\nAs an index fund, the fund seeks to track the performance of the index, although it may not be successful in doing so. Further,\nthere can be no guarantee that the fund will achieve a high degree of correlation between the fund’s performance and that\nof its index. The correlation between the performance of the fund and that of its index, positive or negative, is called “tracking\nerror.” Tracking error can be caused by many factors and it may be significant.

Privately Issued Securities Risk –\nPrivately issued securities, including those purchased pursuant to Rule 144A under the Securities Act of 1933, as amended (the\n1933 Act), are generally not traded on established markets. Privately issued securities carry the risk that the liquidity of these\nsecurities may become impaired, making it more difficult for the fund to sell these bonds. Delay or difficulty in selling such\nsecurities may result in a loss to the fund.

Portfolio Turnover Risk – The fund\nmay engage in frequent trading of its portfolio securities in connection with its tracking of the index or in response to market\nconditions. A higher portfolio turnover rate may result in increased transaction costs, which may lower the fund’s performance.\nA higher portfolio turnover rate can also result in an increase in taxable capital gains distributions to the fund’s shareholders.

Prepayment and Extension Risk –\nCertain fixed-income securities are subject to the risk that the securities may be paid off earlier or later than expected, especially\nduring periods of falling or rising interest rates, respectively. Prepayments of obligations could cause the fund to forgo future\ninterest income on the portion of the security’s principal repaid early and force the fund to reinvest that money at the\nlower prevailing interest rates. Extensions of obligations could cause the fund to exhibit additional volatility and hold securities\npaying lower-than-market rates of interest. Either case could hurt the fund’s performance.

Derivatives Risk – The fund’s\nuse of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly\nin securities and other traditional investments. The fund’s use of derivatives could reduce the fund’s performance,\nincrease the fund’s volatility, and could cause the fund to lose more than the initial amount invested. In addition, investments\nin derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately\nlarge impact on the fund.

Liquidity Risk – The fund may be\nunable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell\nthem at a loss.

Schwab International Bond ETF | Fund Summary 3

Securities Lending Risk – Securities\nlending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return\nthe security loaned or becomes insolvent.

Concentration Risk – To the extent\nthat the fund’s or the index’s portfolio is concentrated in the securities of issuers in a particular market, industry,\ngroup of industries, sector or asset class, the fund may be adversely affected by the performance of those securities, may be subject\nto increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting\nthat market, industry, group of industries, sector or asset class.

Non-Diversification Risk – The fund\nis non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, a single adverse economic\nor regulatory occurrence may have a more significant effect on the fund’s investments, and the fund may experience increased\nvolatility.

Shares of the Fund May Trade at Prices Other\nThan NAV – Fund shares may be bought and sold in the secondary market at market prices. Although it is expected that\nthe market price of the shares of the fund will approximate the fund’s net asset value (NAV), there may be times when the\nmarket price and the NAV vary significantly. An investor may pay more than NAV when buying shares of the fund in the secondary\nmarket, and an investor may receive less than NAV when selling those shares in the secondary market. The market price of fund shares\nmay deviate, sometimes significantly, from NAV during periods of market volatility or market disruption.

For more information on the risks of investing\nin the fund, please see the “Fund Details” section in the prospectus.

Performance

Because the fund is new, no performance figures\nare given. Once the fund has completed a full calendar year of operations, a bar chart and table will be included that will provide\nsome indication of the risks of investing in the fund by showing the variability of the fund’s returns and comparing the\nfund’s performance to the index. For current performance information, once available, please see www.schwabassetmanagement.com/prospectus.

Investment\nAdviser

Charles Schwab Investment Management, Inc., dba\nSchwab Asset Management^®

Portfolio\nManagers

Matthew Hastings, CFA, Managing Director\nand Head of Bond Index Strategies, is responsible for the day-to-day co-management of the fund. He has managed the fund since 2026.

Steven Hung, Senior Portfolio Manager,\nis responsible for the day-to-day co-management of the fund. He has managed the fund since 2026.

Purchase\nand Sale of Fund Shares

The fund issues and redeems shares at its NAV\nonly in large blocks of shares (Creation Units). These transactions are usually in exchange for a basket of securities included\nin the index and/or an amount of cash. As a practical matter, only Authorized Participants purchase or redeem Creation Units.

Individual shares may only be purchased and sold\nin the secondary market (i.e., on a national securities exchange) through a broker or dealer at market prices. Because fund shares\ntrade at market prices rather than at NAV, fund shares may trade at a price greater than NAV (premium) or less than NAV (discount).\nWhen buying or selling shares in the secondary market, you may incur costs attributable to the difference between the highest price\na buyer is willing to pay to purchase shares of the fund (bid) and the lowest price a seller is willing to accept for shares of\nthe fund (ask) (the “bid-ask spread”). Because the fund is new, the fund does not have a sufficient trading history\nto report trading information and related costs. When available, recent information regarding the fund’s NAV, market price,\npremiums and discounts, and bid-ask spreads will be available at www.schwabassetmanagement.com.

Tax Information

Dividends and capital gains distributions received\nfrom the fund will generally be taxable as ordinary income or capital gains, unless you are investing through an IRA, 401(k) or\nother tax-advantaged account (in which case you may be taxed later, upon withdrawal of your investment from such account). In addition,\ndue to the nature of its investments, the fund may make distributions that are treated as a return of capital. Shareholders who\nreceive distributions consisting of a return of capital may be under the impression that they are receiving net profits when they\nare not. A return of capital is a distribution from the shareholder’s investment principal, rather than net profits from\nthe fund’s returns. Shareholders should not assume that the source of a distribution from the fund is net profit.

Payments\nto Financial Intermediaries

If you purchase shares of the fund through a\nbroker-dealer or other financial intermediary (such as a bank), the adviser and its related companies may pay the intermediary\nfor the sale of fund shares and related services. These payments may create a conflict of interest

4 Schwab International Bond ETF | Fund Summary

by influencing the broker-dealer\nor other financial intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit\nyour financial intermediary’s website for more information.

Schwab International Bond ETF | Fund Summary 5

About the Fund

The fund described in this prospectus is advised\nby Charles Schwab Investment Management, Inc., dba Schwab Asset Management (the investment adviser). The fund is an “exchange-traded\nfund” (ETF). ETFs are funds that trade like other publicly-traded securities. The fund is an index fund and is designed to\ntrack the total return of an index. Because the composition of an index tends to be comparatively stable, most index funds historically\nhave shown low portfolio turnover compared to actively managed funds.

This strategy distinguishes an index fund from\nan “actively managed” fund. Instead of choosing investments for the fund based on portfolio management’s judgment,\nan index is used to determine which securities the fund should own.

Unlike shares of a mutual fund, shares of the\nfund are listed on a national securities exchange and trade at market prices that change throughout the day. The market price for\nthe fund’s shares may be different from its net asset value per share (NAV). The fund has its own CUSIP number and trades\non the NYSE Arca, Inc. under the following ticker:

\n\n \n \n

Schwab International Bond ETF

SCIN

The fund issues and redeems shares at its NAV\nonly in large blocks of shares (Creation Units). These transactions are usually in exchange for a basket of securities and/or an\namount of cash. As a practical matter, only institutional investors who have entered into an authorized participant agreement (Authorized\nParticipants) purchase or redeem Creation Units.

A Note to Retail Investors

Shares can be purchased directly from the fund\nonly in exchange for a basket of securities and/or an amount of cash that is expected to be worth a minimum of a million dollars\nor more. Most individual investors, therefore, will not be able to purchase shares directly from the fund. Instead, these investors\nwill purchase shares in the secondary market through a brokerage account or with the assistance of a broker. Thus, some of the\ninformation contained in this prospectus – such as information about purchasing and redeeming shares from the fund and references\nto transaction fees imposed on purchases and redemptions – is not relevant to most individual investors. Shares purchased\nor sold through a brokerage account or with the assistance of a broker may be subject to brokerage commissions and charges.

The fund’s performance will fluctuate over\ntime and, as with all investments, future performance may differ from past performance.

6 Schwab International Bond ETF | About the Fund

Fund Details

There can be no assurance that the fund will\nachieve its objective. Except as explicitly described otherwise, the investment objective, strategies and policies of the fund\nmay be changed without shareholder approval.

The principal investment strategies and the main\nrisks associated with investing in the fund are summarized in the fund summary at the front of this prospectus. This section takes\na more detailed look at some of the types of securities, the associated risks, and the various investment strategies that may be\nused in the day-to-day portfolio management of the fund, as described below. In addition to the particular types of securities\nand strategies that are described in this prospectus, the fund may use strategies that are not described herein in support of its\noverall investment goal. These additional strategies and the risks associated with them are described in the “Investment\nObjective, Strategies, Risks and Limitations” section in the Statement of Additional Information (SAI).

The fund reserves the right to substitute a different\nindex for the index it currently tracks if the current index is discontinued, if the agreement with the sponsor of its current\nindex is terminated or for any other reason determined in good faith by the fund’s Board of Trustees. In any such instance,\nthe substitute index would represent the same market segment as the current index.

Investment\nObjective and More About Principal Risks

Investment Objective

The fund’s goal is to track as closely\nas possible, before fees and expenses, the total return of an index comprising of international, non-U.S. dollar-denominated investment\ngrade debt securities. The fund’s investment objective is not fundamental and therefore may be changed by the fund’s\nBoard of Trustees without shareholder approval.

More Information About Principal Investment\nRisks

The fund is subject to risks, any of which could\ncause an investor to lose money.

Market Risk – Financial markets\nrise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political,\nregulatory and other conditions, including economic sanctions, tariffs, and other government actions. In addition, the occurrence\nof global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect\nthe financial markets. These events could reduce consumer demand or economic output; result in market closures, changes in interest\nrates, inflation/deflation, travel restrictions or quarantines; and significantly adversely impact the economy. Governmental and\nquasi-governmental authorities and regulators throughout the world have in the past often responded to serious economic disruptions\nwith a variety of significant fiscal and monetary policy changes which could have an unexpected impact on financial markets and\nthe fund’s investments. As with any investment whose performance is tied to financial markets, the value of an investment\nin the fund will fluctuate, which means that an investor could lose money over short or long periods.

Investment Style Risk – The fund\nis an index fund. Therefore, the fund follows the securities included in the index during upturns as well as downturns. Because\nof its indexing strategy, the fund does not take steps to reduce market exposure or to lessen the effects of a declining market,\neven though these securities may go in and out of favor based on market and economic conditions. The index does not weigh securities\non the basis of investor protection, limitations or differences in the quality of financial reporting or other oversight mechanisms.\nTherefore, the fund will follow the securities in the index without consideration of these factors. In addition, because of the\nfund’s expenses, the fund’s performance may be below that of the index.

At times the segment of the markets represented\nby the index may underperform other market segments. A significant percentage of the index may be composed of securities in a single\nindustry or sector of the economy. If the fund is focused in an industry or sector, it may present more risks than if it were broadly\ndiversified over numerous industries and sectors of the economy. Because of the way the index is composed, the index may perform\ndifferently or worse than an index that is based solely on market capitalization.

Index-Related Risk – The index provider\ndoes not provide any warranty as to the timeliness, accuracy or completeness of any data relating to the index. Errors relating\nto the index, including index data, computations and/or construction, may occur from time to time and may not be identified by\nthe index provider for a period of time or at all. Losses resulting from

Schwab International Bond ETF | Fund Details 7

index errors may be borne by the fund and its shareholders.\nIn addition, there can be no guarantee that the index will operate as intended during volatile market conditions or over the course\nof a full market cycle.

In addition, market disruptions could cause delays\nin the index’s rebalancing schedule which may result in the index and, in turn, the fund experiencing returns different than\nthose that would have been achieved under a normal rebalancing schedule.

Interest Rate Risk – Interest rates\nrise and fall over time. As with any investment whose yield reflects current interest rates, the fund’s yield will change\nover time. During periods when interest rates are low or there are negative interest rates, the fund’s yield (and total return)\nalso may be low or the fund may be unable to maintain positive returns. Changes or the anticipation of changes in interest rates\nalso may affect the fund’s share price: a rise in interest rates generally causes the fund’s share price to fall. This\nrisk is greater when the fund holds fixed-income securities with longer maturities. The longer the fund’s portfolio duration,\nthe more sensitive to interest rate movements its share price is likely to be. For example, a fund with a longer portfolio duration\nis more likely to experience a decrease in its share price as interest rates rise. Duration is an estimate of a security’s\n(or portfolio of securities) sensitivity to changes in prevailing interest rates that is based on certain factors that may prove\nto be incorrect. It is therefore not an exact measurement and may not be able to reliably predict a particular security’s\nprice sensitivity to changes in interest rates.

Economic conditions and other factors, including\na central bank’s monetary policy, may result in changes in interest rates, which could have sudden and unpredictable effects\non the markets and significantly impact the value of fixed-income securities in which the fund invests. Rising interest rates may\ndecrease liquidity in the fixed-income securities markets, making it more difficult for the fund to sell its fixed-income securities\nholdings at a time when the investment adviser might wish to sell such securities. In addition, decreased market liquidity also\nmay make it more difficult to value some or all of the fund’s fixed-income securities holdings. Certain countries have experienced\nnegative interest rates on certain fixed-income securities. Negative or very low interest rates could magnify the risks associated\nwith changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have unpredictable\neffects on markets and may expose fixed-income and related markets to heightened volatility. Inflation-protected securities may\nreact differently to interest rate changes than other types of fixed-income securities and tend to react to changes in “real”\ninterest rates.

Credit Risk – A decline in the credit\nquality of an issuer, guarantor or liquidity provider of a portfolio investment or a counterparty could cause the fund to lose\nmoney or underperform. The fund could lose money if, due to a decline in credit quality, the issuer, guarantor or liquidity provider\nof a portfolio investment or a counterparty fails to make, or is perceived as being unable or unwilling to make, timely principal\nor interest payments or otherwise honor its obligations. The credit quality of the fund’s portfolio holdings can change rapidly\nin certain market environments and any default on the part of a single portfolio investment could cause the fund’s share\nprice or yield to fall. Certain U.S. government securities that the fund invests in are not backed by the full faith and credit\nof the U.S. government, which means they are neither issued nor guaranteed by the U.S. Treasury. There can be no assurance that\nthe U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to\ndo so under law. Also, any government guarantees on securities the fund owns do not extend to the shares of the fund itself.

Foreign Investment Risk – The fund’s\ninvestments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in\nsecurities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions;\nchanges in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges);\ndiffering accounting, auditing, financial reporting and legal standards and practices; differing securities market structures;\nand higher transaction costs. In certain countries, legal remedies available to investors may be more limited than those available\nwith respect to investments in the U.S. These risks may negatively impact the value or liquidity of the fund’s investments\nand could impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy.\nIn addition, the fund’s investments in foreign securities may be subject to economic sanctions or other government restrictions,\nincluding trade tariffs, embargoes or limitations on trade which could have a significant impact on a country’s markets overall\nas well as global economies or markets. There also is the risk that the cost of buying, selling, and holding foreign securities,\nincluding brokerage, tax, and custody costs, may be higher than those involved in domestic transactions. The securities of some\nforeign companies may be less liquid and, at times, more volatile than securities of comparable U.S. companies. The fund may also\nexperience more rapid or extreme changes in value as compared to a fund that invests solely in securities of U.S. companies because\nthe securities markets of many foreign countries are relatively small, with a limited number of companies representing a small\nnumber of industries. To the extent the fund’s investments in a single country or a limited number of countries represent\na large percentage of the fund’s assets, the fund’s performance may be adversely affected by the economic, political,\nregulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that\nis geographically diversified.

8 Schwab International Bond ETF | Fund Details

Currency Risk – The fund’s\ninvestments in securities denominated in, and/or receiving revenues in, foreign currencies, will subject the fund to the risk that\nthose currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar\nwill decline in value relative to the currency hedged. In either event, the dollar value of an investment in the fund would be\nadversely affected. Currency exchange rates may fluctuate in response to factors extrinsic to that country’s economy, which\nmakes the forecasting of currency market movements extremely difficult. Currency rates in foreign countries may fluctuate significantly\nover short periods of time for a number of reasons, including changes in interest rates; intervention (or failure to intervene)\nby U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund; or by the imposition\nof currency controls or other political developments in the United States or abroad. These can result in losses to the fund if\nit is unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into\nto be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Forward contracts on foreign\ncurrencies are not traded on exchanges; rather, a bank or dealer will act as agent or as principal in order to make or take future\ndelivery of a specified lot of a particular currency for the fund’s account. The fund is subject to the risk of a counterparty’s\nfailure, inability or refusal to perform with respect to such contracts.

Tracking Error and Correlation Risk –\nAs an index fund, the fund seeks to track the performance of the index, although it may not be successful in doing so. The divergence\nbetween the performance of the fund and the index, positive or negative, is called “tracking error.” Tracking error\ncan be caused by many factors and it may be significant. For example, the fund may not invest in certain securities in the index,\nmatch the securities’ weighting to the index, or the fund may invest in securities not in the index, due to regulatory, operational,\ncustodial or liquidity constraints; corporate transactions; asset valuations; transaction costs and timing; tax considerations;\nand index rebalancing, which may result in tracking error. The fund may attempt to offset the effects of not being invested in\ncertain index securities by making substitute investments, but these efforts may not be successful. In certain circumstances, the\nfund may value individual securities based on fair value prices developed using methods approved by the fund’s Board of Trustees.\nTo the extent the fund calculates its NAV based on fair value prices, the fund’s performance may diverge from that of its\nindex. In addition, cash flows into and out of the fund, timing variances, operating expenses and trading costs all affect the\nability of the fund to match the performance of the index, because the index does not have to manage cash flows and does not incur\nany costs. Lastly, differences between the fund’s portfolio and the index resulting from legal restrictions (such as diversification\nrequirements) that apply to the fund but not to the index impact correlation between the performance of the fund and that of its\nindex.

Privately Issued Securities Risk –\nThe fund may invest in privately issued securities, including those that are normally purchased pursuant to Rule 144A under the\n1933 Act. Privately issued securities are securities that have not been registered under the 1933 Act and as a result may be subject\nto legal restrictions on resale. Privately issued securities, including those purchased pursuant to Rule 144A under the 1933 Act,\nare generally not traded on established markets. Privately issued securities carry the risk that the liquidity of these securities\nmay become impaired, making it more difficult for the fund to sell these bonds. Delay or difficulty in selling such securities\nmay result in a loss to the fund.

Portfolio Turnover Risk – The fund\nmay engage in frequent trading of its portfolio securities in connection with its tracking of the index or in response to market\nconditions. A portfolio turnover rate of 200%, for example, is equivalent to the fund buying and selling all of its securities\ntwo times during the course of the year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs.\nA high portfolio turnover rate also can result in an increase in taxable capital gains distributions to the fund’s shareholders.

Prepayment and Extension Risk –\nCertain fixed-income securities are subject to the risk that the securities may be paid off earlier or later than expected, especially\nduring periods of falling or rising interest rates, respectively. Rising interest rates tend to extend the duration of certain\nfixed-income securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates,\nthe fund could exhibit additional volatility and hold securities paying lower-than-market rates of interest. This is known as extension\nrisk. When interest rates decline, borrowers may pay off their fixed-income securities sooner than expected. This can reduce the\nfund’s returns because the fund will have to reinvest that money at the lower prevailing interest rates. In addition, prepayments\nand subsequent reinvestments

Schwab International Bond ETF | Fund Details 9

increase the fund’s portfolio turnover rate. This is known as prepayment risk. Either situation\ncould hurt the fund’s performance.

Derivatives Risk – The fund may\nuse derivatives to hedge against market declines. Examples of derivatives are options, futures, options on futures, forward contracts\nand swaps. An option is the right, but not the obligation, to buy or sell an instrument at a specific price on or before a specific\ndate. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A forward contract\nis an over-the-counter derivative transaction between two parties to buy or sell a specified amount of an underlying reference\nat a specified price (or rate) on a specified date in the future. A forward foreign currency contract is a derivative (forward\ncontract) in which the underlying reference is a country’s or region’s currency. A swap is an agreement whereby two\nparties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain securities and a predetermined\namount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified\ncredit event in exchange for a fixed payment or series of fixed payments.

The fund’s use of derivative instruments\ninvolves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional\ninvestments. Certain of these risks, such as liquidity risk, market risk, and management risk, are discussed elsewhere in this\nprospectus. The fund’s use of derivatives is also subject to credit risk, leverage risk, counterparty risk, lack of availability\nrisk, valuation risk, correlation risk, tax risk, and operational risk. Credit risk is the risk that the counterparty to a derivatives\ntransaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives\ncan have a disproportionately large impact on the fund. Counterparty risk is the risk that the counterparty to a derivative transaction\nmay not fulfill its contractual obligations either because the financial condition of the counterparty declines, or because the\ncounterparty is otherwise unable or unwilling to perform under the contract. Lack of availability risk is the risk that suitable\nderivative transactions may not be available in all circumstances for risk management or other purposes. Valuation risk is the\nrisk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative\nmay not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause\nthe fund to realize higher amounts of short-term capital gains. Operational risk is the risk related to operational issues, including\ndocumentation issues, settlement issues, systems failures, inadequate controls, and human error. The fund’s use of derivatives\ncould reduce the fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount\ninvested. The use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause\nthe fund to become a commodity pool, which would require the fund to comply with certain CFTC rules. The fund’s use of derivatives\nalso could create a risk of counterparty default under certain transactions, risks that the fund would need to liquidate portfolio\npositions when it may not be advantageous to do so in order to meet margin and payment obligations, and legal risks relating to\ninsufficient documentation, insufficient capacity or authority of a counterparty, or legality or enforceability of a contract.

Liquidity Risk – Liquidity risk\nexists when particular investments are difficult to purchase, sell or value, especially during stressed market conditions. The\nmarket for certain investments may become illiquid due to specific adverse changes in the conditions of a particular issuer or\nunder adverse market or economic conditions independent of the issuer. In addition, limited dealer inventories of certain securities\ncould potentially lead to decreased liquidity. In such cases, the fund, due to limitations on investments in illiquid securities\nand the difficulty in readily purchasing and selling such securities at favorable times or prices, may decline in value, experience\nlower returns and/or be unable to achieve its desired level of exposure to a certain issuer or sector. Further, transactions in\nilliquid securities may entail transaction costs that are higher than those for transactions in liquid securities. Liquidity risk\nalso includes the risk that market conditions or large shareholder redemptions, which may occur rapidly or unexpectedly, may impact\nthe ability of the fund to meet redemption requests within the required time period. In order to meet such redemption requests,\nthe fund may be forced to sell securities at inopportune times or prices.

Leverage Risk – Certain fund transactions,\nsuch as derivatives transactions, may give rise to a form of leverage and may expose the fund to greater risk. Leverage tends to\nmagnify the effect of any decrease or increase in the value of the fund’s portfolio securities which means even a small amount\nof leverage can have a disproportionately large impact on the fund. The use of leverage may cause the fund to liquidate portfolio\npositions when it would not be advantageous to do so in order to satisfy its obligations.

Securities Lending Risk – The fund\nmay lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied,\nincluding that the loan is fully collateralized. When the fund lends portfolio securities, its investment performance will continue\nto reflect changes in the value of the securities loaned, and the fund will also receive a fee or interest on the collateral. Securities\nlending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return\nthe security loaned or becomes insolvent. The fund will also bear the risk of any decline in value of securities acquired with\ncash collateral. The fund may pay lending fees to a party arranging the loan.

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Market Trading Risk – Although fund\nshares are listed on national securities exchanges, there can be no assurance that an active trading market for fund shares will\ndevelop or be maintained. If an active market is not maintained, investors may find it difficult to buy or sell fund shares. Trading\nof shares of the fund on a national securities exchange may be halted if exchange officials deem such action appropriate, if the\nfund is delisted, or if the activation of marketwide “circuit breakers” halts stock trading generally. If the fund’s\nshares are delisted, the fund may seek to list its shares on another market, merge with another ETF, or redeem its shares at NAV.

Shares of the Fund May Trade at Prices Other\nThan NAV – As with all ETFs, fund shares may be bought and sold in the secondary market at market prices. Although it\nis expected that the market price of the shares of the fund will approximate the fund’s NAV, there may be times when the\nmarket price and the NAV vary significantly. Thus, an investor may pay more than NAV when buying shares of the fund in the secondary\nmarket, and an investor may receive less than NAV when selling those shares in the secondary market. The investment adviser cannot\npredict whether shares will trade above (premium), below (discount) or at NAV. The fund may have a limited number of financial\ninstitutions that may act as “Authorized Participants” or market makers. Only Authorized Participants who have entered\ninto agreements with the fund’s distributor may engage in creation or redemption transactions directly with the fund (as\ndiscussed in the “Creation and Redemption” section below). If those Authorized Participants exit the business or are\nunable to process creation and/or redemption orders (including in situations where Authorized Participants have limited or diminished\naccess to capital required to post collateral), and no other Authorized Participant is able to step forward to create and/or redeem,\nfund shares may trade at a premium or discount to NAV like closed-end fund shares (and may even face delisting). Similar effects\nmay result if market makers exit the business or are unable to continue making markets in the fund’s shares. Risks associated\nwith having a limited number of Authorized Participants may be heightened for ETFs that invest in securities issued by non-U.S.\nissuers or other instruments that have lower trading volumes. More generally, market makers are not obligated to make a market\nin the fund’s shares, and Authorized Participants are not obligated to submit purchase or redemption orders for Creation\nUnits. Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the\nvalue of the fund’s holdings, disruptions to creations and/or redemptions, including disruptions at market makers, Authorized\nParticipants or market participants, or during periods of significant market volatility, may result in market prices that differ\nsignificantly from the value of the fund’s holdings. In addition, transactions by large shareholders may account for a large\npercentage of trading volume on the fund’s primary listing exchange and may, therefore, have a material effect on the market\nprice of the fund’s shares.

The market price of fund shares during the trading\nday, like the price of any exchange-traded security, may be impacted by a “bid/ask” spread. The bid/ask spread is the\ndifference between what investors are willing to pay for fund shares (the “bid” price) and the price at which investors\nare willing to sell fund shares (the “ask” price). The spread may vary over time and is based on many factors including\nsupply and demand for the underlying securities held by the fund, supply and demand for shares of the fund itself, and the historical\nand current magnitude of price fluctuation of the fund’s asset class. The spread is generally narrower if the fund has higher\ntrading volume and wider if the fund has lower trading volume (which may be the case for funds that are newly launched or small\nin size). Bid/ask spreads may also be wider during times of higher market volatility. At those times, fund shares are most likely\nto be traded at a discount to NAV, and the discount is likely to be greatest when the price of shares is falling fastest, which\nmay be the time that investors most want to sell shares. The investment adviser believes that, under normal market conditions,\nlarge market price discounts or premiums to NAV will not be sustained because of arbitrage opportunities. There are various methods\nby which investors can purchase and sell shares of the fund and various types of orders that may be placed. Investors should consult\ntheir financial intermediary before purchasing or selling shares of the fund.

In addition, the securities held by the fund\nmay be traded in markets that close at a different time than the fund’s secondary market and liquidity in those securities\nmay be reduced after the applicable market closing times. Accordingly, during the time when the fund’s secondary market is\nopen but after the applicable foreign market closing, fixing or settlement times, bid/ask spreads and the resulting premium or\ndiscount to the fund’s NAV may widen. The fund’s bid/ask spread may also be impacted by the liquidity of the underlying\nsecurities held by the fund or in instances of significant volatility of the underlying securities.

Money Market Fund Risk – An investment\nby the fund in an underlying money market fund has risks. The fund may invest in underlying money market funds that seek to maintain\na stable $1.00 NAV. Although an underlying money market fund seeks to maintain a stable $1.00 NAV, it is possible to lose money\nby investing in such a money market fund. In addition, money market funds are not designed to offer capital appreciation. In exchange\nfor their emphasis on stability and liquidity, money market investments may offer lower long-term performance than stock or bond\ninvestments. Certain underlying money market funds may impose a fee upon the sale of shares under certain circumstances.

Schwab International Bond ETF | Fund Details 11

Maturity and\nDuration: A Brief Explanation

“Maturity” and “duration”\nare concepts generally associated with fixed-income investments, such as bonds, and, as an investor or potential investor in a\nfixed-income fund, it is important that you have a basic understanding of each concept and how each relates to your investment.\nThe following discussion about maturity and duration will also help you understand how bond prices – and, by extension, the\nshare price of a fund that invests in bonds – can be expected to change given a change in interest rates.

Maturity and Duration – The Basics

A BOND is a loan between an issuer and\na bondholder that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, over a specified\nperiod of time. More specifically, in exchange for the loan amount, or PRINCIPAL, a bondholder receives INTEREST –\nor COUPON – payments from the issuer as compensation for the use – or borrowing – of the bondholder’s\nprincipal for a specific period of time. “ISSUERS” may include entities such as corporations, governments, government\nagencies and municipalities, while “BONDHOLDERS” may include, but are not limited to, mutual funds or ETFs, banks,\ninsurance companies and individuals.

In addition to the coupon payments that an issuer\nis obligated to pay a bondholder, the issuer is also obligated to repay the principal amount at “maturity.” A bond’s\nMATURITY represents when the final principal payment of a bond is scheduled to be repaid. Simply, it is the period of time\nuntil a bondholder can expect to receive all of its money, or principal, back from the issuer. A bond’s MATURITY DATE\nis the specific date by which the entire principal amount is to be repaid.

DURATION is a measure that estimates the\nsensitivity of a bond’s price relative to interest rate changes. Duration is often expressed as a period of time (i.e., 6\nmonths, 1 year, 2.5 years, etc.). Generally, a lower duration indicates a lower sensitivity to changes in interest rates, and a\nhigher duration indicates a higher sensitivity to changes in interest rates. Unlike maturity, which only measures the time until\nfinal payment of principal, duration considers the timing and pattern of interest and principal payments. Because different factors\nare considered when calculating maturity and duration, a bond’s duration is often shorter than its maturity and can at times\nbe significantly shorter than the maturity. A characteristic of duration is that as interest rates decline, duration tends to increase.\nFor municipal and mortgage-backed securities, duration may also increase when interest rates increase.

When thinking about the concepts of maturity\nand duration, there are two common risks¹ generally associated with fixed-income investments that are\nimportant to consider. The first relates to maturity: there is risk that an issuer may be unable to repay the principal due.\nUsually, this risk increases with time. Bondholders typically have greater transparency with respect to an issuer’s\nability to repay a loan over shorter time horizons, while assessing the future becomes more difficult as the periods get longer.\nAs a result, bonds with longer maturities tend to carry higher repayment risk than bonds with shorter maturities. This is one\nreason why longer-maturity bonds typically pay higher interest rates than shorter-maturity bonds. Similarly, funds that invest\nin bonds with longer maturities are subject to higher repayment risk, but will typically pay higher dividends than funds that\ninvest in bonds with shorter maturities.

The second risk relates to the impact of interest\nrates on a bond’s price. Interest rates generally fluctuate; meaning, they can increase or decrease prior to a bond’s\nmaturity date. This means that during an investor’s holding period, a bond’s coupon may be less than or greater than\ncurrent market interest rates. To the extent a bond’s coupon is different from current market interest rates, a bond’s\nprice will fall or rise to align with current market interest rates. Bond prices exhibit an inverse relationship relative to\ninterest rates: when interest rates decline, bond prices increase and vice versa. For example, assume you purchased a new issue\nbond when interest rates were 4%. Now assume that since you purchased that bond interest rates increased by 1% to 5%. Keeping in\nmind that bond prices and interest rates have an inverse relationship – when interest rates increase, a bond’s price\ndeclines – the price of the purchased 4% coupon bond in this example would decline because bonds can now be purchased with\n5% coupons making the 4% coupon bond less valuable.

More on Duration

While having a basic understanding of both maturity\nand duration is important for any fixed-income investor, maturity tends to be more straightforward than the concept of duration,\nwhich requires a bit more discussion. In its simplest terms,

All investments are subject to risks, including risks\nnot discussed in this section of the prospectus. Please refer to the risks disclosed elsewhere in this prospectus and the SAI to\nunderstand the risks of investing in the fund.

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duration attempts to quantify and estimate how much a bond’s\nprice can be expected to change in response to changing interest rates. Typically, duration increases as a bond’s maturity\nincreases and decreases as a bond’s maturity decreases; meaning, longer-maturity bonds have higher durations than shorter-maturity\nbonds. With this in mind, remember that as duration increases, a bond’s sensitivity to changes in interest rates increases.\nThat means that when interest rates increase:

▪

Relative to longer duration bonds, shorter duration bonds would fall less in price because an investor’s principal would\nbe repaid at the lower interest rate sooner.

▪

Longer-duration bonds, on the other hand, would fall in price more than shorter-duration bonds, due to the longer horizon of\nholding bonds paying less interest than current interest rates.

So, when looking at the example above, where\ninterest rates rose from 4% to 5%, the extent to which the 4% coupon bond would decline in price is dependent upon the bond’s\nduration – the longer the duration, the more it would decline in price. For example, a 4% coupon bond with a duration of\n2 years would decline less in price than a 4% coupon bond with a duration of 4 years. This is true when assessing the extent to\nwhich any bond’s price may change when interest rates change.

Beyond providing a way to compare the relative\ninterest rate sensitivity of bonds, duration attempts to estimate the expected change in a bond’s value should interest rates\nchange by 1%. Again, recall the example above, where interest rates rose from 4% to 5%. Under this scenario, a bond with a 6 year\nduration would generally be expected to decline in price by approximately 6% (1% price move for each year of duration), while a\nbond with a 7 year duration would generally be expected to decline in price by approximately 7%. If the example above were reversed\nand interest rates instead declined by 1%, from 4% to 3%, the opposite would occur:

▪

Relative to longer-duration bonds, shorter duration bonds would appreciate less in price; longer-duration bonds would appreciate\nmore in price than shorter-duration bonds.

▪

A bond with a 6 year duration would generally be expected to increase in value by approximately 6% (1% price move for each\nyear of duration), while a bond, or bond fund, with a 7 year duration would generally be expected to increase in value by approximately\n7%.

It is important to understand that a bond’s\nduration is not constant. As stated earlier, duration considers the timing and pattern of interest and principal payments. As time\nprogresses, the period of time remaining until interest and principal payments are made changes, impacting the duration of a bond\n– as the time until those payments are made shortens, the duration also shortens. In addition, and as discussed previously,\nduration is also impacted by interest rate changes. As such, duration is a gauge of a bond’s sensitivity to interest rate\nchanges, but it should not be relied on as an exact measure of the price change if interest rates change.

Maturity and Duration – At the Fund\nLevel

A fund that invests in bonds is impacted in the\nsame way as the individual bond described in the examples above – as interest rates increase the value of fund shares will\ndecline, and as interest rates decline the value of fund shares will increase. To provide investors with information about a fund’s\ninterest rate risk exposure, the fund typically provides the average maturity and duration of the portfolio, which take into consideration\nthe maturity and duration of all the fund’s fixed-income investments. A fund with a shorter portfolio average maturity and\nduration is expected to be less impacted by changing interest rates than a fund with a longer portfolio average maturity and duration.\nSimply stated, a fund with a shorter portfolio average maturity and duration is generally less volatile as a result of interest\nrate changes than a fund with a longer portfolio average maturity and duration.

In the same way that a bond’s duration\nis not constant, a fund’s portfolio average maturity and duration are not constant. A fund’s portfolio average duration\nwill change as a result of duration changes to the bonds the fund owns, as described above. Further, both the average maturity\nand duration may change as the fund’s portfolio manager buys and/or sells bonds owned by the fund. To remain aware of the\ninterest rate sensitivity of funds you own, it is helpful to periodically review the fund’s reported average portfolio maturity\nand duration.

Maturity and Duration – Other Fixed-Income\nSecurities

The above discussion provides a general overview\nof the concepts of maturity and duration. Application and calculation of these concepts may be slightly different or become more\ncomplex when applied to other types of fixed-income securities, which may require different assessments to determine and/or calculate\nmaturity and duration. For example, to calculate

Schwab International Bond ETF | Fund Details 13

the duration for securitized investments, such as mortgage-backed securities and\ncertain asset-backed securities, an investor must look-through to the instruments underlying the securities and must account for\nthe pace of repayment of the underlying instruments. To learn more about maturity and duration for the specific types of fixed-income\ninvestments that the fund may invest in, please refer to the SAI.

Portfolio Holdings

A description of the fund’s policies and\nprocedures with respect to the disclosure of the fund’s portfolio securities is available in the SAI.

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Financial Highlights

The fund is newly organized and therefore has\nnot yet had any operations as of the date of this prospectus.

Schwab International Bond ETF | Financial Highlights 15

Fund Management

The investment adviser for the fund is Charles\nSchwab Investment Management, Inc., dba Schwab Asset Management, 425 Market Street, Suite 1700, San Francisco, CA 94105. The investment\nadviser was founded in 1989 and as of August 31, 2026, managed approximately $1.7 trillion in assets.

The investment adviser oversees the asset management\nand administration of the fund. As compensation for these services, the investment adviser receives a management fee of 0.06% of\nthe average daily net assets of the fund.

Pursuant to the Amended and Restated Advisory\nAgreement between the investment adviser and Schwab Strategic Trust, on behalf of the fund, the investment adviser pays the operating\nexpenses of the fund, excluding taxes, any brokerage expenses, and extraordinary or non-routine expenses.

A discussion regarding the basis for the Board\nof Trustees’ approval of the fund’s Amended and Restated Advisory Agreement will be included in the fund’s first\nForm N-CSR.

Matthew Hastings, CFA, Managing Director\nand Head of Bond Index Strategies for Schwab Asset Management, is responsible for the day-to-day co-management of the fund. Mr.\nHastings leads the portfolio management team for the Schwab Taxable Bond Mutual Funds and Schwab Fixed-Income ETFs. He also has\noverall responsibility for all aspects of the management of the fund. Prior to joining Schwab in 1999, Mr. Hastings was in fixed\nincome sales and trading at Lehman Brothers. He has worked in the fixed income securities industry since 1996.

Steven Hung, Senior Portfolio Manager\nfor Schwab Asset Management, is responsible for the day-to-day co-management of the fund. He is primarily responsible for the management\nand oversight of corporate bonds, within the taxable bond strategies, with additional responsibility for managing municipal bond\nindex strategies. Mr. Hung has been a portfolio manager with Schwab Asset Management since 2005 and prior to that, served in various\nroles as an associate portfolio manager and trader since 1999. In 1998, he joined Schwab’s management training program and\nworked as a clerk on the options trading floor of the Pacific Coast Stock Exchange.

Additional information about the portfolio managers’\ncompensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the\nfund is available in the SAI.

Distributor. The fund’s Distributor\nis SEI Investments Distribution Co. The Distributor, located at 1 Freedom Valley Drive, Oaks, PA 19456, is a broker-dealer registered\nwith the SEC. The Distributor distributes Creation Units for the fund and does not maintain a secondary market in shares of the\nfund.

16 Schwab International Bond ETF | Fund Management

Investing in\nthe Fund

On the following pages, you will find information\non buying and selling shares. Most investors will invest in the fund by placing orders through their brokerage account at Charles\nSchwab & Co., Inc. (Schwab) or an account with another broker/dealer or other intermediary. Authorized Participants (as defined\nin “Purchase and Redemption of Creation Units,” below) may invest directly in the fund by placing orders for Creation\nUnits through the fund’s transfer agent, State Street Bank and Trust Company (direct orders). Helpful information on taxes\nis included as well.

The fund generally is not registered for sale\nin jurisdictions outside the United States and is intended for purchase by persons residing in the United States. A person is considered\nresident in the United States if at the time of the investment (i) the account has an address of record in the United States or\na U.S. territory (including APO/FPO/DPO) and (ii) all account owners are resident in the United States or a U.S. territory and\nhave a valid U.S. taxpayer identification number. If an existing account is updated to reflect a non-U.S. address, the account\nmay be restricted from making additional investments.

Shares of the fund trade on national securities\nexchanges and elsewhere during the trading day and can be bought and sold throughout the trading day like other shares of publicly\ntraded securities. When buying or selling shares through a broker most investors will incur customary brokerage commissions and\ncharges. In addition, you may incur the cost of the “spread” – that is, any difference between the bid price\n(the highest price a buyer is willing to pay for a share of a fund) and the ask price (the lowest price a seller is willing to\naccept for a share of a fund).

Shares of the fund trade under the following\ntrading symbol:

\n\n \n \n

Schwab International Bond ETF

SCIN

Shares of the fund may be acquired or redeemed\ndirectly from the fund only in Creation Units or multiples thereof, as discussed in the “Creation and Redemption” section\nbelow. Once created, shares of the fund trade in the secondary market in amounts less than a Creation Unit. The fund does not impose\nany minimum investment for shares of the fund purchased on an exchange or in the secondary market. Except when aggregated in Creation\nUnits, shares are not redeemable by the fund.

Share Trading\nPrices

As with other types of securities, the trading\nprices of shares in the secondary market can be affected by market forces such as supply and demand, economic conditions and other\nfactors. The price you pay or receive when you buy or sell your shares in the secondary market may be more (a premium) or less\n(a discount) than the NAV of such shares.

Premium/Discount Information

The fund is new. When available, information\nshowing the number of days the market price of the fund’s shares was greater than the fund’s NAV per share (i.e., at\na premium) and the number of days it was less than the fund’s NAV per share (i.e., at a discount), for various time periods,\nwill be available at the fund’s website www.schwabassetmanagement.com.

Determination\nof Net Asset Value

The NAV of the fund’s shares is calculated\nas of the close of regular trading on the New York Stock Exchange (NYSE), generally 4:00 p.m. Eastern Time, on each day the NYSE\nis open for trading (each, a Business Day). NAV per share is calculated by dividing the fund’s net assets by the number of\nthe fund’s shares outstanding. If the NYSE is closed due to weather or other extenuating circumstances on a day it would\ntypically be open for business, or the NYSE has an unscheduled early closing on a day it has opened for business, the fund reserves\nthe right to treat such day as a Business Day and accept purchase and redemption orders and calculate its NAV as of the normally\nscheduled close of regular trading on the NYSE for that day.

The fund’s portfolio securities are valued\nusing market quotations or official closing prices if they are readily available. In cases where market quotations are not readily\navailable or the investment adviser deems them unreliable, the fund’s portfolio securities are valued based on fair values\ndeveloped following procedures approved by the fund’s Board of

Schwab International Bond ETF | Investing in the Fund 17

Trustees. The Board of Trustees has designated the investment\nadviser as the valuation designee (Valuation Designee) for the fund to perform the fair value determination relating to all fund\ninvestments. When valuing fixed-income securities with remaining maturities of more than 60 days, the fund uses the value of the\nsecurity provided by pricing services. The pricing services value most fixed-income securities at an evaluated price by employing\nmethodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify\nthe market value for such securities. Securities with remaining maturities of 60 days or less are generally valued at an evaluated\nprice; however, such securities may be valued at their amortized cost if it approximates the security’s market value.

The fund’s Board of Trustees has approved\nprocedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable.\nFor example, the fund may fair value a security when a security is de-listed or its trading is halted or suspended; when a security’s\nprimary pricing source is unable or unwilling to provide a price; when a security’s primary trading market is closed during\nregular market hours; or when a security’s value is materially affected by events occurring after the close of the security’s\nprimary trading market. By fair valuing securities whose prices may have been affected by events occurring after the close of trading\nof the security’s primary trading market, the fund seeks to establish prices that investors might expect to realize upon\nthe current sales of these securities. The Valuation Designee’s policies and procedures, which govern the selection and application\nof methodologies for determining the fair value of fund investments, seek to ensure that the prices at which the fund’s shares\nare purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. Generally,\nwhen fair valuing a security, the Valuation Designee will take into account all reasonably available information that may be relevant\nto a particular valuation including, but not limited to, fundamental analytical data regarding the issuer, information relating\nto the issuer’s business, recent trades or offers of the security, general and specific market conditions and the specific\nfacts giving rise to the need to fair value the security. The Valuation Designee makes fair value determinations in good faith\nand in accordance with the fair value procedures approved by the Board of Trustees. Due to the subjective and variable nature of\nfair value pricing, there can be no assurance that the fund could obtain the fair value assigned to the security upon the sale\nof such security.

Shareholders of the fund should be aware that\nbecause foreign markets are often open on weekends and other days when the fund is closed, the value of the fund’s portfolios\nmay change on days when it is not possible to buy or sell shares of the fund.

Transactions in fund shares will be priced at\nNAV only if you purchase or redeem shares directly from the fund in Creation Units. Fund shares that are purchased or sold on the\nsecondary market will be effected at prevailing market prices, which may be higher or lower than NAV, and may be subject to brokerage\ncommissions and charges. As described below, purchases and redemptions of Creation Units will be priced at the NAV next determined\nafter receipt of the purchase or redemption order.

Purchase and\nRedemption of Creation Units

Creation and Redemption

The shares that trade in the secondary market\nare “created” at NAV. The fund issues and redeems shares only in Creation Units, which are large blocks of shares.\nOnly institutional investors who have entered into an authorized participant agreement (known as Authorized Participants) may purchase\nor redeem Creation Units. Creation Units generally are issued and redeemed in exchange for a specified basket of securities and/or\na designated amount of cash. Each Business Day, prior to the opening of trading, the fund publishes the specific securities and\ndesignated amount of cash included in that day’s basket for the fund through the National Securities Clearing Corporation\n(NSCC) or other method of public dissemination. The fund reserves the right to accept or pay out a basket of securities or cash\nthat differs from the published basket. The prices at which creations and redemptions occur are based on the next calculation of\nNAV after an order is received and deemed acceptable by the transfer agent. Orders from Authorized Participants to create or redeem\nCreation Units will only be accepted on a Business Day and are also subject to acceptance by the fund and the transfer agent.

Creations and redemptions must be made by an\nAuthorized Participant that has executed an agreement with the Distributor with respect to creations and redemptions of Creation\nUnit aggregations. Information about the procedures regarding creation and redemption of Creation Units is included in the SAI.

Authorized Participants and the Continuous\nOffering of Shares

Because new shares may be created and issued\non an ongoing basis, at any point during the life of the fund, a “distribution,” as such term is used in the 1933 Act,\nmay be occurring. Broker-dealers and other persons are cautioned

18 Schwab International Bond ETF | Investing in the Fund

that some activities on their part may, depending on the circumstances,\nresult in them being deemed participants in a distribution in a manner that could render them statutory underwriters and subject\nto the prospectus-delivery and liability provisions of the 1933 Act. Nonetheless, any determination of whether one is an underwriter\nmust take into account all the relevant facts and circumstances of each particular case.

Broker-dealers should also note that dealers\nwho are not “underwriters,” but are participating in a distribution (as contrasted to ordinary secondary transactions),\nand thus dealing with shares that are part of an “unsold allotment” within the meaning of Section 4(a)(3)(C) of the\n1933 Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the 1933 Act. For\ndelivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the 1933 Act is only available\nwith respect to transactions on a national securities exchange.

Creation and Redemption Transaction Fees for\nCreation Units

The fund may impose a creation transaction fee\nand a redemption transaction fee to offset transfer and other transaction costs associated with the issuance and redemption of\nCreation Units. The creation and redemption transaction fees applicable to the fund are listed below. The standard creation transaction\nfee is charged to each purchaser on the day such purchaser creates a Creation Unit. The standard fee is a single charge and will\nbe the amount indicated below regardless of the number of Creation Units purchased by an investor on the same day. Similarly, the\nstandard redemption transaction fee will be the amount indicated below regardless of the number of Creation Units redeemed that\nday. In addition, purchasers and redeemers of shares in Creation Units are responsible for payment of the costs of transferring\nsecurities to or out of the fund. Purchasers and redeemers of Creation Units for cash may also be subject to an additional variable\ncharge up to the maximum amount shown in the table below. This additional variable charge will offset the transaction costs to\nthe fund of buying or selling portfolio securities. In certain circumstances, the cost of any standard transaction fees and/or\nadditional variable charges may be waived by the fund when doing so is believed to be in the best interests of the fund. From time\nto time, the investment adviser may cover the cost of any transaction fees.

The following table shows, as of October 19,\n2026, the approximate value of one Creation Unit of the fund, including the standard and maximum additional creation and redemption\ntransaction fee. These fees are payable only by investors who purchase shares directly from the fund. Retail investors who purchase\nshares through their brokerage account will not pay these fees. Investors who use the services of a broker or other such intermediary\nmay pay fees for such services.

\n\n \n \n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n

Fund	Approximate Value \n of One Creation Unit	Standard \n Creation/Redemption \n Transaction Fee	Maximum \n Additional Creation \n Transaction Fee⁽¹⁾	Maximum \n Additional Redemption \n Transaction Fee⁽¹⁾
Schwab International Bond ETF	$2,500,000	$100	3.0%	2.0%

⁽¹⁾

As a percentage of total amount invested or redeemed.

Additional\nPolicies

Policy Regarding Short-Term or Excessive Trading

The fund does not impose any restrictions on\nthe frequency of purchases and redemptions of fund shares. When considering that a policy regarding short-term or excessive trading\nwas not necessary for the fund, the Board of Trustees considered the structure of the fund as an ETF and that fund shares are purchased\nand redeemed directly with the fund only in large quantities (Creation Units) by Authorized Participants who are authorized to\npurchase and redeem shares directly with the fund. Because purchase and redemption transactions with Authorized Participants are\nan essential part of the ETF process and help keep ETF trading prices in line with NAV, the fund accommodates frequent purchases\nand redemptions by Authorized Participants. Frequent purchases and redemptions for cash may increase index tracking error and portfolio\ntransaction costs and may lead to realization of capital gains. Frequent in-kind creations and redemptions do not give rise to\nthese concerns. The fund reserves the right to reject or limit any purchase order at any time.

The fund reserves the right to impose restrictions\non disruptive or abusive trading. Such trading is defined by the fund as purchases and sales of fund shares in amounts and frequency\ndetermined by the fund to be significant and in a pattern of activity that can potentially be detrimental to the fund and its shareholders.\nSuch adverse effects can include diluting the value of the shareholders’ holdings, increasing fund transaction costs, disrupting\nportfolio management strategy, incurring unwanted taxable gains, or forcing the fund to hold excess levels of cash. The fund may\nreject purchase or redemption orders in such instances. The fund also imposes a transaction fee on Creation Unit transactions that\nis designed to offset the fund’s transfer and other transaction costs associated with the issuance and redemption of the\nCreation Units. The

Schwab International Bond ETF | Investing in the Fund 19

Board of Trustees may determine that policies and procedures regarding the frequency of purchases and redemptions\nof fund shares are necessary in the future.

Investments by Registered Investment Companies

Section 12(d)(1) of the Investment Company Act\nof 1940, as amended, restricts investments by registered investment companies in the securities of other investment companies,\nincluding shares of the fund. Registered investment companies are permitted to invest in the fund beyond the limits set forth in\nsection 12(d)(1), subject to certain terms and conditions including in some cases that such investment companies enter into an\nagreement with the fund.

Payments to Financial Intermediaries

The investment adviser or its affiliates make\npayments out of their own resources, or provide products and services at a discount, to certain brokerage firms, banks, insurance\ncompanies, retirement plan service providers and other financial intermediaries that perform shareholder, recordkeeping, sub-accounting\nand other administrative services in connection with investments in fund shares. The investment adviser or its affiliates also\nmake payments out of their own resources, or provide products and services at a discount, to certain financial intermediaries in\nconnection with certain activities or services which may facilitate, directly or indirectly, investment in the fund. These payments\nmay relate to marketing and/or fund promotion activities and presentations, educational training programs, conferences, the development\nand support of technology platforms and/or reporting systems, data analytics and support, or making shares of the fund available\nto its customers. These payments, which may be significant, are paid by the investment adviser or its affiliates out of their own\nresources and not from the assets of the fund.

Payments to a financial intermediary may create\npotential conflicts of interest between the intermediary and its clients as the payments may provide such intermediary with an\nincentive to favor sales of shares of the fund over other investment options they make available to their customers. Please see\nthe SAI for additional information.

Distributions\nand Taxes

Any investment in the fund typically involves\nseveral tax considerations. The information below is meant as a general summary for U.S. citizens and residents. Please see the\nSAI for additional information. Because each person’s tax situation is different, you should consult your tax advisor about\nthe tax implications of your investment in the fund. You also can visit the Internal Revenue Service (IRS) website at www.irs.gov.

Dividends from net investment income, if any,\nare generally declared and paid monthly for the fund. To receive a dividend distribution, you must be a registered shareholder\non the date that dividends are declared. Dividend distributions are paid to shareholders on the payable date. Distributions of\nnet realized capital gains, if any, generally are declared and paid once a year, although the fund may do so more frequently as\ndetermined by the Board of Trustees. Although it is not generally expected, if the fund’s distributions exceed its realized\ntaxable income and capital gains during a taxable year, then all or a portion of the distributions made during that year may be\ncharacterized as a return of capital to shareholders. A return of capital distribution generally will not be taxable but will reduce\nthe shareholder’s cost basis and result in a higher capital gain or lower capital loss when those shares on which the distribution\nwas received are sold. To the extent that a return of capital distribution exceeds a shareholder’s adjusted basis, the distribution\nwill be treated as gain from the sale of shares. The fund reserves the right to declare special distributions if, in its reasonable\ndiscretion, such action is necessary or advisable to preserve its status as a regulated investment company or to avoid imposition\nof income or excise taxes on undistributed income or realized gains. Dividends and other distributions on shares of the fund are\ndistributed on a pro rata basis to beneficial owners of such shares. During the fourth quarter of the year, typically in early\nNovember, an estimate of the fund’s year-end distributions, if any, may be made available on the fund’s website www.schwabassetmanagement.com.

Unless you are investing through an IRA, 401(k)\nor other tax-advantaged account, your fund distributions generally have tax consequences. The fund’s taxable investment income\nand short-term capital gains are distributed as dividends and will be taxable as ordinary income. Other capital gains distributions\nare taxable as long-term capital gains, regardless of how long you have held your shares in the fund. The maximum individual rate\napplicable to long-term capital gains and qualified dividend income is generally either 15% or 20%, depending on whether the individual’s\nincome exceeds certain threshold amounts. However, it is not expected that any of the fund’s distributions will be eligible\nto be treated as qualified dividend income subject to the reduced rates. Distributions are taxable to shareholders even if they\nare paid from income or gain earned by the fund before a shareholder’s investment (and thus were included in the price the\nshareholder paid). Distributions generally are taxable in the tax year in which they are declared, whether you reinvest them or\ntake them in cash.

20 Schwab International Bond ETF | Investing in the Fund

Generally, any sale of your shares is a taxable\nevent. A sale of your shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition\nof shares will be treated as long-term capital gain or loss if the shares have been held for more than one year. Otherwise, the\ngain or loss on the taxable disposition of shares will be treated as short-term capital gain or loss. The maximum individual rate\napplicable to long-term capital gains is generally either 15% or 20%, depending on whether the individual’s income exceeds\ncertain threshold amounts. Any loss realized upon a taxable disposition of shares held for six months or less will be treated as\nlong-term, rather than short-term, to the extent of any long-term capital gains distributions received (or deemed received) by\nyou with respect to the shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if\nyou purchase other substantially identical shares within 30 days before or after the disposition. In such a case, the basis of\nthe newly purchased shares will be adjusted to reflect the disallowed loss.

An additional 3.8% Medicare tax is imposed on\ncertain net investment income (including ordinary dividends and capital gains distributions received from the fund and net gains\nfrom redemptions or other taxable dispositions of fund shares) of U.S. individuals, estates and trusts to the extent that such\nperson’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income”\n(in the case of an estate or trust) exceeds certain threshold amounts.

At the beginning of every year, the fund provides\nshareholders with information detailing the tax status of any distributions the fund paid during the previous calendar year. Schwab\ncustomers also receive information on distributions and transactions in their monthly account statements.

If you are investing through a taxable account\nand purchase shares of the fund before it declares a distribution, you may receive a portion of your investment back as a taxable\ndistribution. This is because when the fund makes a distribution, the share price is reduced by the amount of the distribution.

Foreign shareholders may be subject to different\nU.S. federal income tax treatment, including withholding tax at the rate of 30% on amounts treated as ordinary dividends from the\nfund, as discussed in more detail in the SAI. Furthermore, the fund is required to withhold U.S. tax (at a 30% rate) on payments\nof taxable dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive reporting and\nwithholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders\nmay be requested to provide additional information to the fund to enable the fund to determine whether withholding is required.

Taxes on Creation and Redemption of Creation\nUnits

An Authorized Participant who exchanges securities\nfor Creation Units generally will recognize a gain or a loss equal to the difference between the market value of the Creation Units\nat the time of the exchange and the sum of the exchanger’s aggregate basis in the securities surrendered and the cash component\npaid. A person who redeems Creation Units will generally recognize a gain or loss equal to the difference between the exchanger’s\nbasis in the Creation Units and the sum of the aggregate market value of the securities and the amount of cash received for such\nCreation Units. The IRS, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted\ncurrently under the rules governing “wash sales,” or on the basis that there has been no significant change in economic\nposition. Persons exchanging securities for Creation Units should consult a tax advisor with respect to whether wash sale rules\napply and when a loss might be deductible. Any capital gain or loss realized upon a redemption (or creation) of Creation Units\nis generally treated as long-term capital gain or loss if the fund’s shares (or securities surrendered) have been held for\nmore than one year and as short-term capital gain or loss if the shares (or securities surrendered) have been held for one year\nor less.

If you purchase or redeem Creation Units, you\nwill be sent a confirmation statement showing how many shares you purchased or sold and at what price. Persons purchasing or redeeming\nCreation Units should consult their own tax advisors with respect to the tax treatment of any creation or redemption transaction.

Additional\nInformation

Index Provider

Charles Schwab Investment Management, Inc., dba\nSchwab Asset Management, has entered into a license agreement with ICE Data Indices, LLC to use the ICE Global Broad Market Excluding-USD\nRIC Capped Free-Float Index (USD Hedged). Fees payable under the license agreement are paid by the investment adviser. ICE Data\nIndices, LLC has no obligation to continue to provide the ICE Global Broad Market Excluding-USD RIC Capped Free-Float Index (USD\nHedged) to Schwab Asset Management beyond the term of the license agreement.

Schwab International Bond ETF | Investing in the Fund 21

Disclaimers

Source ICE Data Indices, LLC (ICE Data), is used\nwith permission. “ICE^®” is a registered trademark of ICE Data Indices, LLC or its affiliates and “BofA^®”\nis a registered trademark of Bank of America Corporation licensed by Bank of America Corporation and its affiliates (“BofA”)\nand may not be used without BofA’s prior written approval. These trademarks have been licensed, along with the ICE Global\nBroad Market Excluding-USD RIC Capped Free-Float Index (USD Hedged) (Index) for use by Charles Schwab Investment Management, Inc.,\ndba Schwab Asset Management, in connection with the Schwab International Bond ETF (the Fund). Neither Schwab Asset Management,\nSchwab Strategic Trust (the Trust) nor the Fund, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC,\nits affiliates or its Third Party Suppliers (ICE Data and its Suppliers). ICE Data and its Suppliers make no representations or\nwarranties regarding the advisability of investing in securities generally, in the Fund particularly, the Trust or the ability\nof the Index to track general stock market performance. ICE Data’s only relationship to Schwab Asset Management is the licensing\nof certain trademarks and trade names and the Index or components thereof. The Index is determined, composed and calculated by\nICE Data without regard to Schwab Asset Management or the Fund or its holders. ICE Data has no obligation to take the needs of\nSchwab Asset Management or the holders of the Fund into consideration in determining, composing or calculating the Index. ICE Data\nis not responsible for and has not participated in the determination of the timing of, prices of, or quantities of the Fund to\nbe issued or in the determination or calculation of the equation by which the Fund is to be priced, sold, purchased, or redeemed.\nExcept for certain custom index calculation services, all information provided by ICE Data is general in nature and not tailored\nto the needs of Schwab Asset Management or any other person, entity or group of persons. ICE Data has no obligation or liability\nin connection with the administration, marketing, or trading of the Fund. ICE Data is not an investment advisor. Inclusion of a\nsecurity within an index is not a recommendation by ICE Data to buy, sell, or hold such security, nor is it considered to be investment\nadvice.

ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL\nWARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR\nPURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (INDEX DATA).\nICE DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS\nOR COMPLETENESS OF THE INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN\nRISK.

Shares of the fund are not sponsored, endorsed\nor promoted by NYSE Arca, Inc. NYSE Arca makes no representation or warranty, express or implied, to the owners of the shares of\nthe fund or any member of the public regarding the ability of the fund to track the total return performance of its underlying\nindex or the ability of the underlying index to track stock or bond market performance. NYSE Arca is not responsible for, nor has\nit participated in, the determination of the compilation or the calculation of any underlying index, nor in the determination of\nthe timing of, prices of, or quantities of shares of the fund to be issued, nor in the determination or calculation of the equation\nby which the shares are redeemable. NYSE Arca has no obligation or liability to owners of the shares of the fund in connection\nwith the administration, marketing or trading of the shares of the fund.

NYSE Arca shall have no liability for damages,\nclaims, losses or expenses caused by any errors, omissions, or delays in calculating or disseminating any current index or portfolio\nvalue; the current value of the portfolio of securities required to be deposited to the fund; the amount of any dividend equivalent\npayment or cash distribution to holders of shares of the fund; net asset value; or other information relating to the creation,\nredemption or trading of shares of the fund, resulting from any negligent act or omission by NYSE Arca, or any act, condition or\ncause beyond the reasonable control of NYSE Arca, including, but not limited to, an act of God; fire; flood; extraordinary weather\nconditions; war; insurrection; riot; strike; accident; action of government; communications or power failure; equipment or software\nmalfunction; or any error, omission or delay in the reporting of transactions in one or more underlying securities. NYSE Arca makes\nno warranty, express or implied, as to results to be obtained by any person or entity from the use of any underlying index or data\nincluded therein and NYSE Arca makes no express or implied warranties, and disclaims all warranties of merchantability or fitness\nfor a particular purpose with respect to shares of the fund or any underlying index or data included therein.

The fund and Schwab Asset Management do not guarantee\nthe accuracy and/or the completeness of the index or any data included therein and shall have no liability for any errors, omissions,\nor interruptions therein. The fund and Schwab Asset Management make no warranty, express or implied, as to results to be obtained\nby the fund, or any other person or entity from the use of index or any data included therein. The fund and Schwab Asset Management\nmake no express or implied warranties, and expressly disclaims all warranties, of merchantability or fitness for a particular purpose\nor use with respect to the index or any data included therein, without limiting any of the foregoing, in no event shall the fund\nand Schwab Asset Management have any liability for any lost profits or indirect, punitive, special or consequential damages (including\nlost profits), even if notified of the possibility of such damages.

22 Schwab International Bond ETF | Investing in the Fund

Prospectus | March 20, 2026 As Supplemented October 19, 2026

Schwab International Bond ETF

To Learn More

This prospectus contains important\ninformation on the fund and should be read and kept for reference. You also can obtain more information from the following sources:

Recent information regarding the fund’s\nNAV, market price, premiums and discounts, and bid-ask spreads is available at www.schwabassetmanagement.com.

Additional information about a fund’s\ninvestments is available in the fund’s annual and semiannual reports to shareholders, which are sent to current investors,\nand in Form N-CSR. In a fund’s annual report, you will find a discussion of the market conditions and investment strategies\nthat significantly affected the fund’s performance during its last fiscal year. In Form N-CSR, you will find a fund’s\nannual and semiannual financial statements.

The Statement of Additional Information\n(SAI) includes a more detailed discussion of investment policies and the risks associated with various investments. The SAI\nis incorporated by reference into the prospectus, making it legally part of the prospectus.

For a free copy of any of these documents,\nto request other information, or ask questions about the fund, call 1-877-824-5615. In addition, you may visit www.schwabassetmanagement.com/prospectus\nfor a free copy of these documents.

The SAI, annual and semiannual reports,\nholdings and financial statements, and other related materials are available from the EDGAR Database on the SEC’s website\n(www.sec.gov). You can obtain copies of this information, after paying a duplicating fee, by sending a request by e-mail\nto publicinfo@sec.gov.

\n\n \n \n \n\n \n \n \n

SEC File Number
Schwab Strategic Trust	811-22311	REG129837-01

\n \n \n \n

$\"\"$

Asset
\n Management

Schwab^®ETFs

\n \n \n \n \n \n \n \n \n \n \n \n \n


Schwab^®International Bond ETF	SCIN

Principal U.S. Listing Exchange: NYSE Arca, Inc.

STATEMENT OF ADDITIONAL INFORMATION

March 20, 2026
\nAs Supplemented October 19, 2026

The Statement of Additional Information (SAI) is not a prospectus.\nIt should be read in conjunction with the fund’s prospectus dated March 20, 2026 (as amended from time to time).

The fund’s audited financial statements, as they become\navailable, will contain important information about the fund.

For a free copy of any of these documents, to request other\ninformation, or ask questions about the fund, call 1-877-824-5615. For TDD service, call 1-800-345-2550. In addition, you may visit www.schwabassetmanagement.com/prospectus for a\nfree copy of these documents.

The fund is a series of Schwab Strategic Trust (the Trust).\nThe fund is part of the Schwab complex of funds (Schwab Funds). Charles Schwab Investment Management, Inc., dba Schwab Asset Management^®,\nis the investment adviser to the fund (investment adviser).

REG129838-01

TABLE OF CONTENTS

\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n

	Page
INVESTMENT OBJECTIVE, STRATEGIES, RISKS AND LIMITATIONS	1
CONTINUOUS OFFERING	24
MANAGEMENT OF THE FUND	24
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES	31
INVESTMENT ADVISORY AND OTHER SERVICES	31
PORTFOLIO MANAGERS	33
BROKERAGE ALLOCATION AND OTHER PRACTICES	36
PROXY VOTING	37
PORTFOLIO HOLDINGS DISCLOSURE	38
DESCRIPTION OF THE TRUST	39
PURCHASE, REDEMPTION AND PRICING OF SHARES	40
TAXATION	44
APPENDIX – RATINGS OF INVESTMENT SECURITIES
APPENDIX – PROXY VOTING POLICY

INVESTMENT OBJECTIVE, STRATEGIES,\nRISKS AND LIMITATIONS

Investment Objective

The fund’s investment objective is not fundamental\nand therefore may be changed by the fund’s Board of Trustees (the Board) without shareholder approval.

The Schwab International Bond ETF’s goal is\nto track as closely as possible, before fees and expenses, the total return of an index comprising of international, non-U.S. dollar denominated\ninvestment grade debt securities.

There is no guarantee the fund will achieve its investment\nobjective.

Description of Index

The Schwab International Bond ETF’s index,\nthe ICE Global Broad Market Excluding-USD RIC Capped Free-Float Index (USD Hedged) measures the performance of investment grade debt publicly\nissued in global and eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities.

Index Provider

Charles Schwab Investment Management, Inc., dba Schwab Asset\nManagement, has entered into a license agreement with ICE Data Indices, LLC to use the ICE Global Broad Market Excluding-USD RIC Capped\nFree-Float Index (USD Hedged). Fees payable under the license agreement are paid by the investment adviser. ICE Data Indices, LLC has\nno obligation to continue to provide the ICE Global Broad Market Excluding-USD RIC Capped Free-Float Index (USD Hedged) to Schwab Asset\nManagement beyond the term of the license agreement.

Disclaimers

Source ICE Data Indices, LLC (ICE Data), is used with permission.\n“ICE^®” is a registered trademark of ICE Data Indices, LLC or its affiliates and “BofA^®”\nis a registered trademark of Bank of America Corporation licensed by Bank of America Corporation and its affiliates (“BofA”)\nand may not be used without BofA’s prior written approval. These trademarks have been licensed, along with the ICE Global Broad\nMarket Excluding-USD RIC Capped Free-Float Index (USD Hedged) (Index) for use by Charles Schwab Investment Management, Inc., dba Schwab\nAsset Management, in connection with the Schwab International Bond ETF (the Fund). Neither Schwab Asset Management, Schwab Strategic Trust\n(the Trust) nor the Fund, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC, its affiliates or its Third\nParty Suppliers (ICE Data and its Suppliers). ICE Data and its Suppliers make no representations or warranties regarding the advisability\nof investing in securities generally, in the Fund particularly, the Trust or the ability of the Index to track general stock market performance.\nICE Data’s only relationship to Schwab Asset Management is the licensing of certain trademarks and trade names and the Index or\ncomponents thereof. The Index is determined, composed and calculated by ICE Data without regard to Schwab Asset Management or the Fund\nor its holders. ICE Data has no obligation to take the needs of Schwab Asset Management or the holders of the Fund into consideration\nin determining, composing or calculating the Index. ICE Data is not responsible for and has not participated in the determination of the\ntiming of, prices of, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund\nis to be priced, sold, purchased, or redeemed. Except for certain custom index calculation services, all information provided by ICE Data\nis general in nature and not tailored to the needs of Schwab Asset Management or any other person, entity or group of persons. ICE Data\nhas no obligation or liability in connection with the administration, marketing, or trading of the Fund. ICE Data is not an investment\nadvisor. Inclusion of a security within an index is not a recommendation by ICE Data to buy, sell, or hold such security, nor is it considered\nto be investment advice.

ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES\nAND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING\nTHE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (INDEX DATA). ICE DATA AND ITS SUPPLIERS SHALL\nNOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX\nDATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.

Shares of the fund are not sponsored, endorsed or promoted\nby NYSE Arca, Inc. NYSE Arca makes no representation or warranty, express or implied, to the owners of the shares of the fund or any member\nof the public regarding the ability of

the fund to track the total return performance of its underlying index\nor the ability of the underlying index to track stock or bond market performance. NYSE Arca is not responsible for, nor has it participated\nin, the determination of the compilation or the calculation of any underlying index, nor in the determination of the timing of, prices\nof, or quantities of shares of the fund to be issued, nor in the determination or calculation of the equation by which the shares are\nredeemable. NYSE Arca has no obligation or liability to owners of the shares of the fund in connection with the administration, marketing\nor trading of the shares of the fund.

NYSE Arca shall have no liability for damages, claims, losses\nor expenses caused by any errors, omissions, or delays in calculating or disseminating any current index or portfolio value; the current\nvalue of the portfolio of securities required to be deposited to the fund; the amount of any dividend equivalent payment or cash distribution\nto holders of shares of the fund; net asset value; or other information relating to the creation, redemption or trading of shares of the\nfund, resulting from any negligent act or omission by NYSE Arca, or any act, condition or cause beyond the reasonable control of NYSE\nArca, including, but not limited to, an act of God; fire; flood; extraordinary weather conditions; war; insurrection; riot; strike; accident;\naction of government; communications or power failure; equipment or software malfunction; or any error, omission or delay in the reporting\nof transactions in one or more underlying securities. NYSE Arca makes no warranty, express or implied, as to results to be obtained by\nany person or entity from the use of any underlying index or data included therein and NYSE Arca makes no express or implied warranties,\nand disclaims all warranties of merchantability or fitness for a particular purpose with respect to shares of the fund or any underlying\nindex or data included therein.

The fund and Schwab Asset Management do not guarantee the\naccuracy and/or the completeness of the index or any data included therein and shall have no liability for any errors, omissions, or interruptions\ntherein. The fund and Schwab Asset Management make no warranty, express or implied, as to results to be obtained by the fund, or any other\nperson or entity from the use of index or any data included therein. The fund and Schwab Asset Management make no express or implied warranties,\nand expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the index or any\ndata included therein, without limiting any of the foregoing, in no event shall the fund and Schwab Asset Management have any liability\nfor any lost profits or indirect, punitive, special or consequential damages (including lost profits), even if notified of the possibility\nof such damages.

Fund Investment Policies

The Schwab International Bond ETF will, under normal circumstances,\ninvest at least 80% of its net assets in bonds. The fund will notify its shareholders at least 60 days before changing this policy. For\npurposes of this policy, net assets mean net assets plus the amount of any borrowings for investment purposes.

Investments, Risks and Limitations

The following investment strategies, securities, risks and\nlimitations supplement those set forth in the prospectus and may be changed without shareholder approval unless otherwise noted. Also,\npolicies and limitations that state a maximum percentage of assets that may be invested in a security or other asset, or that set forth\na quality standard, shall be measured immediately after and as a result of the fund’s acquisition of such security or asset unless\notherwise noted. Thus, except with respect to limitations on borrowing and futures and option contracts, any subsequent change in values,\nnet assets or other circumstances does not require the fund to sell an investment if it could not then make the same investment.

From time to time the fund may hold certain securities not\notherwise discussed in this SAI as a permissible investment for the fund. For example, the fund may invest in certain types of securities\nto the extent its index does even if the types of securities have not been identified as part of the fund’s investment strategy.\nTo the extent an investment becomes part of the fund’s investment strategy, the fund will take the necessary steps to identify them\nas permissible investments. In addition, the fund may receive (i.e., not actively invest) such securities as a result of a corporate action,\nsuch as securities dividends, spin-offs or rights issues. In such cases, the fund will not actively add to its position and generally\nwill dispose of the securities as soon as reasonably practicable.

Borrowing – The fund may borrow money from\nbanks or through the Schwab Funds interfund borrowing and lending facility (as described below) for any purpose in an amount up to ⅓\nof the fund’s total assets (not including temporary borrowings). The fund may also borrow for temporary or emergency purposes; for\nexample, the fund may borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. A\nborrowing is presumed to be for temporary or emergency purposes if it is (a) not in excess of 5% of the fund’s total assets; (b)\nrepaid by the fund within 60 days; and (c) not extended or renewed. Provisions of the 1940 Act, require the fund to maintain continuous\nasset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount

borrowed, with an exception for certain temporary borrowings. If the 300%\nasset coverage should decline as a result of market fluctuations or other reasons, the fund may be required to sell some of its portfolio\nholdings within three days (not including Sundays and holidays) to reduce the debt and restore the 300% asset coverage, even though it\nmay be disadvantageous from an investment standpoint to sell securities at that time.

The fund’s borrowings will be subject to interest\ncosts. Borrowing can also involve leveraging when securities are purchased with the borrowed money. Leveraging creates interest expenses\nthat can exceed the income from the assets purchased with the borrowed money. In addition, leveraging may magnify changes in the NAV of\nthe fund’s shares and in its portfolio yield. The fund is required to comply with the asset coverage requirements of the 1940 Act\nwhen it engages in borrowing activities. If assets used to secure a borrowing decrease in value, the fund may be required to pledge additional\ncollateral to avoid liquidation of those assets.

The fund may establish lines-of-credit (lines) with certain\nbanks by which it may borrow funds for temporary or emergency purposes. A borrowing is presumed to be for temporary or emergency purposes\nif it is repaid by the fund within 60 days and is not extended or renewed. The fund may use the lines to meet large or unexpected redemptions\nthat would otherwise force the fund to liquidate securities under circumstances which are unfavorable to the fund’s remaining shareholders.\nThe fund will pay a fee to the bank for using the lines.

Capital Securities are certain subordinated bank\nsecurities. They are bank obligations that fall below senior unsecured debt and deposits in liquidation. A bank’s capital comprises\nshare capital reserves and a series of hybrid instruments also known as capital securities. These securities are used to augment equity\nTier 1 and are usually in the form of subordinated debt. A capital security has to adhere to supervisory guidelines concerning its characteristics\nsuch as amount, maturity, subordination and deferral language in order to count as capital. Regulators across the world tend to look toward\nthe Bank for International Settlements (BIS) for guidance in setting the capital adequacy framework for banks.

Regulators use these guidelines to place limits on the proportions\nand type of capital (including capital securities) allowed to make up the capital base. Capital adequacy requires not just a certain quantity\nof capital but certain types in relationship to the nature of a bank’s assets. Capital securities may be denominated in U.S. or\nlocal currency.

Concentration means that substantial amounts of assets\nare invested in a particular industry or group of industries. Concentration increases investment exposure to industry risk. For example,\nthe automobile industry may have a greater exposure to a single factor, such as an increase in the price of oil, which may adversely affect\nthe sale of automobiles and, as a result, the value of the industry’s securities. As part of the fund’s principal investment\nstrategy, the fund will concentrate its investments in a particular industry or group of industries to approximately the same extent that\nits index concentrates in the securities of such particular industry or group of industries. For purposes of this limitation, securities\nof the U.S. government (including its agencies and instrumentalities), and repurchase agreements collateralized by U.S. government securities\nare not considered to be issued by members of any industry.

Credit and Liquidity Supports or enhancements may\nbe employed by issuers to reduce the credit risk of their securities. Credit supports include letters of credit, insurance and guarantees\nprovided by foreign and domestic entities. Liquidity supports include puts, demand features, and lines of credit. Most of these arrangements\nmove the credit risk of an investment from the issuer of the security to the support provider. The investment adviser may rely on its\nevaluation of the credit and liquidity support provider in determining whether to purchase or hold a security enhanced by such a support.\nChanges in the credit quality of a support provider could cause losses to the fund.

Cyber Security Risk – As the use of technology,\nincluding cloud-based technology, and the frequency of cyber attacks in the market has become more prevalent, the fund is potentially\nmore susceptible to operational and information security risks resulting from breaches in cybersecurity that may lead to financial losses.\nA breach in cybersecurity refers to both intentional and unintentional events that may, among other things, cause the fund to lose proprietary\ninformation, suffer data corruption and/or destruction or lose operational capacity, or otherwise disrupt normal business operations.\nThis in turn could adversely affect the fund and its shareholders by, among other things, interfering with the processing of shareholder\ntransactions; impeding the fund’s ability to calculate its net asset value (NAV); causing the release or misuse of confidential\nfund information or private shareholder information (which may violate privacy and other laws, including those related to identity theft).\nA cyber attack may cause financial losses by impeding trading, causing reputational damage, and subjecting the fund to regulatory penalties,\nfines, reimbursement or other compensation costs. Additional compliance costs could be associated with corrective measures and/or cybersecurity\nrisk management. Cybersecurity breaches may involve unauthorized access to the fund’s digital information systems (e.g., through\n“hacking” or malicious software coding), and may come from multiple sources, including from outside attacks such as denial-of-service\nattacks (i.e., efforts to make network services unavailable to intended users) or cyber extortion, including exfiltration of data held\nfor ransom and/or “ransomware” attacks that render systems inoperable until ransom is paid, or insider actions (e.g.,

intentionally or unintentionally harmful acts of adviser personnel). In\naddition, cybersecurity breaches involving the fund’s third-party service providers (e.g., the fund’s custodian and transfer\nagent), trading counterparties or issuers in which the fund invests can also subject the fund to many of the same risks associated with\ndirect cybersecurity breaches or extortion of data. Recently, geopolitical tensions may have increased the scale and sophistication of\ndeliberate cybersecurity attacks, particularly those from nation-states or from entities with nation-state backing.

Cybersecurity failures or breaches may result in financial\nlosses to the fund and its shareholders. For example, cybersecurity failures or breaches involving trading counterparties or issuers in\nwhich the fund invests could adversely impact such counterparties or issuers and cause the fund’s investment to lose value.

Although the investment adviser has business continuity\nplans and risk management systems designed to reduce the risks associated with cybersecurity, there are inherent limitations in these\nplans and systems, including the possibility that certain risks have not been identified, in large part because different or unknown threats\nmay emerge in the future. As such, there is no guarantee that such efforts will succeed, especially because the fund does not directly\ncontrol the cybersecurity systems of issuers in which the fund may invest, trading counterparties or third-party service providers to\nthe fund. Such entities have experienced cyber attacks and other attempts to gain unauthorized access to systems from time to time, and\nthere is no guarantee that efforts to prevent or mitigate the effects of such attacks or other attempts to gain unauthorized access will\nbe successful. There is also a risk that cybersecurity breaches may not be detected. There can be no assurance that the fund will not\nsuffer losses relating to cyber attacks on the fund, their service providers, trading counterparties or the issuers in which the fund\ninvests.

Debt Securities are obligations issued by domestic\nand foreign entities, including governments and corporations, in order to raise money. They are basically “IOUs,” but are\ncommonly referred to as bonds or money market securities. These securities normally require the issuer to pay a fixed-, variable- or floating-rate\nof interest on the amount of money borrowed (the principal) until it is paid back upon maturity.

Debt securities experience price changes when interest rates\nchange. For example, when interest rates fall, the prices of debt securities generally rise. Conversely, when interest rates rise, the\nprices of debt securities generally fall. Debt securities may also experience price changes when interest rates are anticipated to change.\nCertain debt securities have call features that allow issuers to redeem or “call” their outstanding debts prior to final maturity.\nDepending on the call feature, an issuer may pre-pay its outstanding debts and issue new ones paying lower interest rates. This is more\nlikely to occur in a falling interest rate environment. When this happens, the fund may have to replace these securities with lower yielding\nsecurities, which could result in a lower return. In a rising interest rate environment, prepayment on outstanding debt securities is\nless likely to occur. This is known as extension risk and may cause the value of debt securities to depreciate as a result of the higher\nmarket interest rates. Typically, longer-maturity debt securities react to interest rate changes more severely than shorter-term debt\nsecurities (all things being equal), but generally offer greater rates of interest. If an issuer redeems its debt securities prior to\nfinal maturity, the fund may have to replace those securities with lower yielding securities, which could result in a lower return.

A change in a central bank’s monetary policy or economic\nconditions may lead to a change in interest rates, which could have sudden and unpredictable effects on the markets and significantly\nimpact the value of debt securities in which the fund invests. Some debt securities, such as bonds with longer durations, are more sensitive\nto interest rate changes than others and may experience an immediate and considerable reduction in value if interest rates rise. Longer\nduration securities tend to be more volatile than shorter duration securities. As the values of debt securities in the fund’s portfolio\nadjust to a rise in interest rates, the fund’s share price may fall. In the event that the fund holds a large portion of its portfolio\nin longer duration securities when interest rates increase, the share price of the fund may fall significantly.

Debt securities also are subject to the risk that the issuers\nwill not make timely interest and/or principal payments or fail to make them at all. This is called credit risk. Corporate debt securities\n(bonds) tend to have higher credit risk generally than U.S. government debt securities. Debt securities also may be subject to price volatility\ndue to market perception of future interest rates, the creditworthiness of the issuer and general market liquidity (market risk). Investment-grade\ndebt securities are considered medium- and/or high-quality securities, although some still possess varying degrees of speculative characteristics\nand risks. Debt securities rated below investment-grade are riskier, but may offer higher yields. These securities are sometimes referred\nto as high-yield securities or “junk bonds.” The market for these securities has historically been less liquid and more volatile\nthan for investment-grade securities.

Corporate bonds are debt securities issued\nby corporations. Although a higher return is expected from corporate bonds, these securities, while subject to the same general risks\nas U.S. government securities, are subject to greater credit risk than U.S. government securities. Their prices may be affected by the\nperceived credit quality of their issuer.

Delayed-Delivery and Forward Commitment Transactions\ninvolve purchasing and selling securities on a delayed-delivery or forward basis. A delayed-delivery agreement is a contract for the\npurchase or sale of one or more securities to be delivered on an agreed future settlement date. A forward commitment agreement is a contract\nfor the purchase or sale of one or more securities at a specified price, with delivery and cash settlement on an agreed specified future\ndate. When purchasing securities on a delayed-delivery or forward basis, the fund assumes the rights and risks of ownership, including\nthe risk of price and yield fluctuations. Typically, no interest will accrue to the fund until the security is delivered. When the fund\nsells a security on a delayed-delivery or forward basis, the fund does not participate in further gains or losses with respect to that\nsecurity. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the fund could miss a favorable\nprice or yield opportunity or suffer a loss. The fund may renegotiate a forward commitment transaction and may sell the underlying security\nbefore delivery, which may result in capital gains or losses for the fund.

Demand Features, which may include guarantees, are\nused to shorten a security’s effective maturity and/or enhance its creditworthiness. The demand feature may be issued by the issuer\nof the underlying securities, a dealer in the securities or by another third party. If a demand feature provider were to refuse to permit\nthe feature’s exercise or otherwise terminate its obligations with respect to such feature, however, the security’s effective\nmaturity may be lengthened substantially, and/or its credit quality may be adversely impacted. In either event, the fund may experience\nan increase in share price volatility. This also could lengthen the fund’s overall average effective maturity.

Derivative Instruments are commonly defined to include\ninstruments or contracts whose values depend on (or “derive” from) the value of one or more other assets such as securities,\ncurrencies, or commodities. These “other assets” are commonly referred to as “underlying assets.” The fund may\nuse derivatives, principally futures contracts, primarily to seek returns on the fund’s otherwise uninvested cash assets.

A derivative instrument generally consists of, is based\nupon, or exhibits characteristics similar to options or forward contracts. Options and forward contracts are considered to be the basic\n“building blocks” of derivatives. For example, forward-based derivatives include forward contracts, as well as exchange-traded\nfutures. Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options\non forward and swap contracts) and exchange-traded options on futures. Diverse types of derivatives may be created by combining options\nor forward contracts in different ways, and applying these structures to a wide range of underlying assets. Risk management strategies\ninclude investment techniques designed to facilitate the sale of portfolio securities, manage the average duration of the portfolio or\ncreate or alter exposure to certain asset classes, such as equity, other debt or foreign securities.

In addition to the derivative instruments and strategies\ndescribed in this SAI, the investment adviser expects to discover additional derivative instruments and other investment, hedging or risk\nmanagement techniques. The investment adviser may utilize these new derivative instruments and techniques to the extent that they are\nconsistent with the fund’s investment objective and permitted by the fund’s investment limitations, operating policies and\napplicable regulatory authorities.

The fund’s derivative instruments can create (i) leverage\nrisk, which generally refers to the risk that derivatives transactions can magnify the fund’s gains and losses, (ii) market risk,\nwhich generally refers to the risk from potential adverse market movements in relation to the fund’s derivatives positions, or the\nrisk that markets could experience a change in volatility that adversely impacts fund returns and the fund’s obligations and exposures,\n(iii) counterparty risk, which generally refers to the risk that a counterparty on a derivatives transaction may not be willing or able\nto perform its obligations under the derivatives contract, and the related risks of having concentrated exposure to such a counterparty,\n(iv) liquidity risk, which generally refers to the risk involving the liquidity demands that derivatives transactions can create to make\npayments of margin, collateral, or settlement payments to counterparties, (v) operational risk, which generally refers to the risk related\nto potential operational issues, including documentation issues, settlement issues, systems failures, inadequate controls, and human error\nand (vi) legal risk, which generally refers to insufficient documentation, insufficient capacity or authority of the counterparty, or\nlegality or enforceability of a contract. Certain of these risks are described in more detail as they apply to specific derivative instruments\nin the following sub-sections of this SAI.

Options Contracts generally provide the right,\nbut not the obligation, to buy or sell a security, commodity, futures contract or foreign currency in exchange for an agreed upon price.\nIf the right is not exercised after a specified period, the option expires and the option buyer forfeits the money paid to the option\nseller.

A call option gives the buyer the right to buy a specified\nnumber of shares of a security at a fixed price on or before a specified date or dates in the future. For this right, the call option\nbuyer pays the call option seller, commonly called the call option writer, a fee called a premium. Call option buyers are usually anticipating\nthat the price of the underlying security will rise above the price fixed with the call writer, thereby allowing them to profit. If the\nprice of the underlying security does not rise, the call option buyer’s losses are limited to the premium paid to the call option\nwriter. For call option writers, a rise in the price of the underlying security will be offset, in part, by the premium received from\nthe call option buyer. If the call option writer does not own the underlying security, however, the losses that may ensue if the price\nrises could be potentially unlimited. If the call option writer owns the underlying security or commodity, this is called writing a covered\ncall.

A put option is the opposite of a call option. It gives\nthe buyer the right to sell a specified number of shares of a security at a fixed price on or before a specified date in the future. Put\noption buyers are usually anticipating a decline in the price of the underlying security, and wish to offset those losses when selling\nthe security at a later date. The purpose of writing such options is to generate additional income for the fund. However, in return for\nthe option premium, the fund accepts the risk that it may be required to purchase the underlying securities at a price in excess of the\nsecurities’ market value at the time of purchase. When the fund buys a security with a put feature, losses could occur if the put\nprovider does not perform as agreed. If a put provider fails to honor its commitment upon the fund’s attempt to exercise the put,\nthe fund may have to treat the security’s final maturity as its effective maturity. If that occurs, the security’s price may\nbe negatively impacted, and its sensitivity to interest rate changes may be increased, possibly contributing to increased share price\nvolatility for the fund. This also could lengthen the fund’s overall average effective maturity. Standby commitments are types of\nputs.

The fund may purchase and write put and call options on\nany securities in which it may invest or any securities index or basket of securities based on securities in which it may invest. In addition,\nthe fund may purchase and sell foreign currency options and foreign currency futures contracts and related options. The fund may purchase\nand write such options on securities that are listed on domestic or foreign securities exchanges or traded in the over-the-counter market.\nLike futures contracts, option contracts are rarely exercised. Option buyers usually sell the option before it expires. Option writers\nmay terminate their obligations under a written call or put option by purchasing an option identical to the one it has written. Such purchases\nare referred to as “closing purchase transactions.” The fund may enter into closing sale transactions in order to realize\ngains or minimize losses on options it has purchased or written.

An exchange-traded currency option position may be closed\nout only on an options exchange that provides a secondary market for an option of the same series. Although the fund generally will purchase\nor write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market\nwill exist for any particular option or at any particular time. If the fund is unable to effect a closing sale transaction with respect\nto options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon\nthe purchase or sale of underlying securities.

Reasons for the absence of a liquid secondary market on\nan exchange include the following: (1) there may be insufficient trading interest in certain options; (2) an exchange may impose restrictions\non opening transactions or closing transactions or both; (3) trading halts, suspensions or other restrictions may be imposed with respect\nto particular classes or series of options; (4) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (5)\nthe facilities of an exchange or the Options Clearing Corporation (OCC) may not at all times be adequate to handle current trading volume;\nor (6) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading\nof options (or a particular class or series of options), although outstanding options on that exchange that had been issued by the OCC\nas a result of trades on that exchange would continue to be exercisable in accordance with their terms.

The ability to terminate over-the-counter options is more\nlimited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill\ntheir obligations.

Additional risks are involved with options trading because\nof the low margin deposits required and the extremely high degree of leverage that may be involved in options trading. There may be imperfect\ncorrelation between the change in market value of the securities held by the fund and the prices of the options, possible lack of a liquid\nsecondary market, and the resulting inability to close such positions prior to their maturity dates.

The fund may write or purchase an option only when the market\nvalue of that option, when aggregated with the market value of all other options transactions made on behalf of the fund, does not exceed\n5% of its net assets.

Swap Agreements are contracts between two\nparties that generally involve an exchange of payment streams calculated in relation to a rate, index, instrument or certain securities\n(referred to as the “underlying”) and a predetermined amount (referred to as the “notional amount”). The underlying\nfor a swap may be an interest rate (fixed or floating), a currency exchange rate, a commodity price index, a security, group of securities\nor a securities index, a combination of any of these, or various other rates, assets or indices. Swap agreements generally do not involve\nthe delivery of the underlying or principal, and a party’s obligations generally are equal to only the net amount to be paid or\nreceived under the agreement based on the relative values of the positions held by each party to the swap agreement.

Swap agreements can be structured to increase or decrease\nthe fund’s exposure to long or short term interest rates, corporate borrowing rates and other conditions, such as changing security\nprices and inflation rates. They also can be structured to increase or decrease the fund’s exposure to specific issuers or specific\nsectors of the bond market such as mortgage securities. For example, if the fund agreed to pay a longer-term fixed rate in exchange for\na shorter-term floating rate while holding longer-term fixed rate bonds, the swap would tend to decrease the fund’s exposure to\nlonger-term interest rates. Swap agreements tend to increase or decrease the overall volatility of the fund’s investments and its\nshare price and yield. Changes in interest rates, or other factors determining the amount of payments due to and from the fund, can be\nthe most significant factors in the performance of a swap agreement. If a swap agreement calls for payments from the fund, the fund must\nbe prepared to make such payments when they are due. The fund could sustain losses if a counterparty does not perform as agreed under\nthe terms of the swap. The fund will enter into swap agreements with counterparties deemed creditworthy by the investment adviser.

In addition, the fund may invest in swaptions, which are\nprivately-negotiated option-based derivative products. Swaptions give the holder the right to enter into a swap. The fund may use a swaption\nin addition to or in lieu of a swap involving a similar rate or index.

Certain standardized swaps are subject to mandatory central\nclearing and exchange trading requirements. Unlike uncleared swaps, which are negotiated bilaterally and traded over-the-counter, cleared\nswaps must trade through a futures commission merchant and be cleared through a clearinghouse that serves as the central counterparty\nto the transaction. The fund posts initial and variation margin for cleared swaps by making payments to its clearing member futures commission\nmerchants. Depending on the size of the fund and other factors, the margin required under the rules of a clearinghouse and by a clearing\nmember may be in excess of the collateral required to be posted by the fund to support its obligations under a similar bilateral swap.\nHowever, the Commodity Futures Trading Commission (CFTC) and other applicable regulators have adopted rules imposing certain margin requirements,\nincluding minimums, on uncleared swaps which, once effective, may result in the fund and its counterparties posting higher margin amounts\nfor uncleared swaps. Any type of swap agreement poses a risk for the fund and may cause it to lose money.

For purposes of applying the fund’s investment policies\nand restrictions (as stated in the prospectus and this SAI) swap agreements are generally valued by the fund at market value. In the case\nof a credit default swap sold by the fund (i.e., where the fund is selling credit default protection), however, the fund will generally\nvalue the swap at its notional amount. The manner in which certain securities or other instruments are valued by the fund for purposes\nof applying investment policies and restrictions may differ from the manner in which those investments are valued by other types of investors.

Futures Contracts are instruments that represent\nan agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed-upon\nprice on a stipulated future date. In the case of futures contracts relating to an index or otherwise not calling for physical delivery\nat the close of the transaction, the parties usually agree to deliver the final cash settlement price of the contract. A fund may purchase\nand sell futures contracts based on securities, securities indices, interest rates, or any other futures contracts traded on U.S. exchanges\nor boards of trade that the Commodity Futures Trading Commission (CFTC) licenses and regulates on foreign exchanges. Although positions\nare usually marked-to-market on a daily basis with an intermediary (executing broker), there remains a credit risk with the futures exchange.

A fund must maintain a small portion of its assets in cash\nto process certain shareholder transactions in and out of it and to pay its expenses. To reduce the effect this otherwise uninvested cash\nwould have on its performance, a fund may purchase futures contracts. Such transactions allow a fund’s cash balance to produce a\nreturn similar to that of the underlying security or index on which the futures contract is based. Also, a fund may purchase or sell futures\ncontracts on a specified foreign currency to “fix” the price in U.S. dollars of the foreign security it has acquired or sold\nor expects to acquire or sell. A fund may enter into futures contracts for other reasons as well.

When buying or selling futures contracts, a fund must place\na deposit with its broker equal to a fraction of the contract amount. This amount is known as “initial margin” and must be\nin the form of liquid assets, including cash, cash-

equivalents and U.S. government securities. Subsequent payments to and\nfrom the broker, known as “variation margin” may be made daily, if necessary, as the value of the futures contracts fluctuate.\nThis process is known as “marking-to-market.” The initial margin amount will be returned to a fund upon termination of the\nfutures contracts assuming all contractual obligations are satisfied. Because margin requirements are normally only a fraction of the\namount of the futures contracts in a given transaction, futures trading can involve a great deal of leverage.

While a fund may purchase and sell futures contracts to\nsimulate full investment, there are risks associated with these transactions. Adverse market movements could cause a fund to experience\nsubstantial losses when buying and selling futures contracts. Of course, barring significant market distortions, similar results would\nhave been expected if the fund had instead transacted in the underlying securities directly. There also is the risk of losing any margin\npayments held by a broker in the event of its bankruptcy. Additionally, a fund incurs transaction costs (e.g., brokerage fees) when engaging\nin futures trading. To the extent a fund also invests in futures to simulate full investment, these same risks apply.

When interest rates are rising or securities prices are\nfalling, a fund may seek, through the sale of futures contracts, to offset a decline in the value of its current portfolio securities.\nWhen interest rates are falling or prices are rising, a fund, through the purchase of futures contracts, may attempt to secure better\nrates or prices than might later be available in the market when it effects anticipated purchases. Similarly, a fund may sell futures\ncontracts on a specified currency to protect against a decline in the value of that currency and its portfolio securities that are denominated\nin that currency. A fund may purchase futures contracts on a foreign currency to fix the price in U.S. dollars of a security denominated\nin that currency that a fund has acquired or expects to acquire.

Futures contracts may require actual delivery or acquisition\nof an underlying security or cash value of an index on the expiration date of the contract. In most cases, however, the contractual obligation\nis fulfilled before the date of the contract by buying or selling, as the case may be, identical futures contracts. Such offsetting transactions\nterminate the original contracts and cancel the obligation to take or make delivery of the underlying securities or cash. There may not\nalways be a liquid secondary market at the time a fund seeks to close out a futures position. If a fund is unable to close out its position\nand prices move adversely, the fund would have to continue to make daily cash payments to maintain its margin requirements. If a fund\nhad insufficient cash to meet these requirements it may have to sell portfolio securities at a disadvantageous time or incur extra costs\nby borrowing the cash. Also, a fund may be required to make or take delivery and incur extra transaction costs buying or selling the underlying\nsecurities. A fund seeks to reduce the risks associated with futures transactions by buying and selling futures contracts that are traded\non national exchanges or for which there appears to be a liquid secondary market.

Derivatives Regulatory Matters – In\nOctober 2020, the U.S. Securities and Exchange Commission (SEC) adopted a rule related to the use of derivatives, reverse repurchase agreements\nand certain other transactions by registered investment companies that rescinded and withdrew the guidance of the SEC and its staff regarding\nasset segregation and cover transactions previously applicable to the fund’s use of such transactions. The rule requires the fund\nto trade derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and\nsimilar financing transactions) subject to value-at-risk (VaR) leverage limits and derivatives risk management program and reporting requirements.\nGenerally, these requirements apply unless the fund satisfies a “limited derivatives users” exception that is included in\nthe rule. Under the rule, when the fund trades reverse repurchase agreements or similar financing transactions, including certain tender\noption bonds, it needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing\ntransactions with the aggregate amount of any other senior securities representing indebtedness when calculating the fund’s asset\ncoverage ratio or treat all such transactions as derivatives transactions. Reverse repurchase agreements or similar financing transactions\naggregated with other indebtedness do not need to be included in the calculation of whether the fund satisfies the limited derivatives\nusers exception, but for funds subject to the VaR testing requirement, reverse repurchase agreements and similar financing transactions\nmust be included for purposes of such testing whether treated as derivatives transactions or not. The SEC also provided guidance in connection\nwith the rule regarding the use of securities lending collateral that may limit the fund’s securities lending activities. In addition,\nunder the rule, the fund is permitted to invest in a security on a when-issued or forward-settling basis, or with a non-standard settlement\ncycle, and the transaction will be deemed not to involve a senior security (as defined under Section 18(g) of the Investment Company Act\nof 1940, as amended (the 1940 Act)), provided that, (i) the fund intends to physically settle the transaction and (ii) the transaction\nwill settle within 35 days of its trade date (the Delayed-Settlement Securities Provision). The fund may otherwise engage in when-issued,\nforward-settling and non-standard settlement cycle securities transactions that do not meet the conditions of the Delayed-Settlement Securities\nProvision so long as the fund treats any such transaction as a “derivatives transaction” for purposes of compliance with the\nrule. Furthermore, under the rule, the fund will be permitted to enter into an unfunded commitment agreement, and such unfunded commitment\nagreement will not be subject to the asset coverage requirements under the 1940 Act, if the fund reasonably believes, at the time it enters\ninto such agreement, that it will have sufficient cash and

cash equivalents to meet its obligations with respect to all such agreements\nas they come due. These requirements may limit the ability of the fund to use derivatives, and reverse repurchase agreements and similar\nfinancing transactions, when-issued, delayed delivery and forward commitment transactions, and unfunded commitment agreements as part\nof its investment strategies. These requirements may increase the cost of the fund’s investments and cost of doing business, which\ncould adversely affect investors. The investment adviser cannot predict the effects of these regulations on the fund. The investment adviser\nseeks to manage the fund in a manner consistent with achieving the fund’s investment objectives, but there can be no assurance that\nit will be successful in doing so.

The CFTC regulates the trading of commodity interests, including\ncertain futures contracts, options, and swaps in which the fund may invest. A fund that invests in commodity interests will generally\nbe subject to certain CFTC regulatory requirements if it is considered a “commodity pool.” A notice of eligibility for exclusion\nfrom the definition of the term “commodity pool operator” (CPO) under the Commodity Exchange Act, as amended (CEA) has been\nfiled, by the investment adviser, with respect to the fund’s operation. Therefore, the fund and its investment adviser are not subject\nto registration or regulation as a CPO under the CEA. If the fund’s investment adviser were no longer able to claim the exclusion,\nthe fund’s investment adviser may be required to register as a CPO and the fund and its investment adviser would be subject to regulation\nas a CPO under the CEA. If the fund or its investment adviser is subject to CFTC regulation, it may incur additional expenses and/or may\nchoose to make changes to its investment strategies.

Diversification involves investing in a wide range\nof securities and thereby spreading and reducing the risks of investment. The fund is a series of an open-end investment management company\nwith limited redeemability.

Emerging or Developing Markets exist in countries\nthat are considered to be in the initial stages of industrialization. The risks of investing in these markets are similar to the risks\nof international investing in general, although the risks are greater in emerging and developing markets. Countries with emerging or developing\nsecurities markets tend to have economic structures that are less stable than countries with developed securities markets. This is because\ntheir economies may be based on only a few industries and their securities markets may trade a small number of securities. Prices on these\nexchanges tend to be volatile, and securities in these countries historically have offered greater potential for gain (as well as loss)\nthan securities of companies located in developed countries. There are no strict definitions of what is emerging or developing versus\nwhat is considered developed and certain countries are considered emerging or developing in some indices yet developed in others.

The fund’s investments in emerging markets can be\nconsidered speculative, and therefore may offer higher potential for gains and losses than investments in developed markets of the world.\nWith respect to an emerging market country, there may be a greater potential for nationalization, expropriation or confiscatory taxation,\npolitical changes, government regulation, social instability or diplomatic developments (including war) which could affect adversely the\neconomies of such countries or investments in such countries. The economies of developing countries generally are heavily dependent upon\ninternational trade and, accordingly, have been and may continue to be adversely affected by the imposition of sanctions, trade barriers,\nconfiscations, exchange or currency controls, managed adjustments in relative currency values and other protectionist measures or retaliatory\nactions imposed or negotiated by the countries with which they trade. Countries with emerging or developing securities markets may additionally\nexperience problems with share registration, settlement and custody, which may result in losses to the fund.

In addition to the risks of investing in emerging market\ncountry debt securities, the fund’s investment in government or government-related securities of emerging market countries and restructured\ndebt instruments in emerging markets are subject to special risks, including the inability or unwillingness to repay principal and interest,\nrequests to reschedule or restructure outstanding debt, and requests to extend additional loan amounts. The fund may have limited recourse\nin the event of default on such debt instruments.

Investing in China involves certain additional\nrisks and considerations not typically associated with investing in other more established economies or securities markets. China based\ncompanies that incorporate in the People’s Republic of China (PRC) can issue different classes of shares depending on where they\nare listed and which investors are allowed to own them. These are referred to as Class A Shares, Class B shares, and Class H shares, which\nare all renminbi-denominated shares that trade in different currencies depending on what stock exchange they are listed on. Class H Shares\ntrade on the Hong Kong Stock Exchange, are quoted and traded in Hong Kong dollars, and have no restrictions on who can trade them. Class\nB Shares trade on either the Shanghai or Shenzhen stock exchanges and can only be traded by non-residents of the PRC or residents with\nappropriate foreign currency dealing accounts. They trade in U.S. dollars on the Shanghai exchange and in Hong Kong dollars on the Shenzhen\nexchange. Class A Shares trade on either the Shanghai or Shenzhen exchanges and are quoted in renminbi. Class A Shares may only be traded\nby residents of the PRC, or under the Qualified Foreign Institutional Investor (QFII) rules, or through the Stock Connect programs (Shanghai-Hong\nKong or Shenzhen-Hong Kong). Finally, China based companies that are controlled by PRC residents or PRC state

entities and have a majority of their revenue or assets in the PRC may\nincorporate outside the PRC and trade on an exchange outside the PRC in the currency of the exchange. These are referred to as “Red\nChip” (Hong Kong), “P Chip” (Hong Kong), “S Chip” (Singapore), or “N Shares” (United States).\nThe multiplicity of share classes and various restrictions on ownership, in addition to the ability of Chinese regulatory authorities\nand Chinese issuers to suspend trading and their willingness to exercise this option in response to market volatility and other events,\ncan significantly impact liquidity and volatility of the Chinese market and the markets for Chinese securities. In addition, to the extent\nthat the fund invests in China A Shares, there may be legal restrictions imposed by the PRC on the repatriation of assets or proceeds\nfrom the sale of China A Shares. Further, there are quotas on the amount China A Shares available either to QFIIs or through the Stock\nConnect programs. These quotas are applicable to the entire market, not to a specific fund, but they impact the ability of the fund to\nimplement its investment strategy.

The fund may invest a portion of its assets in certain operating\ncompanies in China through legal structures known as variable interest entities (VIEs). In China, ownership of companies in certain sectors\nby non-Chinese individuals and entities (including U.S. persons and entities, such as the fund) is prohibited. To facilitate indirect\nforeign investment in these businesses, many Chinese companies have created VIE structures. In such an arrangement, a China-based operating\ncompany typically establishes a shell entity in another jurisdiction, such as the Cayman Islands. The shell company enters into service\nand other contracts with the China-based operating company, and then issues shares on an exchange (such as the New York Stock Exchange\nor the Hong Kong Stock Exchange). Non-Chinese investors hold stock in the shell entity rather than directly in the China-based operating\ncompany. This arrangement allows U.S. investors to obtain economic exposure to the China-based operating company through contractual means\nrather than through formal equity ownership. The contractual arrangements also permit the VIE to consolidate the China-based operating\ncompany into its financial statements.

Although VIE structures are a longstanding industry practice\nand well known to officials and regulators in China, VIE structures are not formally recognized under Chinese law nor have they been tested\nin court and it is not clear that the contracts are enforceable or that the structures will otherwise work as intended. As a result, investors\nface the risk that future actions by the Chinese government, at any time and without advance notice, could significantly affect the China-based\noperating company’s financial performance and the enforceability of the VIE structure’s contractual arrangements. It is uncertain\nwhether Chinese officials or regulators will withdraw their implicit acceptance of the VIE structure, or whether any new laws, rules or\nregulations relating to this structure will be adopted (in each case either generally or with respect to specific industries, sectors\nor companies) and, if adopted, what impact they would have on the interests of shareholders in the VIE structure. Under extreme circumstances,\nChina could prohibit the existence of VIE structures or limit a VIE structure’s ability to pass through economic and governance\nrights to non-Chinese individuals and entities or otherwise determine that the contractual arrangements as part of the VIE structure are\nunenforceable or contravene applicable law or regulations. If the Chinese government takes these or similar actions affecting VIE structures,\nthe market value of the fund’s associated portfolio holdings in VIE structures would likely suffer significant, detrimental, and\npossibly permanent negative effects, which could result in substantial investment losses to the fund (i.e., such investments could become\nworthless) with no recourse available.

In addition, Chinese companies, including China-based operating\ncompanies listed on U.S. exchanges through a VIE structure, are not subject to the same degree of regulatory requirements, accounting\nstandards or auditor oversight as companies based in more developed countries. As a result, information about the Chinese securities and\nsecurities in the VIE structure in which the fund invests may be less reliable or complete than investments in other securities. Foreign\ncompanies listed on U.S. exchanges, including China-based operating companies that utilize a VIE structure, also could face delisting\nor other ramifications for failure to meet the requirements of the SEC, the Public Company Accounting Oversight Board or other U.S. regulators.\nDelisting would significantly decrease the liquidity and value of the securities, decrease the ability of the fund to transact in such\nsecurities and may increase the transaction costs of the fund if the fund is required to seek other markets in which to transact in those\nsecurities.

Investments involving a VIE structure may also pose additional\nrisks because such investments are made through a company whose interests in the underlying China-based operating company are established\nthrough contract rather than through equity ownership. For example, in the event of a dispute, the contractual claims with respect to\nthe China-based operating company may be deemed unenforceable in the PRC, thus limiting (or eliminating) the remedies and rights available\nto the VIE and its investors. Such legal uncertainty may also be exploited against the interests of the investors in the VIE structure.\nFurther, the interests of the direct equity owners of the China-based operating company may conflict with the interests of the investors\nin the VIE structure, and the fiduciary duties of the officers and directors of the China-based operating company may differ from, or\nconflict with, the fiduciary duties of the officers and directors of the shell entity in which the fund invests.

The Chinese government has historically exercised substantial\ncontrol over the Chinese economy and China-based operating companies, such as through administrative regulation, state ownership and/or\nother forms of involvement. Actions of the Chinese central and local government authorities continue to have a substantial effect on economic\nconditions in China and operations of certain China-based operating companies. In addition, the Chinese government has actively intervened\nin Chinese companies’ operations and structures and taken (and may continue to take) actions that impact such companies’ structures\nand operations. Also, such governmental action may include ownership or control directly or indirectly by the central, provincial or municipal\ngovernments of the People’s Republic of China or by the People’s Liberation Army (the military arm of the Chinese Communist\nParty) and, thus, the fund’s investments in Chinese companies are subject to increased risks of political changes, social instability\nand/or regulatory developments. In general, investments in China involve risk of a total loss due to government action or inaction or\nother adverse circumstances.

There is the potential of increased tariffs and restrictions\non trade between the United States and the PRC. An increase in tariffs or trade restrictions, or even the threat of such developments,\ncould lead to a significant reduction in international trade, which could have a negative impact on PRC companies and a commensurately\nnegative impact on a fund. In addition, the U.S. and other nations and international organizations may impose economic sanctions or take\nother actions that may adversely affect issuers located in certain countries, including China. See “Market Disruptions Risk”\nand “Foreign Securities” risk.

Exchange-Traded Funds (ETFs) such as the fund, are\ninvestment companies that typically are registered under the 1940 Act as open-end funds (as is the fund’s case) or unit investment\ntrusts (UITs). ETFs are actively traded on national securities exchanges and are generally based on specific domestic and foreign market\nindices. Shares of an ETF may be bought and sold throughout the day at market prices, which may be higher or lower than the shares’\nNAV. Market prices of ETF shares will fluctuate, sometimes rapidly and materially, in response to various factors including changes in\nthe ETF’s NAV, the value of ETF holdings, and supply of and demand for ETF shares. Although the creation/redemption feature of ETFs\ngenerally makes it more likely that ETF shares will trade close to their NAV, market volatility, lack of an active trading market for\nETF shares, disruptions at market participants (such as Authorized Participants or market makers) and any disruptions in the ordinary\nfunctioning of the creation/redemption process may result in ETF shares trading significantly above (at a “premium”) or below\n(at a “discount”) their NAV. An ETF’s investment results are based on the ETF’s daily NAV. Investors transacting\nin ETF shares in the secondary market, where market prices may differ from NAV, may experience investment results that differ from results\nbased on the ETF’s daily NAV. An “index-based ETF” seeks to track the performance of an index by holding in its portfolio\neither the contents of the index or a representative sample of the securities in the index. Because ETFs are based on an underlying basket\nof securities, they are subject to the same market fluctuations as these types of securities in volatile market swings. ETFs, like mutual\nfunds, have expenses associated with their operation, including advisory fees. When the fund invests in an ETF, in addition to directly\nbearing expenses associated with its own operations, it will bear a pro rata portion of the ETF’s expenses. As with any exchange\nlisted security, ETF shares purchased in the secondary market are subject to customary brokerage charges.

Fixed Rate Capital Securities (FRCSs) are hybrid\nsecurities that combine the features of both corporate bonds and preferred stock. FRCSs pay dividends monthly or quarterly. FRCSs are\nlisted on major exchanges and, also, trade on the OTC markets. FRCSs are generally issued by large corporations and are rated by a nationally\nrecognized statistical rating organization. FRCSs bear the creditworthiness of the corporate issuer and generally have a stated maturity\n(20 to 49 years). There are currently three types of FRCSs offered in the marketplace: direct subordinate FRCSs which are offered directly\nby a corporation and zero coupon partnership preferred and trust preferred FRCSs which are issued indirectly by a corporation through\na conduit financing vehicle. FRCSs generally rank senior to common stock and preferred stock in a corporation’s capital structure,\nbut have a lower security claim than the issuer’s corporate bonds. FRCSs generally offer higher yields than corporate bonds or agency\nsecurities, but they carry more risks than the higher lien debt. In addition to risks commonly associated with other fixed income securities,\nFRCSs are subject to certain additional risks. Many FRCSs include a “special event” redemption option, allowing the issuer\nto redeem the securities at the liquidation value if a tax law change disallows the deductibility of payments by the issuer’s parent\ncompany, or subjects the issue to taxation separate from the parent company. FRCSs permit the deferral of payments (without declaring\ndefault), if the issuer experiences financial difficulties. Payments may be suspended for some stipulated period, usually up to five years.\nIf the issuer defers payments, the deferred income continues to accrue for tax purposes, even though the investor does not receive cash\npayments. Such deferrals can only occur if the parent company stops all other stock dividend payments on both common and preferred stock\nclasses. The treatment of investment income from trust and debt securities for federal tax purposes is uncertain and may vary depending\non whether the possibility of the issuer deferring payments is, or is not, considered a remote contingency.

Foreign Currency Transactions – The fund may\ninvest in foreign currency-denominated securities, purchase and sell foreign currency options and foreign currency futures contracts and\nrelated options and engage in foreign currency

transactions either on a spot (cash) basis at the rate prevailing in the\ncurrency exchange market at the time or through forward currency contracts (forwards). The fund may engage in these transactions in order\nto protect against uncertainty in the level of future foreign exchange rates in the purchase and sale of securities.

The fund may use foreign currency options and foreign currency\nforward contracts to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to\nanother.

A forward involves an obligation to purchase or sell a specific\ncurrency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price\nset at the time of the contract. These contracts may be bought or sold to protect the fund against a possible loss resulting from an adverse\nchange in the relationship between foreign currencies and the U.S. dollar or to increase exposure to a particular foreign currency. Many\nforeign securities markets do not settle trades within a time frame that would be considered customary in the U.S. stock market. Therefore,\nthe fund may engage in forward foreign currency exchange contracts in order to secure exchange rates for fund securities purchased or\nsold, but awaiting settlement. These transactions do not seek to eliminate any fluctuations in the underlying prices of the securities\ninvolved. Instead, the transactions simply establish a rate of exchange that can be expected when the fund settles its securities transactions\nin the future. Forwards involve certain risks. For example, if the counterparties to the contracts are unable to meet the terms of the\ncontracts or if the value of the foreign currency changes unfavorably, the fund could sustain a loss.

The fund also may engage in forward foreign currency exchange\noptions and contracts to protect the value of specific portfolio positions, which is called “position hedging.” When engaging\nin position hedging, the fund may enter into forward foreign currency exchange transactions to protect against a decline in the values\nof the foreign currencies in which portfolio securities are denominated (or against an increase in the value of currency for securities\nthat the fund expects to purchase).

Buying and selling foreign currency exchange options and\ncontracts involves costs and may result in losses. The ability of the fund to engage in these transactions may be limited by tax considerations.\nAlthough these techniques tend to minimize the risk of loss due to declines in the value of the hedged currency, they tend to limit any\npotential gain that might result from an increase in the value of such currency. Transactions in these contracts involve certain other\nrisks. Unanticipated fluctuations in currency prices may result in a poorer overall performance for the fund than if it had not engaged\nin any such transactions. Moreover, there may be imperfect correlation between the fund’s holdings of securities denominated in\na particular currency and forward contracts into which the fund enters. Such imperfect correlation may cause the fund to sustain losses,\nwhich will prevent it from achieving a complete hedge or expose it to risk of foreign exchange loss. The fund’s transactions in\nforeign currency exchange contracts may cause a portion of the fund’s distributions to constitute returns of capital for tax purposes.\nTo the extent a foreign currency transaction involves a derivative instrument, the risks discussed under “Derivative Instruments”,\nabove, also will apply.

Suitable hedging transactions may not be available in all\ncircumstances and there can be no assurance that the fund will engage in such transactions at any given time or from time to time. Also,\nsuch transactions may not be successful and may eliminate any chance for the fund to benefit from favorable fluctuations in relevant foreign\ncurrencies.

Forwards will be used primarily to adjust the foreign exchange\nexposure of the fund and the fund might be expected to enter into such contracts under the following circumstances:

Lock In – When the investment adviser\nor investment manager desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency.

Cross Hedge – If a particular currency\nis expected to decrease against another currency, the fund may sell the currency expected to decrease and purchase a currency which is\nexpected to increase against the currency sold in an amount approximately equal to some or all of the fund’s portfolio holdings\ndenominated in the currency sold.

Direct Hedge – If the investment adviser\nor investment manager wants to eliminate substantially all of the risk of owning a particular currency, and/or if the investment adviser\nor investment manager thinks that the fund can benefit from price appreciation in a given country’s bonds but does not want to hold\nthe currency, it may employ a direct hedge back into the U.S. dollar. In either case, the fund would enter into a forward contract to\nsell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it\ninitiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the yield advantage offered by the foreign\nsecurity, but the fund would benefit from an increase in value of the bond.

Proxy Hedge – The investment adviser\nor investment manager might choose to use a proxy hedge, which may be less costly than a direct hedge. In this case, the fund, having\npurchased a security, will sell a currency whose value is believed to be closely linked to the currency in which the security is denominated.\nInterest rates prevailing in the country whose currency was sold would be expected to be closer to those in the U.S. and lower than those\nof securities denominated in the currency of the original holding. This type of hedging entails greater risk than a direct hedge because\nit is dependent on a stable relationship between the two currencies paired as proxies and the relationships can be very unstable at times.

Costs of Hedging – When the fund purchases\na foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign\nbond could be substantially reduced or lost if the fund were to enter into a direct hedge by selling the foreign currency and purchasing\nthe U.S. dollar. This is what is known as the “cost” of hedging. Proxy hedging attempts to reduce this cost through an indirect\nhedge back to the U.S. dollar. It is important to note that hedging costs are treated as capital transactions and are not, therefore,\ndeducted from the fund’s dividend distribution and are not reflected in its yield. Instead such costs will, over time, be reflected\nin the fund’s NAV per share.

Tax Consequences of Hedging – Under\napplicable tax law, the fund may be required to limit its gains from hedging in foreign currency forwards, futures, and options. Although\nthe fund is expected to comply with such limits, the extent to which these limits apply is subject to tax regulations as yet unissued.\nHedging may also result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. Those provisions\ncould result in an increase (or decrease) in the amount of taxable dividends paid by the fund and could affect whether dividends paid\nby the fund are classified as capital gains or ordinary income.

Foreign Securities – Investments in foreign\nsecurities involve additional risks, including foreign currency exchange rate risks, because they are issued by foreign entities, including\nforeign governments, banks and corporations or because they are traded principally overseas. The fund’s investments in foreign securities\nmay include securities of issuers domiciled in a foreign jurisdiction but which are listed on a U.S. exchange and included in the fund’s\nindex, as well as securities generally available in foreign markets. Foreign securities in which the fund may invest include those issued\nby foreign entities that are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements\ncomparable to those applicable to U.S. corporations. In addition, there may be less publicly available information about foreign entities.\nForeign economic, political and legal developments, a compromise in public health and safety, as well as fluctuating foreign currency\nexchange rates and withholding taxes, could have more dramatic effects on the value of foreign securities. For example, conditions within\nand around foreign countries, such as the possibility of expropriation or confiscatory taxation, political or social instability, diplomatic\ndevelopments, currency blockage, the imposition of sanctions and other similar measures, change of government or war could affect the\nvalue of foreign investments. Additionally, a country could experience a public health threat such as an infectious illness which could\nreduce consumer demand or economic output and/or result in market closures, travel restrictions or quarantines, all of which could affect\nthe value of that country’s securities and impact global markets. Moreover, individual foreign economies may differ favorably or\nunfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource\nself-sufficiency and balance of payments position.

Foreign securities typically have less volume and are generally\nless liquid and more volatile than securities of U.S. companies. Fixed commissions on foreign securities exchanges are generally higher\nthan negotiated commissions on U.S. exchanges, although the fund will endeavor to achieve the most favorable overall results on portfolio\ntransactions. There is generally less government supervision and regulation of foreign securities exchanges, brokers, dealers and listed\ncompanies than in the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates\nfor portfolio securities. There may be difficulties in obtaining or enforcing judgments against foreign issuers as well. Bankruptcy laws\nin some foreign countries are sometimes biased to the borrowers and against the creditors. These factors and others may increase the risks\nwith respect to the liquidity of the fund, and its ability to meet a large number of shareholder redemption requests.

In addition, the fund’s investments in foreign securities\nmay be subject to economic sanctions or other government restrictions. The type and severity of sanctions and other similar measures,\nincluding counter sanctions and other retaliatory actions, that may be imposed could vary broadly in scope, and their impact is difficult\nto ascertain. These types of measures may include, but are not limited to, banning a sanctioned country or certain persons or entities\nassociated with such country from global payment systems that facilitate cross-border payments, restricting the settlement of securities\ntransactions by certain investors, and freezing the assets of particular countries, entities or persons. The imposition of sanctions and\nother similar measures could, among other things, result in a decline in the value and/or liquidity of securities issued by the sanctioned\ncountry or companies located in or economically tied to the sanctioned country, downgrades in the credit ratings of the sanctioned country’s\nsecurities or those of companies located in or economically tied to the sanctioned country, currency devaluation or volatility, and increased\nmarket volatility and

disruption in the sanctioned country and throughout the world. Sanctions\nand other similar measures could directly or indirectly limit or prevent the fund from buying and selling securities (in the sanctioned\ncountry and other markets), significantly delay or prevent the settlement of securities transactions, and adversely impact the fund’s\nliquidity and performance. Unilateral actions by a foreign government may also impact a fund’s ability to operate in full conformity\nwith required U.S. regulations. As a result, such restrictions may limit the fund’s ability to meet a large number of shareholder\nredemption requests.

Foreign markets also have different clearance and settlement\nprocedures and, in certain markets, there have been times when settlements have been unable to keep pace with the volume of securities\ntransactions, making it difficult to conduct such transactions. Such delays in settlement could result in temporary periods when a portion\nof the assets of the fund is uninvested and no return is earned thereon. The inability to make intended security purchases due to settlement\nproblems could cause the fund to miss attractive investment opportunities. Losses to the fund arising out of the inability to fulfill\na contract to sell such securities also could result in potential liability for the fund.

Investments in the securities of foreign issuers may be\nmade and held in foreign currencies. In addition, the fund may hold cash investments in foreign currencies. These investments may be affected\nfavorably or unfavorably by changes in currency rates and in exchange control regulations, and may cause the fund to incur costs in connection\nwith conversions between various currencies. The rate of exchange between the U.S. dollar and other currencies is determined by the forces\nof supply and demand in the foreign exchange market as well as by political and economic factors. Changes in the foreign currency exchange\nrates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities, and net investment\nincome and gains, if any, to be distributed to shareholders by the fund.

During the 2008-2009 global financial crisis, financial\nmarkets in Europe experienced significant volatility due, in part, to concerns about rising levels of government debt and the prevalence\nof increased budget deficits. As a result, many economies in the region suffered through prolonged economic downturns. Due to the economic\nintegration of the region, another economic downturn in one European country may have a negative impact on the economies of other European\ncountries.

As the fund may hold investments in issuers that are located\nin Europe or that depend on revenues generated from operations in Europe, any material negative developments in Europe could have a negative\nimpact on the value and liquidity of these investments, which could harm the fund’s performance.

Forward Contracts are sales contracts between a buyer\n(holding the “long” position) and the seller (holding the “short” position) for an asset with delivery deferred\nto a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller\nhopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. The change\nin value of a forward-based derivative generally is roughly proportional to the change in value of the underlying asset.

Illiquid Securities or Investments means any investment\nthat the fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the\nsale or disposition significantly changing the market value of the investment. The liquidity of the fund’s investments is monitored\nunder the supervision and direction of the Board and is governed by the 1940 Act and rules promulgated thereunder, which provide that\na fund may not acquire any illiquid investments if, immediately after the acquisition, the fund would have invested more than 15% of the\nfund’s net assets in illiquid investments. Investments currently not considered liquid include, among others, repurchase agreements\nnot maturing within seven days that are not subject to a demand feature of seven days or less and certain restricted securities. Any investment\nmay become illiquid at times of market dislocation.

Indexing Strategies involve tracking the securities\nrepresented in, and therefore the performance of, an index. The fund normally will invest primarily in the securities of its index. Moreover,\nthe fund seeks to invest so that its portfolio performs similarly to that of its index. Correlation for the fund is calculated using daily\nreturns, according to a mathematical formula which measures correlation between the fund’s portfolio and index returns. The fund\nmay rebalance its holdings in order to track its index more closely. A perfect correlation of 1.0 is unlikely as the fund incurs operating\nand trading expenses unlike its index.

There can be no guarantee that the performance of the fund\nwill achieve a high degree of correlation with that of its index. A number of factors may affect the fund’s ability to achieve a\nhigh correlation with its index, including the degree to which the fund utilizes a sampling technique. The correlation between the performance\nof the fund and its index may also diverge due to transaction costs, asset valuations, corporate actions (such as mergers and spin-offs),\ntiming variances,

and differences between the fund’s portfolio and the index resulting\nfrom legal restrictions (such as diversification requirements) that apply to the fund but not to the index.

Inflation/Deflation Risk – The fund may be\nsubject to inflation and deflation risk. Inflation risk is the risk that the present value of assets or income from the fund’s investments\nwill be less in the future as inflation decreases the value of money. As inflation increases, the present value of the fund’s assets\ncan decline. Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on\nthe creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the fund’s\nassets.

Interest Rates may rise and fall over time, and debt\nsecurities will experience price changes when interest rates change. A change in interest rates may have sudden and unpredictable effects\non the markets and the fund’s investments. For example, when interest rates fall, the prices of debt securities generally rise.\nIf interest rates rise, the value of the fund’s debt securities could be adversely impacted and the fund could lose money. The value\nof debt securities in the fund can be expected to vary inversely with changes in prevailing interest rates. In general, debt securities\nwith longer maturities will tend to react to interest rate changes more severely than shorter-term debt securities, but will generally\noffer greater rates of interest.

During periods of rising interest rates, the average life\nof certain debt securities is extended because of slower than expected principal payments. This may lock in below-market interest rates\nand extend the duration of these debt securities, making them more sensitive to changes in interest rates. This is known as extension\nrisk and may cause the value of debt securities to depreciate as a result of the higher market interest rates.

When interest rates decline, borrowers may pay off their\nfixed-income securities sooner than expected. This is known as prepayment risk and may reduce the returns of the fund because the fund\nwill have to reinvest that money at the lower prevailing interest rates.

Interfund Borrowing and Lending – A fund may\nborrow money from and/or lend money to other funds in the Fund Complex as defined under “Management of the Funds,” including\nfunds not discussed in this SAI or in the corresponding prospectus. All loans are for temporary or emergency purposes and the interest\nrates to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject\nto numerous conditions designed to ensure fair and equitable treatment of all participating funds. These conditions include, for example,\nthat a fund’s participation in the credit facility must be consistent with its investment policies and limitations and organizational\ndocuments; no fund may lend to another fund through the interfund lending facility if the loan would cause the aggregate outstanding loans\nthrough the credit facility to exceed 15% of the lending fund’s current net assets at the time of the loan; and that a fund’s\ninterfund loans to any one fund shall not exceed 5% of the lending fund’s net assets. With respect to the funds discussed in this\nSAI, a fund lending to another fund may forego gains which could have been made had those assets been invested in securities of its applicable\nunderlying index. The interfund lending facility is subject to the oversight and periodic review of the Board.

International Bonds are certain obligations or securities\nof foreign issuers, including Eurodollar Bonds, which are U.S. dollar-denominated bonds issued by foreign issuers payable in Eurodollars\n(U.S. dollars held in banks located outside the United States, primarily Europe), Yankee Bonds, which are U.S. dollar-denominated bonds\nissued in the U.S. by foreign banks and corporations, and EuroBonds, which are bonds denominated in U.S. dollars and usually issued by\nlarge underwriting groups composed of banks and issuing houses from many countries. Investments in securities issued by foreign issuers,\nincluding American Depositary Receipts and securities purchased on foreign securities exchanges, may subject the fund to additional investment\nrisks, such as adverse political and economic developments, possible seizure, nationalization or expropriation of foreign investments,\nless stringent disclosure requirements, non-U.S. withholding taxes and the adoption of other foreign governmental restrictions.

Additional risks include less publicly available information,\nthe risk that companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies,\nthe risk that foreign securities markets may have less volume and therefore may be less liquid and their prices more volatile than U.S.\nsecurities, and the risk that custodian and transaction costs may be higher. Foreign issuers of securities or obligations are often subject\nto accounting requirements and engage in business practices different from those respecting domestic issuers of similar securities or\nobligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable\nto domestic branches of U.S. banks.

Sovereign debt investment can involve a high degree of risk.\nThe governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest\nwhen due in accordance with the terms of

the debt. A governmental entity’s willingness or ability to repay\nprincipal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign\nreserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to\nthe economy as a whole, the governmental entity’s policy toward the International Monetary Fund, and the political constraints to\nwhich a governmental entity may be subject. Governmental entities also may depend on expected disbursements from foreign governments,\nmultilateral agencies and others to reduce principal and interest arrearages on their debt. The commitment on the part of these governments,\nagencies and others to make such disbursements may be conditioned on a governmental entity’s implementation of economic reforms\nand/or economic performance and the timely service of such debtor’s obligations. Failure to implement such reforms, achieve such\nlevels of economic performance or repay principal or interest when due may result in the cancellation of such third parties’ commitments\nto lend funds to the governmental entity, which may further impair such debtor’s ability or willingness to service its debts in\na timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt (including the funds)\nmay be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy\nproceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part.

The fund’s investments in foreign currency denominated\ndebt obligations and hedging activities will likely produce a difference between its book income and its taxable income. This difference\nmay cause a portion of the fund’s income distributions to constitute returns of capital for tax purposes or require the fund to\nmake distributions exceeding book income to qualify as a RIC for federal tax purposes.

Market Disruptions Risk – The fund is subject\nto investment and operational risks associated with financial, economic and other global market developments and disruptions, including\nthose arising from war, terrorism, market manipulation, government interventions, tariffs, defaults and shutdowns, political changes or\ndiplomatic developments, public health emergencies (such as the spread of infectious diseases, epidemics and pandemics) and natural/environmental\ndisasters, which can all negatively impact the securities markets and cause the fund to lose value. These events can also impair the technology\nand other operational systems upon which the fund’s service providers, including Schwab Asset Management as the fund’s investment\nadviser, rely, and could otherwise disrupt the fund’s service providers’ ability to fulfill their obligations to the fund.

A widespread health crisis, such as an infectious disease\noutbreak, epidemic or pandemic, could cause substantial market volatility, securities exchange suspensions, restrictions or closures,\nand other deleterious effects, any of which could disrupt fund operations and adversely affect fund performance. For example, the outbreak\nof COVID-19, a novel coronavirus disease, caused volatility, severe market dislocations and liquidity constraints in many markets, including\nthose in which the fund invests. Efforts to contain the spread of infectious disease could result in travel restrictions and disruptions,\nclosed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service\npreparation and delivery, quarantines, event and service cancellations or interruptions, disruptions to business operations (including\nstaff reductions), supply chains and consumer activity, as well as general concern and uncertainty that could have negative economic effects.\nSuch disruptions could lead to instability in the market place, including losses and overall volatility. Future health crises could adversely\naffect economies, the financial performance of individual issuers, borrowers and sectors and the health of the markets generally in potentially\nsignificant and unforeseen ways.

A decrease in the share price of issuers in the same or\nrelated industries or sectors that comprise a large portion of the overall market or major market indices could disproportionately impact\nfinancial markets, even if other industries or sectors are performing well otherwise. To the extent such issuers are financially interconnected\nor their securities behave similarly, events affecting one issuer or their industry or sector could have an outsized effect.

War, terrorism and related responses and events could cause\nsubstantial market volatility, disrupt fund operations and adversely affect fund performance. For example, Russia’s military invasion\nof Ukraine in February 2022, responses by the United States and other countries to the invasion and the potential for wider conflict have\nincreased and may continue to increase volatility and uncertainty in financial markets worldwide. The United States and other countries\nhave imposed broad-ranging economic sanctions on Russia and Russian entities and individuals that, among other restrictions, prohibit\ncompanies from doing business with Russia and Russian issuers, and may adversely affect companies with economic or financial exposure\nto Russia and Russian issuers. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions\non other countries that support Russia’s military invasion. Additionally, armed conflict between Israel and Hamas and other militant\ngroups in the Middle East and related events could cause significant market disruptions and volatility. These events and other similar\nevents could negatively affect the fund’s performance.

U.S. and global markets have experienced increased volatility\nin past years, including as a result of the failures of certain U.S. and non-U.S. banks, which could be harmful to the fund and issuers\nin which it invests. For example, if a bank in which the fund or an issuer has an account fails, any cash or other assets in bank accounts\nmay be temporarily inaccessible or permanently lost by the fund or issuer. If a bank that provides a subscription line credit facility,\nasset-based facility, other credit facility and/or other services to an issuer fails, the issuer could be unable to draw funds under its\ncredit facilities or obtain replacement credit facilities or other services from other lending institutions with similar terms. Even if\nbanks used by issuers in which the fund invests remain solvent, continued volatility in the banking sector could cause or intensify an\neconomic recession, increase the costs of banking services or result in the issuers being unable to obtain or refinance indebtedness at\nall or on as favorable terms as could otherwise have been obtained. Conditions in the banking sector are evolving, and the scope of any\npotential impacts to the fund and issuers, both from market conditions and also potential legislative or regulatory responses, are uncertain.\nContinued market volatility and uncertainty and/or a downturn in market and economic and financial conditions, as a result of developments\nin the banking industry or otherwise (including as a result of delayed access to cash or credit facilities), could have an adverse impact\non the fund and issuers in which it invests.

International trade tensions may arise from time to time\nwhich could result in trade tariffs, embargos or other restrictions or limitations on trade. The imposition of any actions on trade could\ntrigger a significant reduction in international trade, an oversupply of certain manufactured goods, substantial price reductions of goods,\npossible failure of individual companies or industries, slower economic growth or recession, inflation, increased unemployment or market\nvolatility, any of which could have a negative impact on the fund’s performance. Recently the United States has increased tariffs\nor threatened to increase tariffs on imports from certain countries and on certain imported goods. An increase in tariffs or trade restrictions,\nor even the threat of such developments, could lead to retaliatory actions by other countries and an escalation of trade barriers, and\ncould heighten the aforementioned risks to the fund.

The foregoing could lead to a significant economic downturn\nor recession, increased market volatility, market closures, changes in interest rates, higher default rates and adverse effects on the\nvalues and liquidity of securities or other assets. Such impacts, which may vary across asset classes, may adversely affect the performance\nof the fund. In certain cases, an exchange or market may close or issue trading halts on specific securities or even the entire market,\nwhich may result in the fund being, among other things, unable to buy or sell certain securities or financial instruments or to accurately\nprice its investments.

Money Market Securities are high-quality, short term\ndebt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (like banks). Money\nmarket securities include commercial paper, certificates of deposit, banker’s acceptances, notes and time deposits. Certificates\nof deposit and time deposits are issued against funds deposited in a banking institution for a specified period of time at a specified\ninterest rate. Banker’s acceptances are credit instruments evidencing a bank’s obligation to pay a draft drawn on it by a\ncustomer. These instruments reflect the obligation both of the bank and of the drawer to pay the full amount of the instrument upon maturity.\nCommercial paper consists of short term, unsecured promissory notes issued to finance short term credit needs.

Money market securities pay fixed-, variable- or floating-rates\nof interest and are generally subject to credit and interest rate risks. The maturity date or price of and financial assets collateralizing\na security may be structured in order to make it qualify as or act like a money market security. These securities may be subject to greater\ncredit and interest rate risks than other money market securities because of their structure. Money market securities may be issued with\nputs or sold separately; these puts, which are sometimes called demand features or guarantees, are agreements that allow the buyer to\nsell a security at a specified price and time to the seller or “put provider.” When the fund buys a put, losses could occur\nas a result of the costs of the put or if it exercises its rights under the put and the put provider does not perform as agreed. Standby\ncommitments are types of puts.

The fund may keep a portion of its assets in cash for business\noperations. The fund may invest in money market securities to reduce the effect this otherwise uninvested cash would have on its performance.\nThe fund may also invest in money market securities to the extent it is consistent with its investment objective.

Commercial Paper consists of short term, promissory\nnotes issued by banks, corporations and other institutions to finance short-term credit needs. These securities generally are discounted\nbut sometimes may be interest bearing. Commercial paper, which also may be unsecured, is subject to credit risk.

Non-Publicly Traded Securities and Private Placements\nare securities that are neither listed on a stock exchange nor traded over-the-counter, including privately placed securities. Such\nunlisted securities may involve a higher degree of

business and financial risk that can result in substantial losses. As a\nresult of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. Although\nthese securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally\npaid by the fund or less than what may be considered the fair value of such securities. Furthermore, companies whose securities are not\npublicly traded may not be subject to the disclosure and other investor protection requirements which might be applicable if their securities\nwere publicly traded. If such securities are required to be registered under the securities laws of one or more jurisdictions before being\nsold, the fund may be required to bear the expenses of registration.

Operational Risk – The fund is exposed to operational\nrisk arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of the\nfund’s service providers, counterparties or other third parties, failed or inadequate processes and technology or system failures.\nThe fund seeks to reduce these operational risks through controls and procedures believed to be reasonably designed to address these risks.\nHowever, these controls and procedures cannot address every possible risk and may not fully mitigate the risks that they are intended\nto address.

Puts are agreements that allow the buyer to sell\na security at a specified price and time to the seller or “put provider.” When the fund buys a security with a put feature,\nlosses could occur if the put provider does not perform as agreed. If a put provider fails to honor its commitment upon the fund’s\nattempt to exercise the put, the fund may have to treat the security’s final maturity as its effective maturity. If that occurs,\nthe security’s price may be negatively impacted, and its sensitivity to interest rate changes may be increased, possibly contributing\nto increased share price volatility for the fund. This also could lengthen the fund’s overall average effective maturity. Standby\ncommitments are types of puts.

Quality of Fixed-Income Investments refers to the\nquality of the securities purchased by the fund. The fund considers investment-grade securities to be those that have an ICE Composite\nRating in one of the four highest rating categories (within which there may be sub-categories or gradations indicating relative standing)\nor have been determined to be of equivalent quality by the investment adviser pursuant to procedures adopted by the Board.

Restricted Securities are securities that are subject\nto legal restrictions on their sale. Difficulty in selling restricted securities may result in a loss or be costly to a fund. Restricted\nsecurities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities\nAct of 1933, as amended (the 1933 Act), or in a registered public offering. Where registration is required, the holder of a registered\nsecurity may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides\nto seek registration and the time it may be permitted to sell a security under an effective registration statement. If, during such a\nperiod, adverse market conditions were to develop, the holder might obtain a less favorable price than prevailed when it decided to seek\nregistration of the security. Certain restricted securities such as tender option bonds, commercial paper and other promissory notes,\nmay be issued under Section 4(a)(2) of the 1933 Act and may be sold only to qualified institutional buyers, such as the fund, pursuant\nto Rule 144A under the 1933 Act. Securities purchased through a private placement offering are also restricted securities. These securities\nmay be considered to be liquid if they meet the criteria for liquidity established by the Board. To the extent the fund invests in restricted\nsecurities that are deemed liquid, the general level of illiquidity in the fund’s portfolio may be increased if such securities\nbecome illiquid or if buyers in that market become unwilling to purchase the securities.

Securities Lending of portfolio securities is a common\npractice in the securities industry. The fund may engage in security lending arrangements. When the fund is lending portfolio securities,\nthe fund may receive cash collateral and may invest it in short-term, interest-bearing obligations, including cash collateral funds, but\nwill do so only to the extent that it will not lose the tax treatment available to regulated investment companies. Lending portfolio securities\ninvolves risks that the borrower may fail to return the securities or provide additional collateral. Also, voting rights with respect\nto the loaned securities may pass with the lending of the securities and efforts to recall such securities promptly may be unsuccessful,\nespecially for foreign securities. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities,\nif the borrower fails to return the security loaned or becomes insolvent. The fund will also bear the risk of any decline in value of\nsecurities acquired with cash collateral.

The fund may loan portfolio securities to qualified broker-dealers\nor other institutional investors provided: (1) the loan is secured continuously by collateral consisting of U.S. government securities,\nletters of credit, cash or cash equivalents or other permitted instruments maintained on a daily marked-to-market basis in an amount at\nleast equal to the current market value of the securities loaned; (2) the fund may at any time call the loan and obtain the return of\nthe securities loaned; (3) the fund will receive payments in lieu of any interest or dividends paid on the loaned securities; and (4)\nthe aggregate market value of securities loaned will not at any time exceed one-third of the total assets of the fund, including collateral\nreceived from the loan (at market value computed at the time of the loan).

Although voting rights with respect to loaned securities\npass to the borrower, the lender retains the right to recall a security (or terminate a loan) for the purpose of exercising the security’s\nvoting rights. Efforts to recall such securities promptly may be unsuccessful, especially for foreign securities or thinly traded securities\nsuch as small-cap stocks. In addition, because recalling a security may involve expenses to the fund, it is expected that the fund will\ndo so only where the items being voted upon are, in the judgment of the investment adviser, either material to the economic value of the\nsecurity or threaten to materially impact the issuer’s corporate governance policies or structure.

To the extent the fund participates in securities lending\nunder the current securities lending agreements with unaffiliated lending agents, costs and expenses, including agent fees, associated\nwith securities lending activities under the securities lending program paid to the unaffiliated lending agents start at 9% of gross lending\nrevenue, with subsequent breakpoints to a low of 5%. In this context, the gross lending revenue equals the income received from the investment\nof cash collateral and fees paid by borrowers less any rebates paid to borrowers. Any expenses charged by the cash collateral fund are\nin addition to these fees. All remaining revenue is retained by the fund, as applicable. No portion of the lending revenue is paid to\nor retained by Schwab Asset Management or any affiliate of Schwab Asset Management.

Securities of Other Investment Companies –\nInvestment companies generally offer investors the advantages of diversification and professional investment management, by combining\nshareholders’ money and investing it in securities such as stocks, bonds and money market instruments. Investment companies include:\n(1) open-end funds (for example mutual funds or ETFs) that issue and redeem their shares on a continuous basis; (2) closed-end funds that\noffer a fixed number of shares, and are usually listed on an exchange; (3) UITs that generally offer a fixed number of redeemable shares;\nand (4) money market funds that typically seek current income by investing in money market securities (see the section titled “Money\nMarket Securities” for more information). Certain open-end funds, closed-end funds and UITs are traded on exchanges.

To the extent the fund invests, or has invested, in shares\nof other investment companies during its prior fiscal year, the fund, pursuant to SEC rules, must disclose any material fees and expenses\nindirectly incurred by the fund as a result of such investments. These indirect fees and expenses, to the extent incurred, will appear\nin the fee table of the fund’s prospectus as a separate line item captioned “Acquired fund fees and expenses.”

Investment companies may make investments and use techniques\ndesigned to enhance their performance. These may include delayed-delivery and when-issued securities transactions; swap agreements; buying\nand selling futures contracts, illiquid, and/or restricted securities and repurchase agreements; and borrowing or lending money and/or\nportfolio securities. The risks of investing in a particular investment company will generally reflect the risks of the securities in\nwhich it invests and the investment techniques it employs. Also, investment companies charge fees and incur expenses.

The fund may buy securities of other investment companies,\nincluding those of foreign issuers and money market funds, in compliance with the requirements of federal law or any SEC exemptive order.\nThe fund may invest in investment companies that are not registered with the SEC or privately placed securities of investment companies\n(which may or may not be registered), such as unregistered money market funds. Unregistered funds are largely exempt from the regulatory\nrequirements that apply to registered investment companies. As a result, unregistered funds may have a greater ability to make investments,\nor use investment techniques, that offer a higher potential investment return (for example, leveraging), but which may carry high risk.\nUnregistered funds, while not regulated by the SEC like registered funds, may be indirectly supervised by the financial institutions (e.g.,\ncommercial and investment banks) that may provide them with loans or other sources of capital. Investments in unregistered funds may be\ndifficult to sell, which could cause the fund selling an interest in an unregistered fund to lose money. For example, many hedge funds\nrequire their investors to hold their investments for at least one year.

Federal law restricts the ability of one registered investment\ncompany to invest in another. As a result, the extent to which the fund may invest in another investment company may be limited. Except\nas described below, the 1940 Act currently requires that, as determined immediately after a purchase is made, (i) not more than 5% of\nthe value of the fund’s total assets will be invested in the securities of any one acquired investment company (acquired fund),\n(ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of acquired funds as a group and\n(iii) not more than 3% of the outstanding voting stock of any one acquired fund will be owned by the fund.

The limitations described above do not apply to investments\nin money market funds subject to certain conditions. The fund may invest in affiliated and unaffiliated money market funds without limit\nunder Rule 12d1-1 under the 1940 Act subject to the fund’s investment policies and restrictions and the conditions of the Rule.

Rule 12d1-4 allows the fund to acquire shares of an acquired\nfund in excess of the limitations currently imposed by the 1940 Act. Fund of funds arrangements relying on Rule 12d1-4 will be subject\nto several conditions, certain of which are specific to the fund’s position in the arrangement (i.e., as an acquiring or acquired\nfund). Notable conditions include those relating to: (i) control and voting that prohibit an acquiring fund, its investment adviser (or\na subadviser) and their respective affiliates from beneficially owning more than 25% of the outstanding voting securities of an unaffiliated\nacquired fund; (ii) certain required findings relating to complexity, fees and undue influence (among other things); (iii) fund of funds\ninvestment agreements; and (iv) general limitations on an acquired fund’s investments in other investment companies and private\nfunds to no more than 10% of the acquired fund’s assets, except in certain circumstances. To the extent the fund is an acquired\nfund, the limitations placed on acquired funds under Rule 12d1-4 may impact the investments made by the fund.

Third-party Tokenization. Certain unaffiliated third-parties\nmay offer digital assets or “tokens” that seek to represent the economic value of, or rights with respect to, shares of the\nfund. If a third-party offers a token that is said to be “backed” by shares of the fund, investors should be aware that such\na token is not, in fact, a share of the fund, does not represent any ownership interest in or contractual obligation against the fund,\nand does not confer on the holder thereof any rights as a shareholder of the fund.

The rights of a holder of any token that is said to be backed\nby shares of the fund may be materially different from the rights of a holder of shares of the fund, including economic and voting rights.\nIn addition, any holder of such a token may be exposed to risks that are distinct from the risks of investing in the fund, including risks\nthat may impact the third-party offering the token, such as bankruptcy, cybersecurity, fraud, regulatory or tax risks.

Neither the fund nor the investment adviser has any association\nwith the creation, offering, trading or operation of such tokens and does not make any recommendations regarding an investment in such\ntokens. The holder of any token that is said to be backed by shares of the fund must look solely to the relevant third-party for an understanding\nof the terms of such backing, any limitations on the transferability of such tokens, as well as for the enforcement of any rights that\nsuch holder may have in relation to such tokens. The fund and the investment adviser have no liability or other obligation in respect\nof any such tokens or to any holder thereof.

U.S. Government Securities are issued by the U.S.\nTreasury or issued or guaranteed by the U.S. government or any of its agencies or instrumentalities. Not all U.S. government securities\nare backed by the full faith and credit of the U.S. government. Some U.S. government securities, such as those issued by the Federal National\nMortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Student Loan Marketing Association (Sallie\nMae) and the Federal Home Loan Banks (FHLB), are supported by a line of credit the issuing entity has with the U.S. Treasury. Securities\nissued by other issuers are supported solely by the credit of the issuing agency or instrumentality such as obligations issued by the\nFederal Farm Credit Banks Funding Corporation. There can be no assurance that the U.S. government will provide financial support to U.S.\ngovernment securities of its agencies and instrumentalities if it is not obligated to do so under law. U.S. government securities, including\nU.S. Treasury securities, are among the safest securities; however, not unlike other debt securities, they are still sensitive to interest\nrate changes, which will cause their yields and prices to fluctuate.

In September 2008, the Federal Housing Finance Agency (FHFA)\nplaced Fannie Mae and Freddie Mac into conservatorship. As the conservator, FHFA succeeded to all rights, titles, powers and privileges\nof Fannie Mae and Freddie Mac and of any stockholder, officer or director of Fannie Mae and Freddie Mac with respect to Fannie Mae and\nFreddie Mac and the assets of Fannie Mae and Freddie Mac. In connection with the conservatorship, the U.S. Treasury entered into a Senior\nPreferred Stock Purchase Agreement (SPA) with each of Fannie Mae and Freddie Mac pursuant to which the U.S. Treasury agreed to purchase\nup to 1,000,000 shares of senior preferred stock with an aggregate initial liquidation preference of $1 billion and obtained warrants\nand options for the purchase of common stock of each of Fannie Mae and Freddie Mac. Under the SPAs as currently amended, the U.S. Treasury\nhas pledged to provide financial support to a government-sponsored enterprise (GSE) in any quarter in which the GSE has a net worth deficit\nas defined in the respective SPA. The SPAs contain various covenants that severely limit each enterprise’s operations.

The conditions attached to entering into the SPAs place\nsignificant restrictions on the activities of Freddie Mac and Fannie Mae. Freddie Mac and Fannie Mae must obtain the consent of the U.S.\nTreasury to, among other things, (i) make any payment to purchase or redeem its capital stock or pay any dividend other than in respect\nof the senior preferred stock, (ii) issue capital stock of any kind, (iii) terminate the conservatorship of the FHFA except in connection\nwith a receivership, or (iv) increase its debt beyond certain specified levels. Under a letter agreement entered into in January 2021,\neach enterprise is permitted to retain earnings and raise private capital to enable them to meet the minimum capital requirements under\nthe FHFA’s Enterprise Regulatory Capital Framework (“ERCF”). The letter agreement also permits

each enterprise to develop a plan to exit conservatorship, but may not\ndo so until litigation involving the conservatorships is resolved and each enterprise has the minimum capital required by FHFA’s\nrules. In addition, significant restrictions are placed on the maximum size of each of Freddie Mac’s and Fannie Mae’s respective\nportfolios of mortgages and mortgage-backed securities, and the purchase agreements entered into by Freddie Mac and Fannie Mae provide\nthat the maximum size of their portfolios of these assets must decrease by a specified percentage each year. The future status and role\nof Freddie Mac and Fannie Mae could be impacted by (among other things) the actions taken and restrictions placed on Freddie Mac and Fannie\nMae by the FHFA in its role as conservator, the restrictions placed on Freddie Mac’s and Fannie Mae’s operations and activities\nas a result of the senior preferred stock investment made by the U.S. Treasury, market responses to developments at Freddie Mac and Fannie\nMae, and future legislative and regulatory action that alters the operations, ownership, structure and/or mission of these institutions,\neach of which may, in turn, impact the value of, and cash flows on, any mortgage-backed securities guaranteed by Freddie Mac and Fannie\nMae, including any such mortgage-backed securities held by the fund.

Fannie Mae and Freddie Mac are continuing to operate as\ngoing concerns while in conservatorship and each remain liable for all of its obligations, including its guaranty obligations, associated\nwith its mortgage-backed securities. The SPAs are intended to enhance each of Fannie Mae’s and Freddie Mac’s ability to meet\nits obligations. The FHFA has indicated that the conservatorship of each enterprise will end when the director of the FHFA determines\nthat the FHFA’s plan to restore the enterprise to a safe and solvent condition has been completed. Under amendments to the ERCF,\nFannie Mae and Freddie Mac have published capital disclosures which provide additional information about their capital position and capital\nrequirements on a quarterly basis since the first quarter of 2023 and delivered their first capital plans to FHFA in May 2023. The FHFA\nfinalized amendments to certain provisions of the ERCF in November 2023 that modify various capital requirements for Freddie Mac and Fannie\nMae. The FHFA previously announced plans to consider taking Fannie Mae and Freddie Mac out of conservatorship. Should Fannie Mae and Freddie\nMac be taken out of conservatorship, it is unclear whether the U.S. Treasury would continue to enforce its rights or perform its obligations\nunder the SPAs. It also is unclear how the capital structure of Fannie Mae and Freddie Mac would be constructed post-conservatorship,\nand what effects, if any, the privatization of Fannie Mae and Freddie Mac will have on their creditworthiness and guarantees of certain\nmortgage-backed securities. The ERCF requires Fannie Mae and Freddie Mac, upon exit from conservatorship, to maintain higher levels of\ncapital than prior to conservatorship to satisfy their risk-based capital requirements, leverage ratio requirements and prescribed buffer\namounts. Accordingly, should the FHFA take Fannie Mae and Freddie Mac out of conservatorship, there could be an adverse impact on the\nvalue of their securities which could cause the fund’s investments to lose value.

A default by the U.S. government on a portfolio investment\ncould cause the fund’s share price or yield to fall. The risk of default on U.S. government securities may be heightened when there\nis uncertainty relating to negotiations in the U.S. Congress over increasing the statutory debt ceiling or periodic legislation to fund\nthe government. If the U.S. Congress is unable to negotiate an increase to the statutory debt ceiling or pass legislation to fund the\ngovernment, the U.S. government may default on certain U.S. government securities including those held by the fund, which could have an\nadverse impact on the fund. In August 2011, the long-term credit rating of the U.S. government was downgraded by a major rating agency\nas a result of concern about the U.S. government’s budget deficit and rising debt burden. More recently, in August 2023 and in May\n2025, two other major rating agencies downgraded the long-term credit rating of the U.S. government due to a combination of expected fiscal\ndeterioration, a high and growing government debt burden, rising interest costs, and an erosion of governance relative to peers. Further\ndowngrades in the future could increase volatility in domestic and foreign financial markets, result in higher interest rates, lower prices\nof U.S. Treasury securities and increase the costs of different kinds of debt. It is possible that under certain scenarios the U.S. government\ncould default on its debt, including U.S. Treasury securities.

Additional Investment Information

Duration was developed as a more precise alternative\nto the concept of “maturity.” Traditionally, a debt obligation’s maturity has been used as a proxy for the sensitivity\nof the security’s price to changes in interest rates (which is the “interest rate risk” or “volatility”\nof the security). However, maturity measures only the time until a debt obligation provides its final payment, taking no account of the\npattern of the security’s payments prior to maturity. In contrast, duration incorporates a bond’s yield, coupon interest payments,\nfinal maturity, call and put features and prepayment exposure into one measure. Duration is the magnitude of the change in the price of\na bond relative to a given change in market interest rates. Duration management is one of the fundamental tools used by the investment\nadviser.

Duration is a measure of the expected life of a debt obligation\non a present value basis. Duration takes the length of the time intervals between the present time and the time that the interest and\nprincipal payments are scheduled or, in the case of a callable bond, the time the principal payments are expected to be received, and\nweights them by the present

values of the cash to be received at each future point in time. For debt\nobligations with interest payments occurring prior to the payment of principal, duration will usually be less than maturity. In general,\nall else being equal, the lower the stated or coupon rate of the interest of a fixed-income security, the higher the duration of the security;\nconversely, the higher the stated or coupon rate of a fixed-income security, the lower the duration of the security.

Holding long futures or call option positions will increase\nthe duration of the fund’s portfolio. Holding short futures or put options will lower the duration of the fund’s portfolio.

A swap agreement on an asset or group of assets may affect\nthe duration of the portfolio depending on the attributes of the swap. For example, if the swap agreement provides the fund with a floating\nrate of return in exchange for a fixed rate of return, the duration of the fund would be modified to reflect the duration attributes of\na similar security that the fund is permitted to buy.

The above discussion provides a general overview of the\nconcept of duration. Application and calculation of duration may be slightly different or become more complex when applied to other types\nof debt obligations, which may require different assessments to determine and/or calculate duration. For example, for floating- and variable-rate\nsecurities the interest rate exposure and duration correspond to the frequency of the coupon reset. For mortgage-backed securities and\ncertain asset-backed securities, calculating duration requires projecting future interest rates and the associated pace of repayment of\nthe underlying instruments. Finally, the duration of the debt obligation may vary over time in response to changes in interest rates and\nother market factors.

Maturity of Investments will generally be determined\nusing a portfolio security’s final maturity date (date on which the final principal payment of a bond is scheduled to be paid);\nhowever, for securitized products, such as mortgage-backed securities and certain other asset-backed securities, maturity will be determined\non an average life basis (weighted average time to receipt of all principal payments) by the investment adviser. Because pre-payment rates\nof individual mortgage pools vary widely, the average life of a particular pool cannot be predicted precisely. For securities with embedded\ndemand features, such as puts or calls, either the demand date or the final maturity date will be used depending on interest rates, yields\nand other market conditions. The average portfolio maturity of the fund is dollar-weighted based upon the market value of the fund’s\nsecurities at the time of the calculation.

Investment Limitations

The investment limitations below may be changed only\nby vote of a majority of the outstanding voting securities of the fund. Under the 1940 Act, a “vote of a majority of the outstanding\nvoting securities” of the fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the fund\nor (2) 67% or more of the shares present at a shareholders meeting if more than 50% of the outstanding shares are represented at the meeting\nin person or by proxy.

The fund may not:

(1)

Concentrate investments in a particular industry or group of industries, as concentration is defined under the 1940 Act, the rules\nor regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to\ntime, except that the fund may concentrate its investments to approximately the same extent that the index the fund is designed to track\nconcentrates in the securities of a particular industry or group of industries and the fund may invest without limitation in (a) securities\nissued or guaranteed by the U.S. government, its agencies or instrumentalities, and (b) tax-exempt obligations of state or municipal governments\nand their political subdivisions.

(2)

Purchase or sell commodities, commodities contracts or real estate, lend or borrow money, issue senior securities, underwrite securities\nissued by others, or pledge, mortgage or hypothecate any of its assets, except as permitted or not prohibited by the 1940 Act or the rules\nor regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to\ntime.

The following descriptions of the 1940 Act may assist\ninvestors in understanding the above policies and restrictions.

Borrowing – The 1940 Act restricts an\ninvestment company from borrowing (including pledging, mortgaging or hypothecating assets) in excess of 33 ⅓% of its total assets\n(not including temporary borrowings not in excess of 5% of its

total assets). Transactions that are entered into in accordance with the\nconditions to applicable SEC requirements shall not be regarded as borrowings for the purposes of an investment company’s investment\nrestriction.

Concentration – The SEC has defined\nconcentration as investing more than 25% of an investment company’s total assets in an industry or group of industries, with certain\nexceptions such as with respect to investments in obligations issued or guaranteed by the U.S. government or its agencies and instrumentalities,\nor tax-exempt obligations of state or municipal governments and their political subdivisions. Municipal securities are not deemed to be\nissued by an issuer from a single industry or group of industries.

Diversification – Under the 1940 Act\nand the rules, regulations and interpretations thereunder, a “diversified company,” as to 75% of its total assets, may not\npurchase securities of any issuer (other than obligations of, or guaranteed by, the U.S. government or its agencies, or instrumentalities\nor securities of other investment companies) if, as a result, more than 5% of its total assets would be invested in the securities of\nsuch issuer, or more than 10% of the issuer’s outstanding voting securities would be held by the investment company. Money market\nfunds that satisfy the applicable diversification requirements of Rule 2a-7 under the 1940 Act are deemed to satisfy the 1940 Act’s\ndiversification requirements.

Lending – Under the 1940 Act, an investment\ncompany may only make loans if expressly permitted by its investment policies.

Real Estate – The 1940 Act does not\ndirectly restrict an investment company’s ability to invest in real estate, but does require that every investment company have\na fundamental investment policy governing such investments.

Senior Securities – Senior securities\nmay include any obligation or instrument issued by an investment company evidencing indebtedness. The 1940 Act generally prohibits an\ninvestment company from issuing senior securities, although it provides allowances for certain borrowings and certain other investments,\nsuch as short sales, reverse repurchase agreements, firm commitment agreements and standby commitments, when such investments are entered\ninto in accordance with the conditions to applicable SEC requirements.

Underwriting – Under the 1940 Act, underwriting\nsecurities involves an investment company purchasing securities directly from an issuer for the purpose of selling (distributing) them\nor participating in any such activity either directly or indirectly. Under the 1940 Act, a diversified investment company may not make\nany commitment as underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its\ninvestments in securities of issuers (other than investment companies) of which it owns more than 10% of the outstanding voting securities,\nexceeds 25% of the value of its total assets. The foregoing restriction does not apply to non-diversified investment companies.

The following are non-fundamental investment policies\nand restrictions, and may be changed by the Board.

The fund may not:

(1)

Sell securities short except as in accordance with current SEC rules and interpretations.

(2)

Purchase securities on margin, except such short term credits as may be necessary for the clearance of purchases and sales of securities\nand provided that margin deposits in connection with futures contracts, options on futures or other derivative instruments shall not constitute\npurchasing securities on margin.

(3)

Borrow money, except that the fund (a) may borrow money from banks or through an interfund lending facility, if any, and engage in\nreverse repurchase agreements with any party provided that such borrowings and reverse repurchase agreements in combination do not exceed\n33 ⅓% of its total assets, including the amount borrowed (not including temporary or emergency borrowings not exceeding 5% of the\nfund’s total assets); and (b) may borrow an additional amount up to 5% of its assets for temporary or emergency purposes.

(4)

Lend any security or make any other loan if, as a result, more than 33 ⅓% of its total assets would be lent to other parties\n(this restriction does not apply to purchases of debt securities or repurchase agreements).

(5)

Purchase securities (other than securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or tax-exempt\nobligations of state or municipal governments and their political subdivisions) if, as a result of such purchase, 25% or more of the value\nof its total assets would be invested in any industry or group of industries except that the fund may concentrate its investments to approximately\nthe same extent that the index the fund is designed to track concentrates in the securities of a particular industry or group of industries).

(6)

Purchase or sell physical commodities or commodity contracts based on physical commodities or invest in unmarketable interests in\nreal estate limited partnerships or invest directly in real estate. For the avoidance of doubt, the foregoing policy does not prevent\nthe fund from, among other things, (i) purchasing marketable securities of companies that deal in real estate or interests therein (including\nREITs); (ii) purchasing marketable securities of companies that deal in physical commodities or interests therein; and (iii) purchasing,\nselling and entering into futures contracts (including futures contracts on indices of securities, interest rates and currencies), options\non futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts,\nforeign currency spot and forward contracts or other derivative instruments.

Policies and investment limitations that state a maximum\npercentage of assets that may be invested in a security or other asset, or that set forth a quality standard shall be measured immediately\nafter and as a result of the fund’s acquisition of such security or asset, unless otherwise noted. Except with respect to limitations\non borrowing and futures and option contracts, any subsequent change in total assets or net assets, as applicable, or other circumstances\ndoes not require the fund to sell an investment if it could not then make the same investment.

CONTINUOUS OFFERING

The fund offers and issues shares at its NAV only in aggregations\nof a specified number of shares (Creation Units). The method by which Creation Units are created and trade may raise certain issues under\napplicable securities laws. Because new Creation Units are issued and sold by the fund on an ongoing basis, at any point a “distribution,”\nas such term is used in the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may,\ndepending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory\nunderwriters and subject them to the prospectus delivery requirement and liability provisions of the 1933 Act.

For example, a broker-dealer firm or its client may be deemed\na statutory underwriter if it takes Creation Units after placing an order with the fund’s transfer agent, breaks them down into\nconstituent shares, and sells such shares directly to customers, or if it chooses to couple the creation of a supply of new shares with\nan active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter\nfor purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer\nor its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities\nthat could lead to categorization as an underwriter.

Broker-dealer firms should also note that dealers who are\nnot “underwriters” but are effecting transactions in shares, whether or not participating in the distribution of shares, generally\nare required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3) of the 1933 Act is not available\nin respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect\nto shares of the fund are reminded that, pursuant to Rule 153 under the 1933 Act, a prospectus delivery obligation under Section 5(b)(2)\nof the 1933 Act owed to an exchange member in connection with the sale on an exchange is satisfied by the fact that the prospectus is\navailable at the exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions\non an exchange.

MANAGEMENT OF THE FUND

The fund is overseen by a Board. The trustees are responsible\nfor protecting shareholder interests. The trustees regularly meet to review the investment activities, contractual arrangements and the\ninvestment performance of the fund. The trustees met five times during the most recent fiscal year.

Certain trustees are “interested persons.” A\ntrustee is considered an interested person (Interested Trustee) of the Trust under the 1940 Act if he or she is an officer, director,\nor an employee of Schwab Asset Management. A trustee also may be considered an interested person of the Trust under the 1940 Act if he\nor she owns stock of The Charles Schwab Corporation (CSC), a publicly traded company and the parent company of Schwab Asset Management.

As used herein, the terms “Fund Complex” and\n“Family of Investment Companies” each refer collectively to The Charles Schwab Family of Funds, Schwab Investments, Schwab\nAnnuity Portfolios, Schwab Capital Trust, Schwab Strategic Trust and Laudus Trust which, as of October 19, 2026, included 111 funds. As\nused herein, the term “Schwab Funds” refers collectively to The Charles Schwab Family of Funds, Schwab Investments, Schwab\nAnnuity Portfolios and Schwab Capital Trust; and the term “Schwab ETFs” refers to Schwab Strategic Trust.

Each of the officers and/or trustees serves in\nthe same capacity, unless otherwise noted, for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\nAnnuity Portfolios, Schwab Strategic Trust and Laudus Trust. The tables below provide information about the trustees and officers\nfor the Trust, which includes the fund in this SAI. The address of each individual listed below is 425 Market Street, Suite 1700,\nSan Francisco, CA 94105.

\n\n \n \n \n \n \n \n \n\n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n

Name, Year\n of Birth, and Position(s) with the Trust \n (Term of Office and Length of Time Served⁽¹⁾)	Principal Occupations \n During the Past Five Years	Number of Portfolios \n in Fund Complex \n Overseen by the \n Trustee	Other Directorships\n During \n the Past Five Years
INDEPENDENT TRUSTEES
Michael J. Beer \n 1961 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2022)	Retired.	111	None
Robert W. Burns \n 1959 \n Trustee \n (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments,\n Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor.	111	None
Nancy F. Heller \n 1956 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018)	Retired.	111	None

David L. Mahoney \n 1954 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	111	Director (2004-present), Corcept Therapeutics\n Incorporated \n \n Director (2009-2021), Adamas\n Pharmaceuticals, Inc. \n\n
Jane P. Moncreiff \n 1961 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019)	Consultant (2018-present), Fulham\n Advisers LLC (management consulting).	111	None
Kimberly S. Patmore \n 1956 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant (2008-present), Patmore\n Management Consulting (management consulting).	111	None
J. Derek Penn \n 1957 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021)	Retired.	111	None

\n\n \n \n \n \n \n \n \n\n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n

Name,\n Year of Birth, and Position(s) with the Trust \n (Term of Office and Length of Time Served⁽¹⁾)	Principal\n Occupations \n During the Past Five Years	Number\n of Portfolios \n in Fund Complex \n Overseen by the \n Trustee	Other\n Directorships During \n the Past Five Years
	INTERESTED TRUSTEES
Omar Aguilar⁽²⁾ \n 1970 \n Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity\n Portfolios, Schwab Strategic Trust and Laudus Trust since 2025)	Director (Oct. 2024-present), Chief Executive Officer\n (Jan. 2022-present), President (Oct. 2023-present), Chief Investment Officer (Apr. 2011-present) and Senior Vice President (Apr.\n 2011-Jan. 2022), Charles Schwab Investment Management, Inc.; Director, Chief Executive Officer and President (Oct. 2022-July 2024),\n Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Sept. 2023-present), President (Oct. 2023-present), Chief Investment\n Officer (June 2011-present) and Vice President (June 2011-Sept. 2023), Schwab Funds, Laudus Trust and Schwab ETFs.	111	None
Richard A. Wurster⁽²⁾ \n 1973 \n Chairman and Trustee \n (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity\n Portfolios, Schwab Strategic Trust and Laudus Trust since 2022)	Director and Chief Executive Officer (Jan. 2025-present),\n President (Oct. 2021-present), and Executive Vice President – Schwab Asset Management Solutions (Apr. 2019-Oct. 2021), The\n Charles Schwab Corporation; President, Director (Nov. 2021-Dec. 2024), Executive Vice President – Schwab Asset Management\n Solutions (July 2019-Oct. 2021), Charles Schwab & Co., Inc.; President (Nov. 2021-Dec. 2024), Schwab Holdings, Inc.; Director\n (Oct. 2021-present) and Chief Executive Officer (Nov. 2019-Jan. 2022), Charles Schwab Investment Management, Inc.; Director, Chief\n Executive Officer and President (Mar. 2018-Oct. 2022), Charles Schwab Investment Advisory, Inc.	111	Director (2025-present), The Charles Schwab Corporation
	\n

\n\n \n \n \n\n \n\n \n \n \n

Name, Year of Birth,\n and Position(s) with the Trust \n (Term of Office and Length of Time Served⁽³⁾)		Principal Occupations During\n the Past Five Years
OFFICERS
Omar Aguilar \n 1970 \n Chief Executive Officer, President and Chief Investment Officer \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)		Director (Oct. 2024-present),\n Chief Executive Officer (Jan. 2022-present), President (Oct. 2023-present), Chief Investment Officer (Apr. 2011-present) and\n Senior Vice President (Apr. 2011-Jan. 2022), Charles Schwab Investment Management, Inc.; Director, Chief Executive Officer\n and President (Oct. 2022-July 2024), Charles Schwab Investment Advisory, Inc.; Trustee (Jan. 2025-present), Chief Executive\n Officer (Sept. 2023-present), President (Oct. 2023-present), Chief Investment Officer (June 2011-present) and Vice President\n (June 2011-Sept. 2023), Schwab Funds, Laudus Trust and Schwab ETFs.

\n\n \n \n \n\n\n \n \n \n\n \n \n \n\n \n \n \n\n \n \n \n\n \n \n \n

Name,\n Year of Birth, and Position(s) with the Trust \n (Term of Office and Length of Time Served⁽³⁾)		Principal Occupations\n During the Past Five Years
Jessica Seidlitz \n 1978 \n Chief Operating Officer \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust from 2013-2017 and since 2023)		Chief Operating Officer and Chief\n Financial Officer (Sept. 2024-present), Managing Director (Nov. 2023-present), and Chief Compliance Officer (Nov. 2023-Dec.\n 2024), Charles Schwab Investment Management, Inc.; Managing Director (Jan. 2019-present), Charles Schwab & Co., Inc.;\n Chief Compliance Officer (Mar. 2021-June 2023), Schwab Wealth Advisory, Inc.; Chief Operating Officer (Sept. 2024–present),\n and Chief Compliance Officer (Oct. 2023-Dec. 2024), Schwab Funds, Laudus Trust and Schwab ETFs.
Dana Smith \n 1965 \n Treasurer and Chief Financial Officer \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2023)		Treasurer and Chief Financial\n Officer (Jan. 2023-present) and Assistant Treasurer (Dec. 2015-Dec. 2022), Schwab Funds, Laudus Trust and Schwab ETFs; Managing\n Director (Mar. 2023-present), Vice President (Mar. 2022-Mar. 2023) and Director (Oct. 2015-Mar. 2022), Charles Schwab Investment\n Management, Inc.; Managing Director (May 2022-present) and Vice President (Apr. 2022-May 2022), Charles Schwab & Co.,\n Inc.
Patrick Cassidy \n 1964 \n Vice President and Chief Investment Officer \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018)		Chief Investment Officer (Oct.\n 2023-present) and Vice President (Feb. 2018-present), Schwab Funds, Laudus Trust and Schwab ETFs; Managing Director (Mar.\n 2023-present), Chief Investment Officer (Oct. 2023-present), and Senior Vice President (Oct. 2012-Mar. 2023), Charles Schwab\n Investment Management, Inc.
William P. McMahon, Jr. \n 1972 \n Vice President and Chief Investment Officer \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021)		Managing Director (Mar. 2023-present),\n Senior Vice President (Jan. 2020-Mar. 2023) and Chief Investment Officer (Jan. 2020-present), Charles Schwab Investment Management,\n Inc.; Vice President and Chief Investment Officer (June 2021-present), Schwab Funds, Laudus Trust and Schwab ETFs.
Catherine MacGregor \n 1964 \n Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs \n Chief Legal Officer, Vice President and Clerk, Laudus Trust \n (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)		Chief Legal Officer (Mar. 2022-present),\n Managing Director (Mar. 2023-present) and Vice President (Sept. 2005-Mar. 2023), Charles Schwab Investment Management, Inc.;\n Managing Director (May 2022-present) and Vice President (Aug. 2005-May 2022), Charles Schwab & Co., Inc.; Managing Director\n (Aug. 2025-present), Charles Schwab Bank, SSB; Vice President (Dec. 2005-present) and Chief Legal Officer and Clerk (Mar.\n 2007-present), Laudus Trust; Chief Legal Officer and Secretary (Oct. 2021-present), Vice President (Nov. 2005-Oct. 2021) and\n Assistant Secretary (June 2007-Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021-present), Vice President\n and Assistant Secretary (Oct. 2009-Oct. 2021), Schwab ETFs.

\n\n \n \n\n \n \n\n \n \n

⁽¹⁾	Each Trustee shall hold office until the election\n and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires\n that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth\n year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
⁽²⁾	Mr. Aguilar and Mr. Wurster are Interested Trustees. Mr.\n Aguilar and Mr. Wurster are Interested Trustees because each owns stock of CSC, the parent company of Schwab Asset Management,\n the investment adviser for the trusts in the Fund Complex. In addition, Mr. Wurster is an employee of Charles Schwab &\n Co., Inc., the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab\n Annuity Portfolios and Laudus Trust.
⁽³⁾	The President, Treasurer and Secretary/Clerk hold office\n until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes\n disqualified. Each of the other officers serves at the pleasure of the Board.

Board Leadership Structure

The Chairman of the Board, Richard A. Wurster,\nis Chief Executive Officer and a member of the Board of Directors of CSC and an interested person of the Trust as that term is\ndefined in the 1940 Act. The Board is comprised of a super-majority (78 percent) of trustees who are not interested persons of\nthe Trust (i.e., independent trustees). There are three

primary committees of the Board: the Audit, Compliance\nand Valuation Committee; the Governance Committee; and the Investment Oversight Committee. Each of the Committees is chaired by\nan independent trustee, and each Committee is currently comprised solely of independent trustees. The Committee chairs preside\nat Committee meetings, participate in formulating agendas for those meetings, and coordinate with management to serve as a liaison\nbetween the independent trustees and management on matters within the scope of the responsibilities of each Committee as set forth\nin its Board-approved charter. The independent trustees meet regularly in executive session without management. While the Board\ndoes not have single lead independent trustee, the chair of the Governance Committee leads executive sessions held by the independent\ntrustees and coordinates responses from the independent trustees to management. The Board has determined that this leadership structure\nis appropriate given the specific characteristics and circumstances of the Trust. The Board made this determination in consideration\nof, among other things, the fact that the independent trustees of the Trust constitute a super-majority of the Board, the fact\nthat Committee chairs are independent trustees, the number of funds (and classes) overseen by the Board, and the total number of\ntrustees on the Board.

Board Oversight of Risk\nManagement

Like most investment companies, fund management\nand its other service providers have responsibility for day-to-day risk management for the fund. The Board’s duties, as part\nof its risk oversight of the Trust, consist of monitoring risks identified during regular and special reports to the Committees\nof the Board, as well as regular and special reports to the full Board. In addition to monitoring such risks, the Committees and\nthe Board oversee efforts of fund management and service providers to manage risks to which the funds of the Trust may be exposed.\nFor example, the Investment Oversight Committee meets with portfolio managers and receives regular reports regarding investment\nrisk and credit risk of the fund’s portfolio. The Audit, Compliance and Valuation Committee meets with the fund’s Chief\nCompliance Officer and Chief Financial Officer and receives regular reports regarding compliance risks, operational risks and risks\nrelated to the valuation and liquidity of portfolio securities. From its review of these reports and discussions with management,\neach Committee receives information about the material risks of the funds of the Trust and about how management and service providers\nmitigate those risks, enabling the independent Committee chairs and other independent members of the Committees to discuss these\nrisks with the full Board.

The Board recognizes that not all risks that\nmay affect the fund can be identified nor can processes and controls be developed to eliminate or mitigate the occurrence or effects\nof certain risks; some risks are simply beyond the reasonable control of the fund, its management, and service providers. Although\nthe risk oversight functions of the Board, and the risk management policies of fund management and fund service providers, are\ndesigned to be effective, there is no guarantee that they will eliminate or mitigate all risks. In addition, it may be necessary\nto bear certain risks (such as investment-related risks) to achieve the fund’s investment objective. As a result of the foregoing\nand other factors, the fund’s ability to manage risk is subject to significant limitations.

Individual Trustee Qualifications

The Board has concluded that each of the trustees\nshould initially and continue to serve on the Board because of (i) his or her ability to review and understand information about\nthe Trust provided to them by management, to identify and request other information they may deem relevant to the performance of\ntheir duties, to question management regarding material factors bearing on the management of the Trust, and to exercise their business\njudgment in a manner that serves the best interests of the Trust’s shareholders and (ii) the trustee’s experience,\nqualifications, attributes or skills as described below.

The Board has concluded that Mr. Aguilar should\nserve as trustee of the Trust because of the experience he gained as chief executive officer, chief investment officer, and president\nof Schwab Asset Management, the Schwab Funds, Schwab ETFs and Laudus Funds, as well as his knowledge of and experience in financial\nand investment management services.

The Board has concluded that Mr. Beer should\nserve as trustee of the Trust because of the experience he gained serving as director, president and chief executive officer of\nPrincipal Funds and his knowledge and experience in the investment management industry.

The Board has concluded that Mr. Burns should\nserve as trustee of the Trust because of the experience he gained as managing director of Pacific Investment Management Company,\nLLC (PIMCO) and president of PIMCO Funds as well as the experience he has gained serving as trustee of the Schwab ETFs since 2009,\nand the Schwab Funds and Laudus Trust since 2016.

The Board has concluded that Ms. Heller should\nserve as trustee of the Trust because of the experience she gained as president of TIAA Charitable and as senior managing director\nat TIAA, the experience she has gained serving on other

non-public company boards, her knowledge of and\nexperience in the financial services industry, as well as the experience she has gained serving as trustee of the Schwab Funds\nand Schwab ETFs since 2018.

The Board has concluded that Mr. Mahoney should\nserve as trustee of the Trust because of the experience he gained serving as trustee of the Schwab Funds and Laudus Trust since\n2011 and Schwab ETFs since 2016, as co-chief executive officer of McKesson Corporation, and his service on other public company\nboards.

The Board has concluded that Ms. Moncreiff should\nserve as trustee of the Trust because of the experience she gained as chief investment officer of CareGroup Healthcare System,\nthe experience she has gained serving on other non-public company boards, her knowledge of and experience in the financial services\nindustry, as well as the experience she has gained serving as trustee of the Schwab Funds and Schwab ETFs since 2019.

The Board has concluded that Ms. Patmore should\nserve as trustee of the Trust because of the experience she gained serving as chief financial officer and executive vice president\nof First Data Corporation, her knowledge of and experience in management consulting, as well as the experience she has gained serving\nas trustee of the Schwab Funds and Schwab ETFs since 2016.

The Board has concluded that Mr. Penn should\nserve as trustee of the Trust because of the experience he gained as head of equity sales and trading of BNY Mellon and his knowledge\nof and experience in the financial services industry, as well as the experience he has gained serving as trustee of the Schwab\nFunds and Schwab ETFs since 2021.

The Board has concluded that Mr. Wurster should\nserve as trustee of the Trust because of the experience he gained leading investment advisory firms and organizations, including\nSchwab Asset Management, and his knowledge of and experience in the investment management industry.

Trustee Committees

The Board has established certain committees\nand adopted Committee charters with respect to those committees, each as described below:

\n\n\n\n\n\n\n\n\n

	●	The Audit, Compliance and Valuation Committee reviews the integrity\nof the Trust’s financial reporting processes and compliance policies, procedures and processes, and the Trust’s overall\nsystem of internal controls. The Audit, Compliance and Valuation Committee also reviews and evaluates the qualifications, independence\nand performance of the Trust’s independent auditors, and the implementation and operation of the Trust’s valuation\npolicy and procedures. This Committee is comprised of at least three independent trustees and currently has the following members:\nKimberly S. Patmore (Chair), Michael J. Beer and J. Derek Penn. The Committee met four times during the most recent fiscal year.

	●	The Governance Committee reviews and makes recommendations to the Board\nregarding Trust governance-related matters, including but not limited to Board compensation practices, retirement policies and\nterm limits, Board self-evaluations, the effectiveness and allocation of assignments and functions by the Board, the composition\nof Committees of the Board, and the training of trustees. The Governance Committee is responsible for selecting and nominating\ncandidates to serve as trustees. The Governance Committee does not have a written policy with respect to consideration of candidates\nfor trustee submitted by shareholders. However, if the Governance Committee determined that it would be in the best interests of\nthe Trust to fill a vacancy on the Board, and a shareholder submitted a candidate for consideration by the Board to fill the vacancy,\nthe Governance Committee would evaluate that candidate in the same manner as it evaluates nominees identified by the Governance\nCommittee. Nominee recommendations may be submitted to the Secretary of the Trust at the Trust’s principal business address.\nThis Committee is comprised of at least three independent trustees and currently has the following members: David L. Mahoney (Chair),\nRobert W. Burns and Kimberly S. Patmore. The Committee met four times during the most recent fiscal year.

	●	The Investment Oversight Committee reviews the investment activities\nof the Trust and the performance of the fund’s investment adviser. This Committee is comprised of at least three trustees\n(at least two-thirds of whom shall be independent trustees) and currently has the following members: Jane P. Moncreiff (Chair),\nRobert W. Burns, Nancy F. Heller and David L. Mahoney. The Committee met four times during the most recent fiscal year.

Trustee Compensation

The following table provides estimated trustee\ncompensation from the fund for the fiscal year ended December 31, 2026, and the actual total compensation earned from the Fund\nComplex for the fiscal year ended December 31, 2025. Trustee compensation for the fund is paid by Schwab Asset Management.

\n\n \n \n \n \n \n \n\n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n\n \n \n \n \n \n \n

Name of\n Trustee	Aggregate \n Compensation from the Fund in \n this SAI ⁽¹⁾	Pension\n or Retirement Benefits \n Accrued as Part of Fund Expenses	Total\n Compensation from the Fund \n and Fund Complex Paid to Trustee
INTERESTED TRUSTEES
Omar Aguilar	None	N/A	None
Richard A. Wurster	None	N/A	None
INDEPENDENT TRUSTEES
Michael J. Beer	$ 403	N/A	$364,375
Robert W. Burns	$ 403	N/A	$364,375
Nancy F. Heller	$ 403	N/A	$364,375
David L. Mahoney	$ 441	N/A	$399,375
Jane P. Moncreiff	$ 430	N/A	$389,375
Kimberly S. Patmore	$ 430	N/A	$389,375
J. Derek Penn	$ 403	N/A	$364,375

\n\n \n \n

(1)

Estimated aggregate compensation from the fund’s commencement\n of operations to the fiscal year ended December 31, 2026. The aggregate compensation paid to the trustees for the fund is\n estimated for its first full fiscal year, January 1, 2027 through December 31, 2027 as follows: Omar Aguilar $0; Richard A.\n Wurster $0; Michael J. Beer $1,620; Robert W. Burns $1,620; Nancy F. Heller $1,620; David L. Mahoney $1,774; Jane P. Moncreiff\n $1,730; Kimberly S. Patmore $1,730; and J. Derek Penn $1,620.

Securities Beneficially\nOwned By Each Trustee

The following table provides each Trustee’s\nequity ownership of the fund and ownership of all registered investment companies overseen by each Trustee in the Family of Investment\nCompanies as of December 31, 2025.

\n\n \n \n \n \n \n\n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n

Name\n of Trustee	Dollar\n Range of Trustee Ownership of the Fund Included in the SAI	Aggregate\n Dollar Range \n of Trustee Ownership in the Family \n of Investment Companies
INTERESTED\n TRUSTEES
Omar Aguilar	Schwab International\n Bond ETF	None	Over\n $100,000
Richard A. Wurster	Schwab International Bond ETF	None	Over $100,000
INDEPENDENT\n TRUSTEES
Michael J. Beer	Schwab International Bond ETF	None	Over $100,000
Robert W. Burns	Schwab International Bond ETF	None	Over $100,000
Nancy F. Heller	Schwab International Bond ETF	None	Over $100,000
David L. Mahoney	Schwab International Bond ETF	None	Over $100,000
Jane P. Moncreiff	Schwab International Bond ETF	None	Over $100,000
Kimberly S. Patmore	Schwab International Bond ETF	None	Over $100,000
J. Derek Penn	Schwab International Bond ETF	None	None

As of December 31, 2025, none of the independent\ntrustees or their immediate family members owned beneficially or of record any securities of Schwab Asset Management or Schwab\nor any subadvisers or the distributor of the fund, or in a person (other than a registered investment company) directly or indirectly\ncontrolling, controlled by or under common control with Schwab Asset Management or Schwab or any subadvisers or the distributor\nof the fund.

Code of Ethics

The fund, the investment adviser and the distributor\nhave adopted Codes of Ethics as required under the 1940 Act. Subject to certain conditions or restrictions, the Codes of Ethics\npermit the trustees, directors, officers or advisory representatives of the fund or the investment adviser or the directors or\nofficers of the distributor to buy or sell directly or indirectly securities for their own accounts. This includes securities that\nmay be purchased or held by the fund. Securities transactions by some of these individuals may be subject to prior approval of\nthe investment adviser’s Chief Compliance Officer or alternate. Most securities transactions are subject to quarterly reporting\nand review requirements.

CONTROL PERSONS AND PRINCIPAL\nHOLDERS OF SECURITIES

As of October 19, 2026, the officers and trustees\nof the Trust, as a group owned, of record or beneficially, none of the outstanding voting securities of the fund.

As of October 19, 2026, no persons or entities\nowned, of record or beneficially, 5% or more of the outstanding voting securities of the fund.

Persons who beneficially own more than 25% of\nthe fund may be deemed to control the fund. As a result, it may not be possible for matters subject to a vote of a majority of\nthe outstanding voting securities of the fund to be approved without the affirmative vote of such shareholder, and it may be possible\nfor such matters to be approved by such shareholder without the affirmative vote of any other shareholder.

INVESTMENT ADVISORY AND\nOTHER SERVICES

Investment Adviser

Charles Schwab Investment Management, Inc., dba\nSchwab Asset Management, a wholly owned subsidiary of CSC, 425 Market Street, Suite 1700, San Francisco, CA 94105, serves as the\nfund’s investment adviser pursuant to an Amended and Restated Advisory Agreement (Advisory Agreement) between it and the\nTrust. Charles R. Schwab is the founder, Co-Chairman, and Director of CSC. As a result of his ownership of and interests in CSC,\nMr. Schwab may be deemed to be a controlling person of Schwab Asset Management.

Advisory Agreement

After an initial two-year term, the continuation\nof the fund’s Advisory Agreement must be specifically approved at least annually (1) by the vote of the trustees or by a\nvote of the shareholders of the fund, and (2) by the vote of a majority of the

trustees who are not parties to the investment\nadvisory agreement or “interested persons” of any party (independent trustees), cast in person, except to the extent\npermitted under the 1940 Act, the rules or regulations thereunder or any exemption therefrom, at a meeting called for the purpose\nof voting on such approval.

After the initial two-year term, each year, the\nBoard will call and hold one or more meetings to decide whether to renew the Advisory Agreement between the Trust and Schwab Asset\nManagement with respect to the fund. In preparation for the meetings, the Board requests and reviews a wide variety of materials\nprovided by Schwab Asset Management, as well as extensive data provided by third parties, and the independent trustees receive\nadvice from counsel to the independent trustees.

As described below, Schwab Asset Management is\nentitled to receive a fee from the fund, payable monthly, for its advisory and administrative services to the fund. As compensation\nfor these services, Schwab Asset Management receives a management fee from the fund, expressed as a percentage of the fund’s\naverage daily net assets.

\n\n \n \n\n \n \n

Fund	Fee
Schwab International Bond ETF	0.06%

Pursuant to the Advisory Agreement, Schwab Asset\nManagement pays the operating expenses of the fund, including the cost of transfer agency, custody, fund administration, legal,\naudit and other services, but excluding taxes, brokerage expenses and extraordinary or non-routine expenses.

Distributor

SEI Investments Distribution Co. (the Distributor),\n1 Freedom Valley Drive, Oaks, PA 19456, is the principal underwriter and distributor of shares of the fund. The Distributor has\nentered into an agreement with the Trust pursuant to which it distributes shares of the fund (the Distribution Agreement). The\nDistributor continually distributes shares of the fund on a best effort basis. The Distributor has no obligation to sell any specific\nquantity of fund shares. The Distribution Agreement will continue for two years from its effective date and is renewable annually\nthereafter in accordance with the 1940 Act. Shares are continuously offered for sale by the fund through the Distributor only in\nCreation Units, as described in the fund’s prospectus. Shares in less than Creation Units are not distributed by the Distributor.\nThe Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the 1934 Act) and a member\nof the Financial Industry Regulatory Authority. The Distributor is not affiliated with the Trust, Schwab Asset Management, or any\nstock exchange.

The Distribution Agreement provides that it may\nbe terminated at any time, without the payment of any penalty, on at least sixty (60) days prior written notice to the other party.\nThe Distribution Agreement will terminate automatically in the event of its “assignment” (as defined in the 1940 Act).

Payments to Financial\nIntermediaries

Schwab Asset Management and its affiliates make\npayments to certain broker-dealers, banks, trust companies, insurance companies, retirement plan service providers, consultants\nand other financial intermediaries (Intermediaries) for services and expenses incurred in connection with certain activities or\nservices which may educate financial advisors or facilitate, directly or indirectly, investment in the fund and other investment\ncompanies advised by Schwab Asset Management, including the Schwab ETFs. These payments are made by Schwab Asset Management or\nits affiliates at their own expense, and not from the assets of the fund. Although a portion of Schwab Asset Management’s\nand its affiliates’ revenue comes directly or indirectly in part from fees paid by the fund, these payments do not increase\nthe expenses paid by investors for the purchase of fund shares, or the cost of owning the fund.

These payments may relate to educational efforts\nregarding the fund, or for other activities, such as marketing and/or fund promotion activities and presentations, educational\ntraining programs, conferences, data analytics and support, or the development and support of technology platforms and/or reporting\nsystems. In addition, Schwab Asset Management or its affiliates make payments to certain Intermediaries that make shares of the\nfund available to their customers or otherwise promote the fund, which may include Intermediaries that allow customers to buy and\nsell fund shares without paying a commission or other transaction charge. Payments of this type are sometimes referred to as revenue-sharing\nor marketing support.

Payments made to Intermediaries may be significant\nand may cause an Intermediary to make decisions about which investment options it will recommend or make available to its clients\nor what services to provide for various products based on payments it receives or is eligible to receive. As a result, these payments\ncould create conflicts of interest between an Intermediary and its clients and these financial incentives may cause the Intermediary\nto recommend the fund over other investments.

As of March 20, 2026, Schwab Asset Management\nanticipates that Ascensus, LLC, Envestnet Asset Management, Inc., Fidelity Brokerage Services LLC/National Financial Services LLC,\nEmpower Annuity Insurance Company of America, Morgan Stanley Smith Barney LLC, OneDigital Investment Advisors LLC, Principal Life\nInsurance Company, Schwab Retirement Plan Services, Inc., and Standard Insurance Company will receive these payments. Schwab Asset\nManagement may enter into similar agreements with other FINRA member firms (or their affiliates) in the future. In addition to\nmember firms of FINRA, Schwab Asset Management and its affiliates may also make these payments to certain other financial intermediaries,\nsuch as banks, trust companies, insurance companies, and plan administrators and consultants that sell fund shares or provide services\nto the fund and its shareholders. These firms may not be included in this list. You should ask your financial intermediary if it\nreceives such payments.

Schwab Asset Management also makes payments to\nSchwab for certain administrative, professional and support services provided by Schwab, in its capacity as an affiliated financial\nintermediary of the fund. These payments reimburse Schwab for its charges, costs and expenses of providing Schwab personnel to\nperform marketing and sales activities under the direction of Schwab Asset Management, such as sales lead generation and sales\nsupport, assistance with public relations, marketing and/or advertising activities and presentations, educational training programs,\nconferences, and data analytics and support. Payments also are made by Schwab Asset Management to Schwab for Schwab Asset Management’s\nallocated costs of general corporate services provided by Schwab, such as human resources, facilities, project management support\nand technology.

Transfer Agent

State Street Bank and Trust Company (State Street),\nOne Congress Street, Suite 1, Boston, MA 02114, serves as the fund’s transfer agent. As part of these services, the firm\nmaintains records pertaining to the sale, redemption and transfer of the fund’s shares.

The transfer agent is also responsible for the\norder-taking function for the fund’s shares.

Custodian and Fund Accountant

State Street, One Congress Street, Suite 1, Boston,\nMA 02114, serves as custodian and accountant for the fund.

The custodian is responsible for the daily safekeeping\nof securities and cash held by the fund. The fund’s accountant maintains all books and records related to the fund’s\ntransactions.

Independent Registered\nPublic Accounting Firm

The fund’s independent registered public\naccounting firm, Deloitte & Touche LLP (Deloitte), 1601 Wewatta Street, Suite 400, Denver, CO 80202, audits and reports on\nthe annual financial statements of the fund and reviews certain regulatory reports. Deloitte or one of its affiliates also reviews\nthe fund’s federal income tax returns and performs other professional, accounting, auditing, tax and advisory services when\nengaged to do so by the Trust.

Securities Lending Activities

The fund is new and to-date has not entered into\na contract with a securities lending agent and is not engaged in securities lending.

PORTFOLIO MANAGERS

Other Accounts. In addition to the fund,\neach portfolio manager (collectively, referred to as the Portfolio Managers) is responsible for the day-today management of certain\nother accounts, as listed below. The accounts listed below are not subject to a performance-based advisory fee. The information\nbelow is provided as of February 27, 2026.

\n\n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n

	Registered\n Investment Companies (this amount does not include the fund in this SAI)	Other\n Pooled Investment Vehicles	Other\n Accounts
Name	Number\n of Accounts	Total\n Assets	Number\n of Accounts	Total\n Assets	Number\n of Accounts	Total\n Assets
Matthew Hastings	12	$83,109,993,580	0	$0	0	$0
Steven Hung	6	$31,657,839,173	0	$0	0	$0

Conflicts of Interest. A Portfolio Manager’s\nmanagement of other accounts may give rise to potential conflicts of interest in connection with his or her management of the fund’s\ninvestments, on the one hand, and the investments of the other accounts, on the other. These other accounts may include separate\naccounts and other mutual funds and ETFs advised by Schwab Asset Management (collectively, the Other Managed Accounts). The Other\nManaged Accounts might have similar investment objectives as the fund, track the same index the fund tracks or otherwise hold,\npurchase, or sell securities that are eligible to be held, purchased, or sold by the fund. While the Portfolio Managers’\nmanagement of Other Managed Accounts may give rise to the potential conflicts of interest listed below, Schwab Asset Management\ndoes not believe that the conflicts, if any, are material or, to the extent any such conflicts are material, Schwab Asset Management\nbelieves it has adopted policies and procedures that are designed to manage those conflicts in an appropriate way.

Knowledge of the Timing and Size of Fund\nTrades – A potential conflict of interest may arise as a result of the Portfolio Managers’ day-to-day management\nof the fund. Because of their positions with the fund, the Portfolio Managers know the size, timing, and possible market impact\nof fund trades. It is theoretically possible that the Portfolio Managers could use this information to the advantage of the Other\nManaged Accounts they manage and to the possible detriment of the fund. However, Schwab Asset Management has adopted policies and\nprocedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time. Moreover, with respect\nto an index fund, which seeks to track its index, much of this information is publicly available. When it is determined to be in\nthe best interest of both accounts, the Portfolio Managers or traders may aggregate trade orders for the Other Managed Accounts,\nexcluding separately managed accounts, with those of the fund. All aggregated orders are subject to Schwab Asset Management’s\naggregation and allocation policy and procedures, which provide, among other things, that (i) Schwab Asset Management will not\nreceive additional compensation or remuneration of any kind as a result of aggregating transactions; (ii) no account will be favored\nover any other account; (iii) each account that participates in an aggregated order will participate at the average security price\nwith all transaction costs shared on a pro-rata basis. For equity transactions, if the aggregated order cannot be executed in full,\nthe partial execution is allocated pro-rata among the participating accounts in accordance with the size of each account’s\norder and round lots. For fixed income transactions, aggregated orders are generally allocated after execution. For fixed income\nand money market fund accounts that have similar strategies, Schwab Asset Management determines allocations with the general purpose\nof achieving, as nearly as possible, performance and portfolio characteristic parity/ proportionality among such accounts over\ntime. For fixed income and money market fund accounts that do not have similar strategies, Schwab Asset Management has target ranges\nfor significant portfolio characteristics and determines allocations among such accounts in accordance with the target ranges in\neffect at the time of the trade. In addition, Schwab Asset Management may follow certain investment priorities to satisfy the investment\ntargets for fixed income and money market funds that have investment mandates related to particular sectors.

Investment Opportunities –\nA potential conflict of interest may arise as a result of the Portfolio Managers’ management of the fund and Other Managed\nAccounts which, in theory, may allow them to allocate investment opportunities in a way that favors the Other Managed Accounts\nover the fund, which conflict of interest may be exacerbated to the extent that Schwab Asset Management or the Portfolio Managers\nreceive, or expect to receive, greater compensation from their management of the Other Managed Accounts than the fund. Notwithstanding\nthis theoretical conflict of interest, it is Schwab Asset Management’s policy to manage each account based on its investment\nobjectives and related restrictions and, as discussed above, Schwab Asset Management has adopted policies and procedures reasonably\ndesigned to allocate investment opportunities on a fair and equitable basis over time and in a manner consistent with each account’s\ninvestment objectives and related restrictions. For example, while the Portfolio Managers may buy for an Other Managed Account\nsecurities that differ in identity or quantity from securities bought for the fund or refrain from purchasing securities for an\nOther Managed Account that they are otherwise buying for the fund in an effort to outperform its specific benchmark, such an approach\nmight not be suitable for the fund given its investment objectives and related restrictions.

Compensation – During the most recent\nfiscal year, Portfolio Manager compensation consisted of a fixed annual (base) salary and a discretionary bonus. Portfolio Managers\nalso have the potential to participate in discretionary equity awards. The base salary is determined considering compensation payable\nfor a similar position across the investment management industry and an evaluation of the individual Portfolio Manager’s\noverall performance such as the Portfolio Manager’s contribution to the investment process, good corporate citizenship, risk\nmanagement and mitigation, and functioning as an active contributor to the firm’s success. The discretionary bonus is determined\nin accordance with the relevant Portfolio Manager Incentive Plan (the Plan) as follows:

There are two independent funding components\nfor the Plan:

\n\n\n\n\n

	●	a portion based on weighting of Investment Fund Performance and Other\nManaged Account Performance (if applicable)

	●	a portion based on corporate results

Investment Fund Performance

At the close of the year, the fund’s performance\nwill be determined by its 1-year, 1- and 2-year, or 1- and 3-year percentile standing (based on pre-tax return before expenses)\nwithin its designated benchmark, peer group, or category, depending on the strategy of the fund (i.e., whether the fund is passively\nor actively managed) using standard statistical methods approved by Schwab Asset Management senior management. Investment Fund\nPerformance measurements may be changed or modified at the discretion of the Schwab Asset Management President and Schwab Asset\nManagement Chief Operating Officer. As each participant may be a member of a team that manages and/or supports a number of funds,\nthere may be several funds and/or Other Managed Accounts considered in arriving at the incentive compensation funding.

Portfolio Managers who are chief investment officers\nof the investment adviser are covered by a Plan that specifically includes a risk mitigation component in the funding determination.

Certain Portfolio Managers receive a discretionary\nbonus that is funded based only on corporate results.

Corporate Performance

The Corporate Bonus Plan is an annual bonus plan\nthat provides discretionary awards based on the financial performance of CSC during the annual performance period. Quarterly advances\nmay be paid for the first three quarters. Allocations are discretionary and aligned with CSC and individual performance. Funding\nfor the Plan is determined at the conclusion of the calendar year. Funding will be capped at 200% of target.

Allocation of Discretionary Bonus

At year-end, funding for both components of discretionary\nbonus is allocated to Plan participants by Schwab Asset Management senior management based on their assessment of a variety of\nperformance factors.

Factors considered in Schwab Asset Management\nsenior management’s allocation process will include objective and subjective factors that will take into consideration total\nperformance and will include, but are not limited to:

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n

	●	Fund performance relative to performance measure

	●	Risk management and mitigation

	●	Individual performance against key objectives

	●	Contribution to overall group results

	●	Functioning as an active contributor to the firm’s success

	●	Team work

	●	Collaboration between Analysts and Portfolio Managers

	●	Regulatory/Compliance management

The Portfolio Managers’ compensation is\nneither based on the value of the assets held in the fund’s portfolio or any Other Managed Account, nor flows into the fund’s\nportfolio or any Other Managed Account.

Ownership of Fund Shares. Because the\nfund had not commenced operations prior to the date of this SAI, no information regarding the Portfolio Managers’ “beneficial\nownership” of shares of the fund has been included. This information will appear in a future version of the SAI.

BROKERAGE ALLOCATION AND OTHER\nPRACTICES

Portfolio Turnover

For reporting purposes, the fund’s portfolio\nturnover rate is calculated by dividing the value of purchases or sales of portfolio securities for the fiscal year, whichever\nis less, by the monthly average value of portfolio securities the fund owned during the fiscal year. When making the calculation,\nall securities whose maturities at the time of acquisition were one year or less (short-term securities) are excluded. Securities\nreceived or delivered in the processing of in-kind creation or redemption baskets are excluded from the calculation.

A 100% portfolio turnover rate would occur, for example,\nif all portfolio securities (aside from short-term securities) were sold and either repurchased or replaced once during the fiscal\nyear. Typically, funds with high turnover (such as 100% or more) tend to generate higher capital gains and transaction costs, such\nas brokerage commissions. Because the fund is new, it does not have portfolio turnover rates to report.

Portfolio Transactions

The investment adviser makes decisions with respect\nto the purchase and sale of portfolio securities on behalf of the fund. The investment adviser is responsible for implementing\nthese decisions, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. The\nfund generally does not incur any commissions or sales charges when it invests in underlying Schwab Funds, but it may incur such\ncosts if it invests directly in other types of securities or in unaffiliated funds. Purchases and sales of securities on a stock\nexchange, including ETF shares, or certain riskless principal transactions placed on NASDAQ are typically effected through brokers\nwho charge a commission for their services. Exchange fees may also apply to transactions effected on an exchange. Purchases and\nsales of fixed income securities may be transacted with the issuer, the issuer’s underwriter, or a dealer. The fund does\nnot usually pay brokerage commissions on purchases and sales of fixed income securities, although the price of the securities generally\nincludes compensation, in the form of a spread or a mark-up or mark-down, which is not disclosed separately. The prices the fund\npays to underwriters of newly-issued securities usually include a commission paid by the issuer to the underwriter. Transactions\nplaced through dealers who are serving as primary market makers reflect the spread between the bid and asked prices. The money\nmarket securities in which the fund may invest are traded primarily in the over-the-counter market on a net basis and do not normally\ninvolve either brokerage commissions or transfer taxes. It is expected that the cost of executing portfolio securities transactions\nof the fund will primarily consist of dealer spreads and brokerage commissions.

The investment adviser seeks to obtain the best execution\nfor the fund’s portfolio transactions. The investment adviser may take a number of factors into account in selecting brokers\nor dealers to execute these transactions. Such factors may include, without limitation, the following: execution price; brokerage\ncommission or dealer spread; size or type of the transaction; nature or character of the markets; clearance or settlement capability;\nreputation; financial strength and stability of the broker or dealer; efficiency of execution and error resolution; block trading\ncapabilities; willingness to execute related or unrelated difficult transactions in the future; order of call; ability to facilitate\nshort selling; and provision of additional brokerage or research services or products; whether a broker guarantees that the fund\nwill receive, on aggregate, prices at least as favorable as the closing prices on a given day when adherence to “market-on-close”\npricing aligns with fund objectives; or whether a broker guarantees that the fund will receive the volume weighted average price\n(VWAP) for a security for a given trading day (or portion thereof) when the investment adviser believes that VWAP execution is\nin the fund’s best interest. In addition, the investment adviser may have incentive sharing arrangements with certain unaffiliated\nbrokers who guarantee market-on-close pricing: on a day when such a broker executes transactions at prices better, on aggregate,\nthan market-on-close prices, that broker may receive, in addition to his or her standard commission, a portion of the net difference\nbetween the actual execution prices and corresponding market-on-close prices for that day.

The investment adviser may cause the fund to pay\na higher commission than otherwise obtainable from other brokers or dealers in return for brokerage or research services or products\nif the investment adviser believes that such commission is reasonable in relation to the services provided. In addition to agency\ntransactions, the investment adviser may receive brokerage and research services or products in connection with certain riskless\nprincipal transactions, in accordance with applicable SEC and other regulatory guidelines. In both instances, these services or\nproducts may include: economic, industry, or company research reports or investment recommendations; subscriptions to financial\npublications or research data compilations; compilations of securities prices, earnings, dividends, and similar data; computerized\ndatabases; quotation equipment and services; research or analytical computer software and services; products or services that assist\nin effecting transactions, including services of third-party computer systems developers directly related to research and

brokerage activities; and effecting securities transactions\nand performing functions incidental thereto (such as clearance and settlement). The investment adviser may use research services\nfurnished by brokers or dealers in servicing all fund accounts, and not all services may necessarily be used in connection with\nthe account that paid commissions or spreads to the broker or dealer providing such services.

The investment adviser may receive a service from\na broker or dealer that has both a “research” and a “non-research” use. When this occurs, the investment\nadviser will make a good faith allocation, under all the circumstances, between the research and non-research uses of the service.\nThe percentage of the service that is used for research purposes may be paid for with fund commissions or spreads, while the investment\nadviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this\ngood faith allocation, the investment adviser faces a potential conflict of interest, but the investment adviser believes that\nthe costs of such services may be appropriately allocated to their anticipated research and non-research uses.

The investment adviser may purchase new issues of\nsecurities in a fixed price offering for the fund. In these situations, the seller may be a member of the selling group that will,\nin addition to selling securities, provide the investment adviser with research services, in accordance with applicable rules and\nregulations permitting these types of arrangements. Generally, the seller will provide research “credits” in these\nsituations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements\nmay not fall within the safe harbor of Section 28(e) of the 1934 Act.

The investment adviser may place orders directly\nwith electronic communications networks or other alternative trading systems. Placing orders with electronic communications networks\nor other alternative trading systems may enable the fund to trade directly with other institutional holders. At times, this may\nallow the fund to trade larger blocks than would be possible trading through a single market maker.

The investment adviser may aggregate securities sales\nor purchases among two or more funds. The investment adviser will not aggregate transactions unless it believes such aggregation\nis consistent with its duty to seek best execution for each affected fund and is consistent with the terms of the investment advisory\nagreement for such fund. In any single transaction in which purchases and/or sales of securities of any issuer for the account\nof the fund are aggregated with other accounts managed by the investment adviser, the actual prices applicable to the transaction\nwill be averaged among the accounts for which the transaction is effected, including the account of the fund.

In determining when and to what extent to use Schwab\nor any other affiliated broker-dealer as its broker for executing orders for the fund on securities exchanges, the investment adviser\nfollows procedures, adopted by the fund’s Board, that are designed to ensure that affiliated brokerage commissions (if relevant)\nare reasonable and fair in comparison to unaffiliated brokerage commissions for comparable transactions. The Board reviews the\nprocedures annually and approves and reviews transactions involving affiliated brokers quarterly.

Brokerage Commissions

The fund is new and, therefore, the fund paid no\nbrokerage commissions for each of the last three fiscal years.

Regular Broker-Dealers

The fund is new and, therefore, has not purchased\nsecurities issued by any “regular broker-dealers” (as defined in Rule 10b-1 under the 1940 Act).

PROXY VOTING

The Board has delegated the responsibility for voting\nproxies to Schwab Asset Management, pursuant to the investment adviser’s Proxy Voting Policy with respect to proxies voted\non behalf of the various Schwab Funds’ portfolios. A description of such Proxy Voting Policy is included in Appendix –\nProxy Voting Policy.

The Trust is required to disclose annually the fund’s\ncomplete proxy voting record on Form N-PX. The fund’s proxy voting record for the most recent 12-month period ended June\n30th will be available by visiting the Schwab ETFs’ website at www.schwabassetmanagement.com/prospectus. You can also\nobtain this information at no cost by calling 1-866-414-6349 or by sending an email request to orders@mysummaryprospectus.com.\nThe fund’s Form N-PX will also be available on the SEC’s website at www.sec.gov.

PORTFOLIO HOLDINGS DISCLOSURE

For this section only, the following disclosure\nrelates to The Charles Schwab Family of Funds, Schwab Investments, Schwab Annuity Portfolios, Schwab Capital Trust, Schwab Strategic\nTrust and Laudus Trust (collectively, the Trusts) and each series thereunder (each a fund and collectively, the funds).

The Trusts’ Board has approved policies and\nprocedures that govern the timing and circumstances regarding the disclosure of fund portfolio holdings information to shareholders\nand third parties. These policies and procedures are designed to ensure that disclosure of information regarding the funds’\nportfolio securities is in the best interests of fund shareholders, and include procedures to address conflicts between the interests\nof the funds’ shareholders, on the one hand, and those of the funds’ investment adviser, subadviser (if applicable),\nprincipal underwriter or any affiliated person of a fund, its investment adviser, subadviser or principal underwriter, on the other.\nPursuant to such procedures, the Board has authorized one of the Chief Executive Officer, President, Chief Operating Officer or\nChief Financial Officer of the Trusts (in consultation with a fund’s subadviser, if applicable) to authorize the release\nof the funds’ portfolio holdings prior to regular public disclosure (as outlined in the prospectus and below) or regular\npublic filings, as necessary, in conformity with the foregoing principles.

The Board exercises on-going oversight of the disclosure\nof fund portfolio holdings by overseeing the implementation and enforcement of the funds’ policies and procedures by the\nChief Compliance Officer and by considering reports and recommendations by the Chief Compliance Officer concerning any material\ncompliance matters. The Board will receive periodic updates, at least annually, regarding entities which were authorized to be\nprovided “early disclosure” of the funds’ portfolio holdings information and will periodically review any agreements\nthat the Trusts have entered into to selectively disclose portfolio holdings.

Portfolio holdings may be made available on a selective\nbasis to ratings agencies, certain industry organizations, consultants and other qualified financial professionals when the appropriate\nofficer of the Trusts determines such disclosure meets the requirements noted above and serves a legitimate business purpose. Agreements\nentered into with such entities will describe the permitted use of portfolio holdings and provide that, among other customary confidentiality\nprovisions: (i) the portfolio holdings will be kept confidential; (ii) the person will not trade on the basis of any material non-public\ninformation; and (iii) the information will be used only for the purpose described in the agreement.

The funds’ service providers including, without\nlimitation, the investment adviser, subadvisers (if applicable), the distributor, the custodian, fund accountant, transfer agent,\ncertain affiliates of the investment adviser or sub-advisers, counsel, auditor, proxy voting service provider, pricing information\nvendors, trade execution measurement vendors, portfolio management system providers, cloud database providers, securities lending\nagents, publisher, printer and mailing agent may receive disclosure of portfolio holdings information as frequently as daily in\nconnection with the services they perform for the funds. Schwab Asset Management, any subadviser to a fund as disclosed in the\nmost current prospectus, Glass, Lewis & Co., LLC, State Street, Citibank, N.A. and/or Brown Brothers Harriman & Co., as\nservice providers to the funds, are currently receiving this information on a daily basis. Donnelley Financial Solutions, as a\nservice provider to the funds, is currently receiving this information on a quarterly basis. Deloitte, the Transfer Agent, and\nthe Distributor, as service providers to the funds, receive this information on an as-needed basis. Service providers are subject\nto a duty of confidentiality with respect to any portfolio holdings information they receive whether imposed by the confidentiality\nprovisions of the service providers’ agreements with the Trusts or by the nature of its relationship with the Trusts. Although\ncertain of the service providers are not under formal confidentiality obligations in connection with disclosure of portfolio holdings,\na fund will not continue to conduct business with a service provider who the fund believes is misusing the disclosed information.

To the extent that a fund invests in an unaffiliated\nacquired fund, the Trusts will, when required by Rule 12d1-4, promptly notify the acquired fund, upon causing a fund to acquire\nmore than 3% of the acquired fund’s outstanding shares.

The funds’ policies and procedures prohibit\nthe funds, the funds’ investment adviser or any related party from receiving any compensation or other consideration in connection\nwith the disclosure of portfolio holdings information.

Generally, a complete list of a fund’s portfolio\nholdings is published on the fund’s website www.schwabassetmanagement.com on the “Prospectus & Reports” tab\nunder “Portfolio Holdings” generally 60-80 days after a fund’s fiscal quarter-end in-line with regulatory filings\nunless a different timing is outlined in the fund’s prospectus.

Specifically for the Schwab ETFs (other than the\nSchwab Ariel Opportunities ETF), each Schwab ETF discloses its portfolio holdings each business day on its website before the opening\nof regular trading on the ETF’s primary listing exchange in accordance with the requirements of Rule 6c-11 under the 1940\nAct. Portfolio holdings information made available in connection with the process of purchasing or redeeming Creation Units for\nthe Schwab ETFs may be provided

to other entities that provided services to the funds\nin the ordinary course of business after it has been disseminated to the NSCC.

The Schwab Money Funds have an ongoing arrangement\nto make available information about the funds’ portfolio holdings and information derived from the funds’ portfolio\nholdings to iMoneyNet, a rating and ranking organization, which is subject to a confidentiality agreement. Under its arrangement\nwith the funds, iMoneyNet, among other things, receives information concerning the funds’ net assets, yields, maturities\nand portfolio compositions on a weekly basis, subject to a one business day lag.

On the website, the funds also may provide, on a\nmonthly or quarterly basis, information regarding certain attributes of a fund’s portfolio, such as a fund’s top ten\nholdings, sector weightings, composition, credit quality and duration and maturity, as applicable. This information is generally\nupdated within 5-25 days after the end of the period. This information on the website is publicly available to all categories of\npersons.

The funds may disclose non-material information including\ncommentary and aggregate information about the characteristics of a fund in connection with or relating to a fund or its portfolio\nsecurities to any person if such disclosure is for a legitimate business purpose, such disclosure does not effectively result in\nthe disclosure of the complete portfolio securities of any fund (which can only be disclosed in accordance with the above requirements),\nand such information does not constitute material non-public information. Such disclosure does not fall within the portfolio securities\ndisclosure requirements outlined above.

Whether the information constitutes material non-public\ninformation will be made on a good faith determination, which involves an assessment of the particular facts and circumstances.\nIn most cases, commentary or analysis would be immaterial and would not convey any advantage to a recipient in making a decision\nconcerning a fund. Commentary and analysis include, but are not limited to, the allocation of a fund’s portfolio securities\nand other investments among various asset classes, sectors, industries, countries or other relevant category, the characteristics\nof the stock components and other investments of a fund, the attribution of fund returns by asset class, sector, industry, country\nor other relevant category, and the volatility characteristics of a fund.

DESCRIPTION OF THE TRUST

The fund is a series of Schwab Strategic Trust, an\nopen-end investment management company organized as a Delaware statutory trust on January 27, 2009.

The Declaration of Trust provides for the perpetual\nexistence of the Trust. The Trust may, however, be terminated at any time by vote of at least two-thirds of the outstanding shares\nof each series of the Trust or by the vote of the trustees.

Shareholders are entitled to one vote for each full\nshare held (with fractional votes for fractional shares held) and will vote (to the extent provided on the Declaration of Trust)\nin the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. Shareholders\nwill vote by individual series on all matters except (i) when required by the 1940 Act, shares shall be voted in the aggregate\nand not by individual series and (ii) when the trustees have determined that the matter affects only the interests of one or more\nseries, then only shareholders of such series shall be entitled to vote thereon. Shareholders of one series shall not be entitled\nto vote on matters exclusively affecting another series, such matters including, without limitation, the adoption of or change\nin any fundamental policies or restrictions of the other series and the approval of the investment advisory contracts of the other\nseries.

There will normally be no meetings of shareholders\nfor the purpose of electing trustees, except that in accordance with the 1940 Act (i) the Trust will hold a shareholders’\nmeeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders,\nand (ii) if, as a result of a vacancy in the Board, less than two-thirds of the trustees holding office have been elected by the\nshareholders, that vacancy may only be filled by a vote of the shareholders. In addition, trustees may be removed from office by\na written consent signed by the holders of two-thirds of the outstanding shares and filed with the Trust’s custodian or by\na vote of the holders of two-thirds of the outstanding shares at a meeting duly called for the purpose, which meeting shall be\nheld upon the written request of the holders of not less than 10% of the outstanding shares. Except as set forth above, the trustees\nshall continue to hold office and may appoint successor trustees. Voting rights are not cumulative.

The Trust may, without shareholder vote, restate,\namend or otherwise supplement the Declaration of Trust. Shareholders shall have the right to vote on any amendment that could affect\ntheir right to vote, any amendment to the Amendments section, any amendment for which shareholder vote may be required by applicable\nlaw or by the Trust’s registration statement filed with the SEC, and on any amendment submitted to them by the trustees.

Any series of the Trust may reorganize or merge with\none or more other series of the Trust or another investment company. Any such reorganization or merger shall be pursuant to the\nterms and conditions specified in an agreement and plan of reorganization authorized and approved by the trustees and entered into\nby the relevant series in connection therewith. In addition, such reorganization or merger may be authorized by vote of a majority\nof the trustees then in office and, to the extent permitted by applicable law, without the approval of shareholders of any series.

Shareholders wishing to submit proposals for inclusion\nin a proxy statement for a future shareholder meeting should send their written submissions to the Trust at 1 Freedom Valley Drive,\nOaks, PA 19456. Proposals must be received a reasonable time in advance of a proxy solicitation to be included. Submission of a\nproposal does not guarantee inclusion in a proxy statement because proposals must comply with certain federal securities regulations.

PURCHASE, REDEMPTION AND PRICING\nOF SHARES

Creation and Redemption of\nCreation Units

The fund is open each day that the New York Stock\nExchange (NYSE) is open (Business Days). The NYSE’s trading session is normally conducted from 9:30 a.m. Eastern Time until\n4:00 p.m. Eastern Time, Monday through Friday, although some days, such as in advance of and following holidays, the NYSE’s\ntrading session closes early. The NYSE typically observes the following holidays: New Year’s Day, Martin Luther King, Jr.\nDay, Presidents’ Day, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving\nDay and Christmas Day. Although it is expected that the same holidays will be observed in the future, the NYSE may modify its holiday\nschedule or hours of operation at any time. Only orders that are received and deemed acceptable by the transfer agent no later\nthan the time specified by the Trust will be executed that day at the fund’s share price calculated that day. On any day\nthat the NYSE closes early, the fund reserves the right to advance the time by which purchase and redemption orders must be received\nby the transfer agent that day to be executed that day at that day’s share price. If the NYSE is closed due to weather or\nother extenuating circumstances on a day it would typically be open for business, or the NYSE has an unscheduled early closing\non a day it has opened for business, the fund reserves the right to treat such day as a Business Day and accept purchase and redemption\norders and calculate their NAV as of the normally scheduled close of regular trading on the NYSE for that day.

Creation. The Trust issues and sells shares\nof the fund only in Creation Units on a continuous basis through the Distributor, without a sales load, at the NAV next determined\nafter receipt, on any Business Day, for an order received and deemed acceptable by the transfer agent.

Fund Deposit. The consideration for purchase\nof Creation Units of the fund may consist of (i) the in-kind deposit of a designated portfolio of securities (the Deposit Securities),\nand (ii) an amount of cash denominated in U.S. Dollars (the Cash Component) computed as described below. Together, the Deposit\nSecurities and the Cash Component constitute the “Fund Deposit,” which represents the minimum initial and subsequent\ninvestment amount for a Creation Unit of the fund.

The fund may accept a basket of money market instruments,\nnon-U.S. currency or cash denominated in U.S. dollars that differs from the composition of the published basket. The fund may permit\nor require the consideration for Creation Units to consist solely of cash or non-U.S. currency. The fund may permit or require\nthe substitution of an amount of cash (i.e., a “cash in lieu” amount) to be added to the Cash Component to replace\nany Deposit Security. For example, the Trust reserves the right to permit or require a “cash in lieu” amount where\nthe delivery of the Deposit Security by the Authorized Participant (as described below) would be restricted under the securities\nlaws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit\nSecurity by the Authorized Participant becoming restricted under the securities laws, or in certain other situations.

The Cash Component is sometimes also referred to\nas the “Balancing Amount.” The Cash Component serves the function of compensating for any differences between the NAV\nper Creation Unit and the value of the Deposit Securities. If the Cash Component is a positive number (i.e., the NAV per Creation\nUnit exceeds the value of the Deposit Securities), the creator will deliver the Cash Component. If the Cash Component is a negative\nnumber (i.e., the NAV per Creation Unit is less than the value of the Deposit Securities), the creator will receive the Cash Component.\nComputation of the Cash Component excludes any stamp duty tax or other similar fees and expenses payable upon transfer of beneficial\nownership of the Deposit Securities, which shall be the sole responsibility of the Authorized Participant.

The identity and amount of Deposit Securities and\nCash Component for the fund changes as the composition of the fund’s portfolio changes and as rebalancing adjustments and\ncorporate action events are reflected from time to time by Schwab

Asset Management with a view to the investment objective\nof the fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition\nof the component securities of the fund’s index. The fund also reserves the right to include or remove Deposit Securities\nfrom the basket in contemplation of index rebalancing changes.

The fund or its agent, through the NSCC or otherwise,\nmakes available on each Business Day, prior to the opening of business on the NYSE Arca, Inc. Exchange (currently 9:30 a.m., Eastern\nTime), the current Fund Deposit for the fund. Such Deposit Securities are applicable, subject to any adjustments, in order to effect\ncreations of Creation Units of the fund until such time as the next-announced composition of the Deposit Securities is made available.

Procedures for Creation of Creation Units. To\nbe eligible to place orders with the transfer agent and to create a Creation Unit of the fund, an entity must be a Depository Trust\nCompany (DTC) participant, such as a broker-dealer, bank, trust company, clearing corporation or certain other organization, some\nof whom (and/or their representatives) own DTC (each a DTC Participant). DTC acts as securities depositary for the shares. The\nDTC Participant must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Units\n(Participant Agreement). A DTC Participant that has executed a Participant Agreement is referred to as an Authorized Participant.\nInvestors should contact the Distributor for the names of Authorized Participants that have signed a Participant Agreement. All\nshares of the fund, however created, will be entered on the records of DTC in the name of DTC or its nominee and deposited with,\nor on behalf of, DTC.

All orders to create shares must be placed for one\nor more Creation Units. Orders must be transmitted by an Authorized Participant pursuant to procedures set forth in the Participant\nAgreement. The date on which an order to create Creation Units (or an order to redeem Creation Units, as discussed below) is placed\nis referred to as the Transmittal Date. Orders must be transmitted by an Authorized Participant by telephone or other transmission\nmethod acceptable to the transfer agent pursuant to procedures set forth in the Participant Agreement, as described below. Economic\nor market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the transfer agent\nor an Authorized Participant.

On days when the NYSE or U.S. bond markets close\nearlier than normal, the fund may require purchase orders to be placed earlier in the day. All questions as to the number of Deposit\nSecurities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered\nsecurities, will be determined by the Trust, whose determination shall be final and binding.

If the fund does not receive both the required Deposit\nSecurities and the Cash Component by the specified time on the settlement date, the Trust may cancel or revoke acceptance of such\norder. Upon written notice to the transfer agent, such canceled or revoked order may be resubmitted the following Business Day\nusing the Fund Deposit as newly constituted to reflect the then current NAV of the fund. The delivery of Creation Units so created\ngenerally will occur no later than the settlement date.

Creation\nUnits may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below.\nIn these circumstances, the initial deposit will have a value greater than the NAV of the shares on the date the order is placed\nsince, in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component,\nplus (ii) at least 115%, which the Trust may change from time to time, of the market value of the undelivered Deposit Securities\n(the Additional Cash Deposit) with a fund pending delivery of any missing Deposit Securities. The Authorized Participant must deposit\nwith the custodian the appropriate amount of federal funds by 10:00 a.m. New York time (or such other time as specified by the\nTrust) on the settlement date. If the fund does not receive the Additional Cash Deposit in the appropriate amount by such time,\nthen the order may be deemed to be rejected and the Authorized Participant shall be liable to the fund for losses, if any, resulting\ntherefrom. An additional amount of cash shall be required to be deposited with the fund, pending delivery of the missing Deposit\nSecurities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 115%,\nwhich the Trust may change from time to time, of the daily marked to market value of the missing Deposit Securities. To the extent\nthat missing Deposit Securities are not received by the specified time on the settlement date, or in the event a marked-to-market\npayment is not made within one Business Day following notification by the fund that such a payment is required, the Trust may use\nthe cash on deposit to purchase the missing Deposit Securities. The Authorized Participant will be liable to the Trust for the\ncosts incurred by the Trust in connection with any\nsuch purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds\nthe market value of such Deposit Securities on the transmittal date plus the brokerage and related transaction costs associated\nwith such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit

Securities have been properly received by the fund\nor purchased by the Trust and deposited into the Trust. In addition, a transaction fee, as listed below, will be charged in all\ncases.

Acceptance of Orders for Creation Units. The\nTrust reserves the right to reject or revoke acceptance of an individual creation order transmitted to it by the transfer agent\nin respect of the fund if, including, but not limited to, the following conditions are present: (i) the order does not conform\nto the procedures set forth in the Participant Agreement; (ii) the investor(s), upon obtaining the shares ordered, would own 80%\nor more of the currently outstanding shares of the fund; (iii) the Deposit Securities delivered are not as disseminated through\nthe facilities of the NSCC for that date by the fund as described above; (iv) acceptance of the Deposit Securities would have certain\nadverse tax consequences to the fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance\nof the Fund Deposit would otherwise, in the discretion of the Trust or Schwab Asset Management, have an adverse effect on the Trust\nor the rights of beneficial owners; or (vii) in the event that circumstances outside the control of the Trust, the custodian, the\ntransfer agent, the Distributor or Schwab Asset Management make it for all practical purposes impossible to process creation orders.\nExamples of such circumstances include natural disaster, war, revolution; public service or utility problems such as fires, floods,\nextreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities\ncausing trading halts; systems failures involving computer or other information systems affecting the Trust, Schwab Asset Management,\nthe transfer agent, the Distributor, DTC, NSCC, custodian (or sub-custodian) or any other participant in the creation process,\nand similar extraordinary events. The transfer agent shall notify a prospective creator of a Creation Unit and/or the Authorized\nParticipant acting on behalf of the creator of a Creation Unit of its rejection of the order of such person. The Trust, custodian\n(or sub-custodian), transfer agent and the Distributor are under no duty, however, to give notification of any defects or irregularities\nin the delivery of Fund Deposits nor shall any of them incur any liability for the failure to give any such notification.

Creation/Redemption Transaction Fee. The fund\nmay impose a transaction fee on investors purchasing or redeeming Creation Units. The transaction fee will be limited to amounts\nthat have been determined by Schwab Asset Management to be appropriate. The purpose of the transaction fee is to protect the existing\nshareholders of the fund from the dilutive costs associated with the purchase and redemption of Creation Units. Where the fund\npermits cash creations (or redemptions) or cash in lieu of depositing one or more Deposit Securities, the purchaser (or redeemer)\nmay be assessed an additional variable transaction fee (which may, in certain instances, be based on a good faith estimate of transaction\ncosts) to offset the transaction cost to the fund of buying (or selling) those particular Deposit Securities. Every purchaser of\na Creation Unit will receive a prospectus that contains disclosure about the transaction fee, including the maximum amount of the\nadditional variable transaction fee charged by the fund. In certain circumstances, the cost of any standard transaction fees and/or\nvariable transaction fees may be waived by the fund when doing so is believed to be in the best interests of the fund. From time\nto time, the investment adviser may cover the cost of any transaction fees.

The following table shows, as of October 19, 2026,\nthe approximate value of one Creation Unit of the fund and sets forth the standard and additional creation/redemption transaction\nfee for the fund.

\n\n \n \n \n \n \n\n \n \n \n \n \n

Fund	Approximate Value of \nOne Creation Unit	Standard Creation/ \nRedemption \nTransaction Fee	Maximum Additional Creation \nTransaction Fee⁽¹⁾	Maximum Additional \nRedemption Transaction \nFee⁽¹⁾
Schwab International Bond ETF	$2,500,000	$100	3.0%	2.0%

⁽¹⁾

As a percentage of the total amount invested or redeemed.

Placement of Redemption Orders. The process\nto redeem Creation Units works much like the process to purchase Creation Units, but in reverse. Orders to redeem Creation Units\nof the fund must be delivered through an Authorized Participant. Investors other than Authorized Participants are responsible for\nmaking arrangements for a redemption request to be made through an Authorized Participant. Orders must be accompanied or followed\nby the requisite number of shares of the fund specified in such order, which delivery must be made to the Distributor no later\nthan 10:00 a.m. New York time on the next Business Day following the Transmittal Date. All other procedures set forth in the Participant\nAgreement must be properly followed.

Fund securities received on redemption may not be\nidentical to Deposit Securities that are applicable to creations of Creation Units. The fund reserves the right to honor a redemption\nrequest by delivering a basket of securities or cash that differs from the basket of fund securities generally applicable to redemption\nrequests. An Authorized Participant submitting a redemption request is deemed to represent to the Trust that it (or its client)\n(i) owns outright or has full legal authority and legal beneficial right to tender for redemption the requisite number of fund\nshares to be redeemed and can receive the entire proceeds of the redemption, and (ii) the fund shares to be redeemed have not been\nloaned or pledged to another party nor are they the subject of a repurchase agreement, securities lending agreement or such other

arrangement that would preclude the delivery of such\nfund shares to the Trust. The Trust reserves the right to verify these representations at its discretion, but will typically require\nverification with respect to a redemption request from the fund in connection with higher levels of redemption activity and/or\nshort interest in the fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient\nverification of its representations as determined by the Trust, the redemption request will not be considered to have been received\nin proper form and may be rejected by the Trust.

To the extent contemplated by an Authorized Participant’s\nagreement, in the event the Authorized Participant has submitted a redemption request but is unable to transfer all or part of\nthe Creation Units to be redeemed to the fund, the transfer agent will nonetheless accept the redemption request in reliance on\nthe undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be secured\nby the Authorized Participant’s delivery and maintenance of collateral consisting of cash having a value (marked-to-market\ndaily) at least equal to 115%, which Schwab Asset Management may change from time to time, of the value of the missing shares.

The current procedures for collateralization of missing\nshares require, among other things, that any cash collateral shall be in the form of U.S. dollars (or, at the discretion of the\nTrust, non-U.S. currency in an equivalent amount) in immediately-available funds and shall be held by the custodian and marked-to-market\ndaily. The fees of the custodian (and any sub-custodians) in respect of the delivery, maintenance and redelivery of the cash collateral\nshall be payable by the Authorized Participant. The Trust, on behalf of the fund, is permitted to purchase the missing shares or\nacquire the Deposit Securities and the Cash Component underlying such shares at any time and will subject the Authorized Participant\nto liability for any shortfall between the cost to the Trust of purchasing such shares, Deposit Securities or Cash Component and\nthe value of the collateral.

If the requisite number of shares of the fund are\nnot delivered on the Transmittal Date as described above, the fund may reject or revoke acceptance of the redemption request. If\nit is not possible to effect deliveries of the fund securities, the Trust may in its discretion exercise its option to redeem such\nshares in U.S. cash and the redeeming Authorized Participant will be required to receive its redemption proceeds in cash. In addition,\nan investor may request a redemption in cash that the fund may, in its sole discretion, permit. In either case, the investor will\nreceive a cash payment equal to the NAV of its shares based on the NAV of shares of the fund next determined after the redemption\nrequest is received (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to\noffset the Trust’s brokerage and other transaction costs associated with the disposition of fund securities).

Redemptions of shares for fund securities will be\nsubject to compliance with applicable federal and state securities laws and the fund (whether or not it otherwise permits cash\nredemptions) reserves the right to redeem Creation Units for cash to the extent that the Trust could not lawfully deliver specific\nfund securities upon redemptions or could not do so without first registering the fund securities under such laws.

The fund will not suspend or postpone redemption\nbeyond seven days, except as permitted under Section 22(e) of the 1940 Act or pursuant to Rule 6c-11 under the 1940 Act. Section\n22(e) provides that the right of redemption may be suspended or the date of payment postponed with respect to the fund (1) for\nany period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which\ntrading on the NYSE is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal\nof the shares of the fund’s portfolio securities or determination of its NAV is not reasonably practicable; or (4) in such\nother circumstance as is permitted by the SEC.

Large Shareholder Redemptions. Certain accounts\nor Schwab affiliates may from time to time own (beneficially or of record) or control a significant percentage of the fund’s\nshares. Redemptions by these shareholders of their holdings in the fund or large redemptions by several shareholders resulting\nfrom events affecting investor demand, to the extent such redemptions are not executed in the secondary market but rather directly\nwith the fund through an Authorized Participant, may impact the fund’s liquidity and NAV. These redemptions if made in cash,\nrather than in-kind, may also force the fund to sell securities, which may negatively impact the fund’s brokerage costs.\nTo the extent the fund effects redemptions in cash, this activity could also accelerate the realization of capital gains. Large\npurchases of shares, if made in cash rather than in-kind, may adversely affect the fund’s performance to the extent that\nthe fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would.

Pricing of Shares

Each business day, the fund calculates its share\nprice, net asset value per share or NAV, as of the close of the NYSE (generally 4:00 p.m. Eastern Time). This means that NAVs are\ncalculated using the values of the fund’s portfolio securities as of the close of the NYSE. Such values are required to be\ndetermined in one of two ways: securities for which market

quotations are readily available are required to\nbe valued at current market value; and securities for which market quotations are not readily available or that the investment\nadviser deems to be unreliable are required to be valued at fair value following procedures approved by the Board. If the NYSE\nis closed due to weather or other extenuating circumstances on a day it would typically be open for business, or the NYSE has an\nunscheduled early closing on a day it has opened for business, the fund reserves the right to treat such day as a business day\nand accept purchase and redemption orders and calculate its share price as of the normally scheduled close of regular trading on\nthe NYSE for that day.

To the extent the fund invests in foreign securities,\nshareholders should be aware that because foreign markets are often open on weekends and other days when the fund is closed, the\nvalue of some of the fund’s securities may change on days when it is not possible to buy or sell shares of the fund.

The\nfund uses approved pricing sources (including pricing services) to provide values for its portfolio securities. Values are generally\ndetermined by the approved pricing sources as follows: generally, securities traded on stock exchanges, excluding the NASDAQ National\nMarket System, are valued at the last-quoted sales price on the exchange on which such securities are primarily traded (closing\nvalues), or, lacking any sales, at the mean between the bid and ask prices; securities traded in the over-the-counter market are\ngenerally valued at an evaluated price using a mid-price supplied by an approved, independent pricing service. The mid-price is\nthe mean of the bid and ask prices as calculated by the pricing service. Generally, securities listed on the NASDAQ National Market\nSystem are valued in accordance with the NASDAQ Official Closing Price. In addition, securities that are primarily traded on foreign\nexchanges are generally valued at the official closing price or last sales price on the\nexchange where the securities are primarily traded with these values then translated into U.S. dollars at the current exchange\nrate. Fixed-income securities normally are valued based on valuations provided by approved pricing services. Securities will be\nfair valued pursuant to procedures approved by the fund’s Board when market quotations are not “readily available”\nor the investment adviser deems them unreliable. For example, the fund may fair value a security when a security is de-listed or\nits trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; when\na security’s primary trading market is closed during regular domestic market hours; or when a security’s value is materially\naffected by events occurring after the close of the security’s primary trading market. The Board has designated the investment\nadviser as the valuation designee (Valuation Designee) for the fund to perform the fair value determination relating to all fund\ninvestments. The Valuation Designee periodically provides reports to the Board on items related to its fair value of fund investments.

NOTE: Transactions in fund shares will be priced\nat NAV only if you purchase or redeem shares directly from the fund in Creation Units. Fund shares that are purchased or sold on\na national securities exchange will be effected at prevailing market prices, which may be higher (premium) or lower (discount)\nthan NAV, and may be subject to brokerage commissions and charges.

TAXATION

This discussion of federal income tax consequences\nis based on the Internal Revenue Code and the regulations issued thereunder as in effect on the date of this SAI. New legislation,\nas well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a\nretroactive effect with respect to the transactions contemplated herein.

Federal Tax Information for\nthe Fund

It is the fund’s policy to qualify for taxation\nas a “regulated investment company” (RIC) by meeting the requirements of Subchapter M of the Internal Revenue Code.\nBy qualifying as a RIC, the fund expects to eliminate or reduce to a nominal amount the federal income tax to which it is subject.\nIf the fund does not qualify as a RIC under the Internal Revenue Code, it will be subject to federal income tax on its net investment\nincome and any net realized capital gains. In addition, the fund could be required to recognize unrealized gains, pay substantial\ntaxes and interest, and make substantial distributions before requalifying as a RIC.

The fund is treated as a separate entity for federal\nincome tax purposes and is not combined with the Trust’s other funds. The fund intends to qualify as a RIC so that it will\nbe relieved of federal income tax on that part of its income that is distributed to shareholders. In order to qualify for treatment\nas a RIC, the fund must, among other requirements, distribute annually to its shareholders at least the sum of 90% of its investment\ncompany taxable income (generally, net investment income plus the excess, if any, of net short-term capital gain over net long-term\ncapital losses) and 90% of its net tax-exempt income. Among these requirements are the following: (i) at least 90% of the fund’s\ngross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from\nthe sale or other

disposition of stock, securities or foreign currencies,\nor other income derived with respect to its business of investing in such stock or securities or currencies and net income derived\nfrom an interest in a qualified publicly traded partnership; (ii) at the close of each quarter of the fund’s taxable year,\nat least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities\nof other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount that does not\nexceed 5% of the value of the fund’s assets and that does not represent more than 10% of the outstanding voting securities\nof such issuer; and (iii) at the close of each quarter of the fund’s taxable year, not more than 25% of the value of its\nassets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer\nor of two or more issuers and which are engaged in the same, similar, or related trades or businesses if the fund owns at least\n20% of the voting power of such issuers, or the securities of one or more qualified publicly traded partnerships.

The Internal Revenue Code imposes a non-deductible\nexcise tax on RICs that do not distribute in a calendar year (regardless of whether they otherwise have a non-calendar taxable\nyear) an amount equal to 98% of their “ordinary income” (as defined in the Internal Revenue Code) for the calendar\nyear plus 98.2% of their net capital gain for the one-year period ending on October 31 of such calendar year, plus any undistributed\namounts from prior years. The non-deductible excise tax is equal to 4% of the deficiency. For the foregoing purposes, the fund\nis treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year\nand certain amounts with respect to which estimated taxes are paid in such calendar year. The fund may in certain circumstances\nbe required to liquidate fund investments to make sufficient distributions to avoid federal excise tax liability at a time when\nthe investment adviser might not otherwise have chosen to do so, and liquidation of investments in such circumstances may affect\nthe ability of the fund to satisfy the requirements for qualification as a RIC.

The fund’s transactions in futures contracts,\nforward contracts, options and certain other investment and hedging activities may be restricted by the Internal Revenue Code and\nare subject to special tax rules. In a given case, these rules may accelerate income to the fund, defer its losses, cause adjustments\nin the holding periods of the fund’s assets, convert short-term capital losses into long-term capital losses or otherwise\naffect the character of the fund’s income. These rules could therefore affect the amount, timing and character of distributions\nto shareholders. The fund will endeavor to make any available elections pertaining to these transactions in a manner believed to\nbe in the best interest of the fund and its shareholders.

The\nfund is required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized\ngains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. Gain\nor loss from futures and options contracts on broad-based indexes required to be marked-to-market will be 60% long-term and 40%\nshort-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders.\nThe fund may be required to defer the recognition of\nlosses on futures contracts, options contracts and swaps to the extent of any unrecognized gains on offsetting positions held by\nthe fund. It is anticipated that any net gain realized from the closing out of futures or options contracts will be considered\ngain from the sale of securities and therefore will be qualifying income for purposes of the 90% requirement described above. The\nfund distributes to shareholders at least annually any net capital gains which have been recognized for federal income tax purposes,\nincluding unrealized gains at the end of the fund’s fiscal year on futures or options transactions. Such distributions are\ncombined with distributions of capital gains realized on the fund’s other investments and shareholders are advised on the\nnature of the distributions.

With respect to investments in zero coupon securities\nor other securities which are issued with “original issue discount,” the fund will be required to include as part of\nits current income the imputed interest on such obligations even though the fund has not received any interest payments on such\nobligations during that period. Because the fund distributes all of its net investment income to its shareholders, the fund may\nhave to sell fund securities to distribute such imputed income which may occur at a time when the investment adviser would not\nhave chosen to sell such securities and which may result in taxable gain or loss.

Any market discount recognized on a bond is taxable\nas ordinary income. A market discount bond is a bond acquired in the secondary market at a price below redemption value or adjusted\nissue price if issued with original issue discount. Absent an election by the fund to include the market discount in income as\nit accrues, gain on the fund’s disposition of such an obligation will be treated as ordinary income rather than capital gain\nto the extent of the accrued market discount.

The federal income tax treatment of certain of the\nfund’s investments may be uncertain. In particular, the fund’s investments in below investment grade bonds raise special\nissues, including their appropriate federal income tax classification (for example, as debt or equity), and the determination of\nwhether a debt is worthless, when to cease accruing interest, and the proper taxable year for claiming a deduction. Modifications\nand exchanges of debt obligations in

connection with the workout or bankruptcy of a debtor\nmay raise additional issues as to their appropriate tax treatment. The fund will seek to make these determinations based on all\npertinent evidence. In many cases, however, it may be difficult to make these determinations with certainty, which could impact\nthe character and timing of the fund’s income and deductions, and the amounts to be distributed by the fund to avoid federal\nincome or excise taxes.

Federal Income Tax Information\nfor Shareholders

The discussion of federal income taxation presented\nbelow supplements the discussion in the fund’s prospectus and only summarizes some of the important federal tax considerations\ngenerally affecting shareholders of the fund. Accordingly, prospective investors (particularly those not residing or domiciled\nin the United States) should consult their own tax advisors regarding the consequences of investing in the fund.

Any dividends declared by the fund in October, November\nor December and paid the following January are treated, for tax purposes, as if they were received by shareholders on December\n31 of the year in which they were declared. In general, distributions by the fund of investment company taxable income (including\nnet short-term capital gains), if any, whether received in cash or additional shares, will be taxable to you as ordinary income.\nIt is not expected that any portion of these distributions will be eligible for the dividends-received deduction for corporate\nshareholders or to be treated as qualified dividend income which is eligible in certain circumstances for reduced maximum tax rates\nto individuals.

Distributions from net capital gain (if any) that\nare reported as capital gain dividends are taxable as long-term capital gains without regard to the length of time the shareholder\nhas held shares of the fund. However, if you receive a capital gain dividend with respect to fund shares held for six months or\nless, any loss on the sale or exchange of those shares shall, to the extent of the capital gain dividend, be treated as a long-term\ncapital loss. The maximum individual rate applicable to “qualified dividend income” and long-term capital gains is\ngenerally either 15% or 20% depending on whether the individual’s income exceeds certain threshold amounts.

An additional 3.8% Medicare tax is imposed on certain\nnet investment income (including ordinary dividends and capital gains distributions received from the fund and net gains from redemptions\nor other taxable dispositions of fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified\nadjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or\ntrust) exceeds a threshold amount.

The fund will inform you of the amount of your ordinary\nincome dividends and capital gains distributions, if any, at the time they are paid and will advise you of their tax status for\nfederal income tax purposes, including what portion of the distributions will be qualified dividend income, shortly after the close\nof each calendar year.

If the fund makes a distribution to a shareholder\nin excess of the fund’s current and accumulated earnings and profits in any taxable year, the excess distribution will be\ntreated as a return of capital to the extent of the shareholder’s tax basis in its shares, and thereafter, as capital gain.\nA return of capital is not taxable, but reduces a shareholder’s tax basis in its shares, thus reducing any loss or increasing\nany gain on a subsequent taxable disposition by the shareholder of its shares. To the extent that a return of capital distribution\nexceeds a shareholder’s adjusted basis, the distribution will be treated as gain from the sale of shares.

A\nsale of shares in the fund may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of\nshares will be treated as long-term capital gain or loss if the shares have been held for more than one year. Otherwise, the gain\nor loss on the taxable disposition of shares will be treated as short-term capital gain or loss. The maximum individual tax rate\napplicable to long-term capital gains is generally either 15% or 20%, depending on whether the individual’s income exceeds\ncertain threshold amounts. Any loss realized upon a taxable disposition of shares held for six months or less will be treated as\nlong-term, rather than short-term, to the extent of any long-term capital gains distributions\nreceived (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable\ndisposition of shares will be disallowed if other substantially identical shares of the fund are purchased within 30 days before\nor after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.

Non-corporate taxpayers generally may deduct 20%\nof “qualified business income” derived either directly or through partnerships or S corporations. For this purpose,\n“qualified business income” generally includes ordinary REIT dividends and income derived from MLP investments. The\nfund is permitted to pass through to shareholders the character of ordinary REIT dividends so as to allow non-corporate shareholders\nto claim this deduction. There currently is no mechanism for the fund to pass through to non-corporate shareholders the character\nof income derived from MLP

investments or for the fund to pass through to non-corporate\nshareholders the ability to claim this deduction with respect to income derived from MLP investments.

An Authorized Participant who exchanges securities\nfor Creation Units generally will recognize a gain or a loss. The gain or loss will be equal to the difference between the market\nvalue of the Creation Units at the time and the sum of the exchanger’s aggregate basis in the securities surrendered plus\nthe amount of cash paid for such Creation Units. A person who redeems Creation Units will generally recognize a gain or loss equal\nto the difference between the exchanger’s basis in the Creation Units and the sum of the aggregate market value of any securities\nreceived plus the amount of any cash received for such Creation Units. The IRS, however, may assert that a loss realized upon an\nexchange of securities for Creation Units cannot be deducted currently under the rules governing “wash sales,” or on\nthe basis that there has been no significant change in economic position.

Any capital gain or loss realized upon the creation\nof Creation Units will generally be treated as long-term capital gain or loss if the securities exchanged for such Creation Units\nhave been held for more than one year. Any capital gain or loss realized upon the redemption of Creation Units will generally be\ntreated as long-term capital gain or loss if the shares comprising the Creation Units have been held for more than one year. Otherwise,\nsuch capital gains or losses will be treated as short-term capital gains or losses.

The fund has the right to reject an order for Creation\nUnits if the purchaser (or group of purchasers) would, upon obtaining the shares so ordered, own 80% or more of the outstanding\nshares of the fund and if, pursuant to section 351 of the Internal Revenue Code, the fund would have a basis in the deposit securities\ndifferent from the market value of such securities on the date of deposit. The fund also has the right to require information necessary\nto determine beneficial Share ownership for purposes of the 80% determination.

Certain tax-exempt shareholders, including qualified\npension plans, individual retirement accounts, salary deferral arrangements, 401(k)s, and other tax-exempt entities, generally\nare exempt from federal income taxation except with respect to their “unrelated business taxable income” (UBTI). Under\ncurrent law, the fund generally serves to block UBTI from being realized by their tax-exempt shareholders. However, notwithstanding\nthe foregoing, a tax-exempt shareholder could realize UBTI by virtue of its investment in the fund where, for example, (i) the\nfund invests in REITs that hold residual interests in real estate mortgage investment conduits (REMICs) or (ii) its shares in the\nfund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of section 514(b) of the Internal\nRevenue Code. Charitable remainder trusts are subject to special rules and should consult their tax advisors. There are no restrictions\npreventing the fund from holding investments in REITs that hold residual interests in REMICs, and the fund may do so. The IRS has\nissued recent guidance with respect to these issues and prospective shareholders, especially charitable remainder trusts, are strongly\nencouraged to consult with their tax advisors regarding these issues.

Backup Withholding – The fund will be\nrequired in certain cases to withhold at the applicable withholding rate and remit to the U.S. Treasury the withheld amount of\ntaxable dividends and redemption proceeds paid to any shareholder who (1) fails to provide a correct taxpayer identification number\ncertified under penalty of perjury; (2) is subject to withholding by the IRS for failure to properly report all payments of interest\nor dividends; (3) fails to provide a certified statement that he or she is not subject to “backup withholding;” or\n(4) fails to provide a certified statement that he or she is a U.S. person (including a U.S. resident alien). Backup withholding\nis not an additional tax and any amounts withheld may be credited against the shareholder’s ultimate U.S. tax liability.

Disclosure for Non-U.S. Shareholders – Foreign\nshareholders (i.e., nonresident alien individuals and foreign corporations, partnerships, trusts and estates) are generally subject\nto U.S. withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions derived from net investment income and\nshort-term capital gains; provided, however, U.S. source interest related dividends and short-term capital gain dividends generally\nare not subject to U.S. withholding tax if the fund elects to report such dividends in a written notice. Distributions to foreign\nshareholders of such short-term capital gain, of long-term capital gains, and any gains from the sale or other disposition of shares\nof the fund, generally are not subject to U.S. taxation, unless the recipient is an individual who either (1) meets the Internal\nRevenue Code’s definition of “resident alien” or (2) is physically present in the U.S. for 183 days or more per\nyear. Foreign shareholders may also be subject to U.S. estate taxes with respect to shares in the fund. Different tax consequences\nmay result if the foreign shareholder is engaged in a trade or business within the United States. In addition, the tax consequences\nto a foreign shareholder entitled to claim the benefits of a tax treaty may be different than those described above. Notwithstanding\nthe foregoing, a portion of the income, if any, derived by the fund from investments in REITs that hold residual interests in REMICs\nmay be classified as “excess inclusion income.” In respect of foreign shareholders, no exemption or reduction in withholding\ntax will apply to such excess inclusion income.

The fund is required to withhold U.S. tax (at a 30%\nrate) on payments of taxable dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive\nreporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment\naccounts. Shareholders may be requested to provide additional information to the fund to enable the fund to determine whether withholding\nis required.

Reportable Transactions – Under U.S.\nTreasury regulations, if a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or\nmore for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders\nof portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of\na RIC such as the fund are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders\nof most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether\nthe taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability\nof these regulations in light of their individual circumstances.

Shareholders are urged to consult their tax advisors\nas to the state and local tax rules affecting investments in the fund.

APPENDIX – RATINGS OF\nINVESTMENT SECURITIES

From time to time, the fund may report the percentage\nof its assets that fall into the rating categories set forth below, as defined by the ratings agencies.

MOODY’S INVESTORS SERVICE

Global Long-Term Rating Scale

Aaa:

Obligations rated Aaa are judged to be of the highest quality, with minimal risk.

Aa:

Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

Obligations rated A are considered upper medium-grade and are subject to low credit risk.

Baa:

Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative\ncharacteristics.

Ba:

Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.

Obligations rated B are considered speculative and are subject to high credit risk.

Caa:

Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca:

Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery in principal\nand interest.

Obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of\nprincipal and interest.

Global Short-Term Rating Scale

P-1:

Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.

P-2:

Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.

P-3:

Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.

NP:

Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.

STANDARD & POOR’S\nFINANCIAL SERVICES LLC

Long-Term Issue Credit Ratings

AAA:

An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity\nto meet its financial commitment on the obligation is extremely strong.

AA:

An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s\ncapacity to meet its financial commitment on the obligation is very strong.

An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic\nconditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment\non the obligation is still strong.

BBB:

An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing\ncircumstances are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation.

BB:

An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major\nongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s\ninadequate capacity to meet its financial commitment on the obligation.

An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor\ncurrently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions\nwill likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.

CCC:

An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial,\nand economic conditions for the obligor to meet its financial commitments on the obligation. In the event of adverse business,\nfinancial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC:

An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when\na default has not yet occurred, but S&P Global Ratings expects default to be a virtual certainty, regardless of the anticipated\ntime to default.

An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower\nrelative seniority or lower ultimate recovery compared with obligations that are rated higher.

An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the\n‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings\nbelieves that such payments will be made within the next five business days in the absence of a stated grace period or within the\nearlier of the stated grace period or the next 30 calendar days. The ‘D’ rating also will be used upon the filing of\na bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due\nto automatic stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed debt restructuring.

Short-Term Issue Credit Ratings

A-1:

A short-term obligation rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The obligor’s\ncapacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated\nwith a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is\nextremely strong.

A-2:

A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances\nand economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial\ncommitments on the obligation is satisfactory.

A-3:

A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions\nor changing circumstances are more likely to weaken an obligor’s capacity to meet its financial commitments on the obligation.

FITCH RATINGS, INC.

Long-Term Ratings Scales

AAA:

‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong\ncapacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA:

‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial\ncommitments. This capacity is not significantly vulnerable to foreseeable events.

‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered\nstrong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher\nratings.

BBB:

‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial\ncommitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

BB:

‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in\nbusiness or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial\ncommitments.

‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments\nare currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.

CCC:

Very low margin for safety. Default is a real possibility.

CC:

Default of some kind appears probable.

A default or default-like process has begun, or for a closed funding vehicle, payment capacity is irrevocably impaired. Conditions\nthat are indicative of a ‘C’ category rating for an issuer include:

the issuer has entered into a grace or cure period following non-payment of a material financial obligation;

ii.

the formal announcement by the issuer or their agent of a distressed debt exchange; and

iii.

a closed financing vehicle where payment capacity is irrevocably impaired such that it is not expected to pay interest and/or\nprincipal in full during the life of the transaction, but where no payment default is imminent.

RD:

‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced:

an uncured payment default or distressed debt exchange on a bond, loan or other material financial obligation, but

ii.

has not entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedure, and

iii.

has not otherwise ceased operating.

This would include:

the selective payment default on a specific class or currency of debt;

the uncured expiry of any applicable original grace period, cure period or default forbearance period following a payment default\non a bank loan, capital markets security or other material financial obligation.

‘D’ ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration,\nreceivership, liquidation or other formal winding-up procedure or that has otherwise ceased business and debt is still outstanding.

Short-Term Ratings

F1:

Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to\ndenote any exceptionally strong credit feature.

F2:

Good intrinsic capacity for timely payment of financial commitments.

F3:

The intrinsic capacity for timely payment of financial commitments is adequate.

APPENDIX – PROXY VOTING\nPOLICY

The Charles Schwab Family of\nFunds

Schwab Investments

Schwab Capital Trust

Schwab Annuity Portfolios

Laudus Trust

Schwab Strategic Trust

PROXY VOTING POLICY
\nAS OF MARCH 2026

The Boards of Trustees (the “Board”)\nof The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, and Laudus Trust (“Schwab\nFunds”) and Schwab Strategic Trust (“Schwab ETFs”; collectively with Schwab Funds, the “Funds”) have\ndelegated to the Funds’ investment adviser, Charles Schwab Investment Management, Inc. (“CSIM”), the responsibility\nto vote proxies relating to the Funds’ portfolio securities pursuant to CSIM’s Proxy Voting Policy (“CSIM Proxy\nPolicy”). On an annual basis, CSIM will report to the Board any changes to the CSIM Proxy Policy and on the implementation\nof the CSIM Proxy Policy.

Charles Schwab Investment Management,\nInc.

PROXY VOTING POLICY
\nAS OF MARCH 2026

\n\n \n \n

I.	INTRODUCTION

Charles Schwab Investment Management,\nInc. (“CSIM”), as an investment adviser, is responsible for voting proxies with respect to the securities held in accounts\nof investment companies and other clients that have delegated the authority to vote proxies to CSIM. CSIM’s Proxy Committee\nexercises and documents CSIM’s responsibility with regard to voting of client proxies, including the review and approval\nof the Proxy Voting Policy (the “Proxy Policy”). CSIM’s Investment Stewardship Team has the primary responsibility\nfor overseeing that voting is carried out consistent with the Proxy Policy. The Investment Stewardship Team also conducts research\ninto proxy issues and carries out engagement activities with companies. The Proxy Committee receives regular reports from the Investment\nStewardship Team on these activities.

\n\n \n \n

II.

PHILOSOPHY

As a leading asset manager, it\nis CSIM’s responsibility to use its proxy votes to encourage transparency, corporate governance structures, and management\nof material risks that it believes protect and promote shareholder value.

Just as the investors in CSIM’s\nequity funds generally have a long-term investment horizon, CSIM takes a long-term, measured approach to investment stewardship.\nCSIM’s client-first philosophy drives all of its efforts, including its approach to decision making. In the investment stewardship\ncontext, that unfolds through CSIM’s efforts to appropriately manage risk by encouraging transparency and focusing on corporate\ngovernance structures that will help protect and promote shareholder value. CSIM also recognizes that companies can conduct themselves\nin ways that have important environmental and social consequences. Therefore, CSIM’s focus on maximizing long-term shareholder\nvalue includes consideration of potential material environmental and social impacts that we believe are relevant to individual\ncompanies.

In general, CSIM believes corporate\ndirectors, as the elected representatives of all shareholders, are best positioned to oversee the management of their companies.\nAccordingly, CSIM typically supports a board of directors’ and management’s recommendations on proxy matters. However,\nCSIM will vote against management’s recommendations when it believes doing so will protect or promote long-term shareholder\nvalue.

\n\n \n \n

III.

USE OF PROXY ADVISORS

To assist CSIM in its responsibility\nfor voting proxies and the overall proxy voting process, CSIM has retained Glass, Lewis & Co., LLC (“Glass Lewis”)\nand Institutional Shareholder Services Inc. (“ISS”).

The services provided by Glass\nLewis include global issuer research and analysis, as well as a voting platform used to submit our votes, reporting and record\nkeeping. CSIM has also retained ISS to provide research and analysis on certain topics and may retain additional experts in the\nproxy voting, corporate governance and other areas of material risk in the future.

\n\n \n \n

IV.

PROXY VOTING PRINCIPLES

CSIM invests on behalf of its\nclients in companies domiciled all over the world. Since corporate governance standards and best practices differ by country and\njurisdiction, the market context is taken into account in the analysis of proposals. Furthermore, there are instances where CSIM\nmay determine that voting is not in the best interests of its clients (typically due to costs or to trading restrictions) and will\nrefrain from submitting votes.

The Proxy Committee reviews CSIM’s\nproxy voting guidelines with input from the Investment Stewardship Team at least annually and evaluates them in light of the long-term\nbest interests of shareholders. In addition, for U.S.

companies, contested director elections, “vote\nno” campaigns, mergers and acquisitions, some executive compensation, election of director and reincorporation proposals,\nand many shareholder proposals, including environmental, social, political and governance-related proposals, such as those requesting\nadditional disclosures, are voted on a case-by-case basis by the Investment Stewardship Team.

While the voting policy is in\nplace to provide structure and guidance and ensure CSIM’s approach is consistent and repeatable, CSIM recognizes instances\nmay arise that would benefit from additional research and analysis to determine CSIM’s policy recommendation. As such, CSIM\nreserves the right to use discretion and apply a case-by-case approach when determining its vote decision for any proposal that\nit believes warrants added scrutiny by the Investment Stewardship Team.

The following is a summary of\nCSIM’s proxy voting principles which are grouped according to types of proposals usually presented to shareholders in proxy\nstatements.

\n\n \n \n \n

DIRECTORS AND AUDITORS

Directors

As a starting point, CSIM expects boards\nto be composed of at least a majority of independent directors and to be responsive to shareholders. CSIM also expects directors\nthat serve on a company’s nominating, compensation or audit committee to be independent. CSIM believes that diversity of\nbackground, experience, and skills contribute to a board’s ability to make effective decisions on behalf of shareholders.

Factors that may result in a vote against\none or more directors:

●

The board is not majority independent

●

A company board is not sufficiently diverse with respect to background,\nor the board has not provided a reasonable explanation of board diversity or lack thereof

●

Non-independent directors serve on the nominating, compensation or audit\ncommittees

●

A director recently failed to attend at least 75% of meetings or serves\non an excessive number of publicly traded company boards

●

A director approved executive compensation schemes that appear misaligned\nwith shareholders’ interests

●

A director recently acted in a manner inconsistent with this Proxy Policy\nor failed to be responsive to shareholder concerns

●

The company has not provided explicit disclosure of board oversight of\nmaterial risks

ii.

Contested Director Elections

A proxy contest is when a dissident shareholder\n(or group of shareholders) proposes outside nominees to compete against incumbent directors. A “Vote No” campaign is\nwhen an activist shareholder attempts to solicit votes against certain directors. CSIM evaluates proxy contests and Vote No campaigns\non a case-by-case basis and votes for the outcome it believes will maximize long-term shareholder value. CSIM considers numerous\nfactors when making its voting decision, including but not limited to the merit of the campaign, the qualifications of director\nnominees, long-term company performance compared to peers, board oversight of material risks, and, in the case of proxy contests,\nthe dissident’s and management’s strategic plans for driving improvements.

iii.

Auditors

CSIM typically supports the ratification\nof auditors unless CSIM believes that the auditors’ independence may have been compromised.

Factors that may result in a vote against\nthe ratification of auditors:

●

Audit-related fees are less than half of the total fees paid by the company\nto the audit firm

●

A recent material restatement of annual financial statements

●

A pattern of inaccurate audits or other behavior that may call into question\nan auditor’s effectiveness

BOARD MATTERS

Classified Boards

CSIM generally does not support classified\nboard proposals unless management has provided valid reasoning for the structure.

ii.

Majority Voting

CSIM generally supports majority voting\nproposals when they call for plurality voting standards in contested elections.

iii.

Proxy Access

CSIM typically supports proxy access proposals\nwhen the following criteria are met:

●

Ownership threshold of at least 3% of the company’s outstanding\nshares held for at least three years

●

Number of nominees is no more than 20% of current board (rounded down\nto nearest whole number)

●

Group size is capped at 20 shareholders

iv.

Board Leadership Structure: Separation of Chair and CEO role / Independent Chair

CSIM believes that boards are typically\nbest positioned to determine their leadership structure. Therefore, CSIM will typically not support shareholder proposals requiring\nthe separation of the Chair and CEO roles or mandating an independent Chair unless there are concerns regarding a board’s\naccountability or responsiveness to shareholders.

Factors that may result in supporting such\nproposals include:

●

The board does not have a lead independent director or lacks a robust\nlead independent director

●

The board is not two-thirds independent

●

The company did not implement a shareholder proposal that was passed\nby shareholders

●

The company nominated directors for election who did not receive a majority\nof shareholder support at the previous shareholder meeting

●

The company had material financial statement restatements

●

The company’s board adopted a Shareholder Rights Plan during the\npast year without submitting it to shareholders for approval

●

Ongoing executive compensation concerns

●

Ongoing financial underperformance

COMPENSATION

Advisory Vote on Executive Compensation and Frequency

CSIM generally supports advisory votes on\nexecutive compensation (which are proposed by management and are known as “Say-On-Pay”) when the compensation scheme\nappears aligned with shareholder economic interests and lacks problematic features.

Factors that may result in a vote against\na company’s Say-On-Pay proposal:

●

There is a disconnect identified between executive pay and company performance

●

Executive compensation is out of line with industry peers considering\nthe company’s performance over time

●

Executive compensation plan includes significant guaranteed bonuses or\nhas a low amount of compensation at risk

●

Executive compensation plan offers excessive one-time payments, perquisites,\ntax-gross up provisions, or golden parachutes

●

Compensation amounts are increased, or goals are lowered without providing\na valid explanation

●

Executive compensation plan lacks adequate disclosure or rationale for\ndecisions related to goals and amounts

ii.

Equity Compensation Plans

CSIM generally supports stock-based compensation\nplans when they do not overly dilute shareholders by providing participants with excessive awards and lack problematic features.

Factors that may result in a vote against\nEquity Compensation Plans:

●

Plan’s total potential dilution appears excessive

●

Plan’s burn rate appears excessive compared to industry peers

●

Plan allows for the re-pricing of options without shareholder approval

●

Plan has an evergreen feature

iii.

Employee Stock Purchase Plans

CSIM supports the concept of broad employee\nparticipation in a company’s equity. Therefore, CSIM typically supports employee stock purchase plans when the shares can\nbe purchased at 85% or more of the shares’ market value.

iv.

Re-price/Exchange Option Plans

CSIM generally only supports management\nproposals to re-price options when the plan excludes senior management and directors, does not excessively dilute shareholders,\nand the company has not significantly underperformed its industry peers over time.

Compensation-Related Shareholder Proposals

CSIM generally votes with management on\ncompensation-related shareholder proposals. CSIM believes the responsibility for designing an effective executive compensation\nprogram lies with the board’s compensation committee, rather than shareholders. Therefore, rather than supporting policies\nproposed by shareholders, a more appropriate way for shareholders to express discontent with a company’s policies and practices\nis through the election of directors, the advisory vote on executive compensation, proposals regarding equity plans and/or other\nexecutive compensation specific proposals.

ANTI-TAKEOVER

Shareholder Rights Plans

Shareholder Rights Plans constrain a potential\nacquirer’s ability to buy shares in a company above a certain threshold without the approval of the company’s board\nof directors. While such a plan may help a company in achieving a higher bid, it may also entrench the incumbent management and\nboard. CSIM believes that shareholders should have the right to approve a Shareholder Rights Plan within a year of its adoption.\nCSIM generally votes against such plans if they do not have safeguards to protect shareholder interests.

Factors that may result in a vote against\na Shareholder Rights Plan proposal:

●

Plan does not expire in a relatively short time horizon

●

Plan does not have a well-crafted permitted bid or qualified offer feature\nthat mandates shareholder votes in certain situations

●

Plan automatically renews without shareholder approval

●

Company’s corporate governance profile is problematic

ii.

Right to Call Special Meeting

CSIM generally votes against shareholder\nproposals asking for shareholders to be given the right to call a special meeting unless the threshold to call a special meeting\nis 25% or more of shares outstanding to avoid wasting corporate resources.

iii.

Right to Act by Written Consent

CSIM generally votes against shareholder\nproposals asking for shareholders to be given the right to act by written consent if the company already offers shareholders the\nright to call special meetings. CSIM expects appropriate mechanisms for implementation.

iv.

Supermajority Voting

CSIM generally supports the concept of simple\nmajority standards to pass proposals.

CAPITAL STRUCTURE, MERGERS AND ACQUISITIONS

Increase in Authorized Common Shares

CSIM typically supports proposals to increase\nthe authorized shares unless the company does not sufficiently justify the need for the use of the proposed shares.

ii.

Preferred Shares

CSIM generally supports proposals to create\na class of preferred shares with specific voting, dividend, conversion and other rights.

iii.

Mergers and Acquisitions

CSIM generally supports transactions that\nappear to maximize shareholder value. CSIM assesses these proposals on a case-by-case basis and considers the proposed transaction’s\nstrategic rationale, the offer premium, the board’s oversight of the sales process, and other pertinent factors.

ENVIRONMENTAL AND SOCIAL SHAREHOLDER PROPOSALS

Effective oversight of material environmental\nand social risks relevant to a company and its business is an essential board function. In CSIM’s view, appropriate risk\noversight of environmental and social issues contributes to sustainable long-term value and companies should provide pertinent\ninformation on material risks common to their industry and specific to their business. CSIM evaluates, on a case-by-case basis,\nshareholder proposals regarding environmental and social issues, including those calling for additional disclosure of material\nrisks to a company, with emphasis placed on those risks identified within the framework of the Sustainability Accounting Standards\nBoard (SASB).

CSIM recognizes that financial performance\ncan be impacted by a company’s environmental, social and human capital management policies. CSIM’s case-by-case evaluation\nof these proposals takes into consideration a company’s current practices, level of reporting, disclosures by its peers,\nand the existence of controversies or litigation related to the issue.

CSIM believes that, in most instances, boards\nare best positioned to determine their company’s strategy and manage its operations, and generally does not support shareholder\nproposals seeking a change in business practices.

Climate Change Proposals

CSIM believes that companies should provide\npertinent information on the management of potential climate change-related risks, with the understanding that the relevance of\nthis disclosure for any specific company will vary depending on its industry and operations. We generally support proposals requesting\nadditional disclosure on climate change-related impacts when the company’s current reporting is inadequate.

ii.

Corporate Political Activity Proposals

CSIM\nexpects boards of directors to have a stated oversight process for political contributions and lobbying activities. CSIM evaluates\nproposals asking for disclosure of a company’s political contributions and lobbying activities on a case-by-case basis and\nconsiders supporting them if there is no evidence of board oversight, a political spending policy and/or a company’s\ndisclosure is deficient and lags that of its peers.

\n\n \n \n

V.	ADMINISTRATION

\n\n \n \n \n

CONFLICTS OF INTERESTS

CSIM maintains the following practices that\nseek to prevent undue influence on its proxy voting activity. Such influence might arise from any relationship between the company\nholding the proxy (or any shareholder or board member of the company) and CSIM, CSIM’s affiliates, a mutual fund or exchange-traded\nfund managed by CSIM (“Affiliated Fund”), an affiliate of such Fund, or a CSIM employee. The Proxy Committee has directed\nthat Glass Lewis be instructed to vote any such proxies in the same proportion as the votes of all other shareholders in the fund\n(i.e., “echo vote”).

With respect to proxies of an underlying\nAffiliated Fund, the Investment Stewardship Team will ensure that such proxies are “echo voted,” unless otherwise required\nby law. When required by law or applicable exemptive order, the Investment Stewardship Team will also ensure the “echo voting”\nof an unaffiliated mutual fund or exchange traded fund. For example, certain exemptive orders issued to a fund by the Securities\nand Exchange Commission and Section 12(d)(1)(F) of the Investment Company Act of 1940, as amended, require the fund, under certain\ncircumstances, to “echo vote” proxies of registered investment companies that serve as underlying investments of the\nfund.

In addition, with respect to holdings of\nThe Charles Schwab Corporation (“CSC”) (ticker symbol: SCHW), the Investment Stewardship Team will ensure such proxies\nare echo-voted, unless otherwise required by law.

Where the Proxy Committee has delegated\nan item to the Investment Stewardship Team, CSIM has taken certain steps to mitigate perceived or potential conflicts of interest,\nincluding, but not limited to, the following:

●

maintaining a reporting structure that separates employees with voting\nauthority from those with sales or business relationship authority,

●

reporting of potential conflicts to the Proxy Committee to review the\nconflict and provide final vote determination,

●

defaulting to the standard CSIM Proxy Voting Policy.

In all other cases, proxy issues that present\nmaterial conflicts of interest between CSIM, and/or any of its affiliates, and CSIM’s clients, will be delegated to Glass\nLewis to be voted in accordance with CSIM’s Proxy Voting Guidelines which are set each year based on governance criteria\nand not influenced by any individual issuer or ballot item.

Where CSIM’s Investment Stewardship\nTeam conducts an engagement meeting with a company, CSIM has taken certain steps to mitigate perceived or potential conflicts of\ninterest, including, but not limited to, the following:

●

ensuring that no members of the board of (i) CSC or (ii) an Affiliated\nFund, which are affiliated with such company, are participants in such meetings.

\n\n \n \n \n

FOREIGN SECURITIES/SHAREBLOCKING

Voting proxies with respect to shares of\nforeign securities may involve significantly greater effort and corresponding cost than voting proxies with respect to domestic\nsecurities due to the variety of regulatory schemes and corporate practices in foreign countries with respect to proxy voting.\nProblems voting foreign proxies may include the following:

●

proxy statements and ballots written in a foreign language,

●

untimely and/or inadequate notice of shareholder meetings,

●

restrictions of foreigner’s ability to exercise votes,

●

requirements to vote proxies in person,

●

requirements to provide local agents with power of attorney to facilitate\nCSIM’s voting instructions.

In consideration of the foregoing issues,\nCSIM, in conjunction with Glass Lewis, uses its best efforts to vote foreign proxies. As part of its ongoing oversight, the Proxy\nCommittee will monitor the voting of foreign proxies to determine whether all reasonable steps are taken to vote foreign proxies.\nIf the Proxy Committee determines that the cost associated with the attempt to vote outweighs the potential benefits clients may\nderive from voting, the Proxy Committee may decide not to attempt to vote. In addition, certain foreign countries impose restrictions\non the sale of securities for a period of time before and/or after the shareholder meeting. To avoid these trading restrictions,\nthe Proxy Committee instructs Glass Lewis not to vote such foreign proxies (share-blocking).

\n\n \n \n \n

SECURITIES LENDING

Certain\nof the funds managed by CSIM enter into securities lending arrangements with lending agents to generate additional revenue for\ntheir portfolios. In securities lending arrangements, any voting rights that accompany the loaned securities generally pass to\nthe borrower of the securities, but the lender retains the right to recall a security and may then exercise the security’s\nvoting rights. In order to vote the proxies of securities\nout on loan, the securities must be recalled prior to the established record date. CSIM will use its best efforts to recall a fund’s\nsecurities on loan when deemed appropriate and in the best interest of shareholders and it complies with all reporting requirements.

\n\n \n \n \n

D. \t

SUB-ADVISORY RELATIONSHIPS

Where CSIM has delegated day-to-day investment\nmanagement responsibilities to an investment sub-adviser, CSIM may (but generally does not) delegate proxy voting responsibility\nto such investment sub-adviser. In addition, CSIM may share proxy voting with an investment sub-adviser. Each sub-adviser to whom\nproxy voting responsibility has been delegated will be required to review all proxy solicitation material and to make voting decisions\nin the best interest of each investment company and its shareholders, or other client associated with the securities it has been\nallocated. Each sub-adviser to whom proxy voting has been delegated must inform CSIM of its voting decisions to allow CSIM to implement\nthe votes or in the case of shared voting responsibility, potentially override the sub-adviser’s vote recommendation. Prior\nto delegating the proxy voting responsibility, CSIM will review each sub-adviser’s proxy voting policy to determine whether\nit believes that each sub-adviser’s proxy voting policy is generally consistent with the maximization of the value of CSIM’s\nclients’ investments by protecting the long-term best interest of shareholders.

\n\n \n \n \n

E. \t

REPORTING AND RECORD RETENTION

CSIM will maintain, or cause Glass Lewis\nto maintain, records that identify the manner in which proxies have been voted (or not voted) on behalf of CSIM clients. CSIM will\ncomply with all applicable rules and regulations regarding disclosure of its or its clients’ proxy voting records and procedures.

CSIM will retain all proxy voting materials\nand supporting documentation as required under the Investment Advisers Act of 1940, as amended, and the Investment Company Act\nof 1940, as amended.

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