|
Summary Prospectus August 22, 2011 |
Schwab
U.S. Aggregate Bond
ETFtm
Ticker
Symbol: SCHZ
Before you invest, you may want to review the fund’s
prospectus, which contains more information about the fund and
its risks. You can find the fund’s prospectus, Statement of
Additional Information (SAI) and other information about the
fund online at www.schwabetfs.com/prospectus. You can
also obtain this information at no cost by calling
1-866-414-6349
or by sending an email request to
orders@mysummaryprospectus.com. If you purchase or hold
fund shares through a financial intermediary, the fund’s
prospectus, SAI, and other information about the fund are
available from your financial intermediary.
The fund’s prospectus dated July 8, 2011 and SAI,
dated July 8, 2011, as amended August 22, 2011,
include a more detailed discussion of fund investment policies
and the risks associated with various fund investments. The
prospectus and SAI are incorporated by reference into the
summary prospectus, making them legally a part of the summary
prospectus.
Investment
objective
The fund’s goal is to track as closely as possible, before
fees and expenses, the total return of the Barclays Capital
U.S. Aggregate Bond
Indexsm.1
Fund fees
and expenses
This table describes the fees and expenses you may pay if you
buy and hold shares of the fund. The table does not reflect
brokerage commissions you may incur when buying or selling fund
shares.
| 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 | 0.10 | |
| Other expenses | None | |
| Total annual fund operating expenses | 0.10 | |
Example
This example is intended to help you compare the cost of
investing in the fund with the cost of investing in other funds.
The example assumes that you invest $10,000 in the fund for the
time periods indicated and then redeem all of your shares at the
end of those time periods. The example also assumes that your
investment has a 5% return each year and that the fund’s
total annual operating expenses remain the same. This example
does not reflect any brokerage commissions you may incur when
buying or selling fund shares. Your actual costs may be higher
or lower.
Expenses on
a $10,000 investment
| 1 year | 3 years | |
|
$10
|
$32 |
Portfolio
turnover
The fund pays transaction costs, such as commissions, when it
buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover may indicate higher
transaction costs and may result in higher taxes when fund
shares are held in a taxable account. These costs, which are not
reflected in the total annual fund operating expenses or in the
example, affect the fund’s performance. The fund is new and
therefore does not have a historical portfolio turnover rate.
Principal
investment strategies
To pursue its goal, the fund generally invests in securities
that are included in the index. The index is a broad based
benchmark measuring the performance of the U.S. investment
grade, taxable bond market, including U.S. Treasuries,
government-related and corporate bonds, mortgage pass-through
securities, commercial mortgage-backed securities, and
asset-backed securities that are publicly available for sale in
the United States. To be eligible for inclusion in the index,
securities must be fixed rate, non-convertible, U.S. dollar
denominated with at least $250 million or more of
outstanding face value and have one or more years remaining to
maturity. The index excludes certain types of securities,
including state and local government series bonds, structured
notes embedded with swaps or other special features, private
placements, floating rate securities, inflation linked bonds and
Eurobonds. The index is market capitalization weighted and the
securities in the index are updated on the last business day of
each month. As of June 1, 2011, there were approximately
8,000 securities in the index.
It is the fund’s policy that under normal circumstances it
will invest at least 90% of its net assets in securities
included in the index, including TBA Transactions, as defined
below. The fund will notify its shareholders at least
60 days before changing this policy. Under normal
circumstances, the fund may invest up to 10% of its net assets
in securities not included in its index. The principal types of
these investments include those that the adviser believes will
help the fund track the index, such as investments in
(a) securities that are not represented in the index but
the adviser anticipates will be added to the index;
(b) high-quality liquid short-term investments, such as
securities issued by the U.S. government, its agencies or
instrumentalities, including obligations that are not guaranteed
by the U.S. Treasury, and obligations that are issued by
private issuers that are guaranteed as to principal
1 Index
ownership —
©
Barclays Capital Inc. 2011. All rights reserved. The Schwab U.S.
Aggregate Bond ETF is not sponsored, endorsed, sold or promoted
by Barclays Capital. Barclays Capital does not make any
representation regarding the advisability of investing in shares
of the fund.
1 of
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or interest by the U.S. government, its agencies or
instrumentalities, (c) investment companies, including
money market funds, and (d) derivatives, principally
futures contracts. The fund may use futures contracts and other
derivatives primarily to help manage interest rate exposure. The
fund may also invest in cash and cash equivalents and lend its
securities to minimize the difference in performance that
naturally exists between an index fund and its corresponding
index.
Because it is not possible or practical to purchase all of the
securities in the index, the fund’s investment adviser will
seek to track the total return of the index by using statistical
sampling techniques. These techniques involve investing in a
limited number of index securities that, when taken together,
are expected to perform similarly to the index as a whole. These
techniques are based on a variety of factors, including interest
rate and yield curve risk, maturity exposures, industry, sector
and issuer weights, credit quality, and other risk factors and
characteristics. The fund expects that its portfolio will hold
less than the total number of securities in the index, but
reserves the right to hold as many securities as it believes
necessary to achieve the fund’s investment objective. The
fund generally expects that its weighted average effective
duration will closely correspond to the weighted average
effective duration of the index.
As of June 1, 2011 approximately 33% of the bonds
represented in the index were U.S. fixed-rate agency
mortgage pass-through securities. U.S. fixed rate agency
mortgage pass-through securities are securities issued by
entities such as the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA), and
the Federal Home Loan Mortgage Corporation (FHLMC) that are
backed by pools of mortgages. Most transactions in fixed-rate
mortgage pass-through securities occur through standardized
contracts for future delivery in which the exact mortgage pools
to be delivered are not specified until a few days prior to
settlement, and are often referred to as “to be announced
transactions” or “TBA Transactions”. In a TBA
Transaction, the buyer and seller agree upon general trade
parameters such as agency, settlement date, par amount and
price. The actual pools delivered generally are determined two
days prior to settlement date; however, it is not anticipated
that the fund will receive the pools, but will instead
participate in rolling TBA transactions. The fund anticipates
that it may enter into such contracts on a regular basis. The
fund, pending settlement of such contracts, will invest its
assets in high-quality liquid short-term instruments, including
Treasury securities and shares of money market mutual funds. The
fund will assume its pro rata share of the fees and expenses of
any money market fund that it may invest in, in addition to the
fund’s own fees and expenses.
The fund will concentrate its investments (i.e., hold 25% or
more of its total assets) in a particular industry, group of
industries or sector to approximately the same extent that its
index is so concentrated. For purposes of this limitation,
securities of the U.S. government (including its agencies
and instrumentalities), and repurchase agreements collateralized
by U.S. government securities are not considered to be
issued by members of any industry.
The adviser seeks to achieve, over time, a correlation between
the fund’s performance and that of its index, before fees
and expenses, of 95% or better. However, there can be no
guarantee that the fund will achieve a high degree of
correlation with the index. A number of factors may affect the
fund’s ability to achieve a high correlation with its
index, including the degree to which the fund uses a sampling
technique. The correlation between the performance of the fund
and its index may also diverge due to transaction costs, asset
valuations, timing variances, and differences between the
fund’s portfolio and the index resulting from legal
restrictions (such as diversification requirements) that apply
to the fund but not to the index.
Principal
risks
The fund is subject to risks, any of which could cause an
investor to lose money. The fund’s principal risks include:
Market Risk. Bond markets rise and fall daily. As
with any investment whose performance is tied to these markets,
the value of your investment in the fund will fluctuate, which
means that you could lose money.
Investment Style Risk. The fund is not actively
managed. Therefore, the fund follows the securities included in
the index during upturns as well as downturns. Because of its
indexing strategy, the fund does not take steps to reduce market
exposure or to lessen the effects of a declining market. In
addition, because of the fund’s expenses, the fund’s
total return is normally below that of the index.
Interest Rate Risk. Interest rates will rise and
fall over time. During periods when interest rates are low, the
fund’s yield and total return also may be low. The longer
the fund’s duration, the more sensitive to interest rate
movements its share price is likely to be.
Credit Risk. The fund is subject to the risk that a
decline in the credit quality of a portfolio investment could
cause the fund to lose money or underperform. The fund could
lose money if the issuer or guarantor of a portfolio investment
fails to make timely principal or interest payments or otherwise
honor its obligations. The negative perceptions of an
issuer’s ability to make such payments could also cause the
price of that investment to decline. The credit quality of the
fund’s portfolio holdings can change rapidly in certain
market environments and any default on the part of a single
portfolio investment could cause the fund’s share price or
yield to fall. Certain of the U.S. government securities in
which the fund may invest are issued by government-sponsored
entities and are not backed by the full faith and credit of the
United States government, which means they are neither issued
nor guaranteed by the U.S. Treasury. If the
government-sponsored entity is unable to meet its obligations it
could adversely impact the fund’s share price or yield.
Sampling Index Tracking Risk. The fund will not
fully replicate the index and may hold securities not included
in the index. As a result, the fund is subject to the risk that
the adviser’s investment management strategy, the
implementation of which is subject to a number of constraints,
may not produce the intended results. Because the fund uses a
sampling approach, it may not track the return of the index as
well as it would if the fund purchased all of the securities in
the index.
Tracking Error Risk. As an index fund, the fund
seeks to track the performance of its benchmark index, although
it may not be successful in doing so. The divergence between the
performance
| Summary Prospectus August 22, 2011 | 2 of 4 | Schwab U.S. Aggregate Bond ETFtm |
of the fund and its benchmark index, positive or negative, is
called “tracking error”. Tracking error can be caused
by many factors and it may be significant.
Prepayment and Extension Risk. Certain of the
fund’s investments are subject to the risk that the
securities may be paid off earlier or later than expected.
Either situation could cause the fund to hold securities paying
lower-than-market
rates of interest, which could hurt the fund’s yield or
share price.
Non-U.S. Issuer
Risk. The fund may invest in
U.S.-registered,
dollar-denominated bonds of
non-U.S. corporations,
governments, agencies and supra-national entities to the extent
such bonds are included in the fund’s index. The
fund’s investments in bonds of
non-U.S. issuers
may involve certain risks that are greater than those associated
with investments in securities of U.S. issuers. These
include risks of adverse changes in foreign economic, political,
regulatory and other conditions; differing accounting, auditing,
financial reporting and legal standards and practices; differing
securities market structures; and higher transaction costs.
These risks may be heightened in connection with bonds issued by
non-U.S. corporations and entities in emerging markets.
Derivatives Risk. The fund’s use of derivative
instruments involves risks different from, or possibly greater
than, the risks associated with investing directly in securities
and other traditional investments and could cause the fund to
lose more than the principal amount invested. In addition,
investments in derivatives may involve leverage, which means a
small percentage of assets invested in derivatives can have a
disproportionately larger impact on the fund.
Mortgage-Backed and Mortgage Pass-Through Securities
Risk. Certain of the mortgage-backed securities in
which the fund may invest are not backed by the full faith and
credit of the U.S. government and there can be no assurance
that the U.S. government would provide financial support to
its agencies or instrumentalities where it was not obligated to
do so. Mortgage-backed securities tend to increase in value less
than other debt securities when interest rates decline, but are
subject to similar risk of decline in market value during
periods of rising interest rates. Because of prepayment and
extension risk, mortgage-backed securities react differently to
changes in interest rates than other bonds. Small movements in
interest rates — both increases and
decreases — may quickly and significantly affect the
value of certain mortgage-backed securities. Transactions in
mortgage pass-through securities primarily occur through TBA
transactions, as described in the “Principal investment
strategies” section above. Default by or bankruptcy of a
counterparty to a TBA Transaction would expose the fund to
possible losses because of an adverse market action, expenses,
or delays in connection with the purchase or sale of the pools
of mortgage pass-through securities specified in the TBA
Transaction.
Liquidity Risk. A particular investment may be
difficult to purchase or sell. The fund may be unable to sell
illiquid securities at an advantageous time or price.
Securities Lending Risk. Securities lending involves
the risk of loss of rights in the collateral or delay in
recovery of the collateral if the borrower fails to return the
security loaned or becomes insolvent.
Concentration Risk. To the extent that the
fund’s or the index’s portfolio is concentrated in the
securities of issuers in a particular market, industry, group of
industries, sector or asset class, the fund may be adversely
affected by the performance of those securities, may be subject
to increased price volatility and may be more susceptible to
adverse economic, market, political or regulatory occurrences
affecting that market, industry, group of industries, sector or
asset class.
Market Trading Risk. Although fund shares are listed
on national securities exchanges, there can be no assurance that
an active trading market for fund shares will develop or be
maintained. If an active market is not maintained, investors may
find it difficult to buy or sell fund shares.
Shares of the Fund May Trade at Prices Other Than
NAV. Fund shares may be bought and sold in the
secondary market at market prices. Although it is expected that
the market price of the shares of the fund will approximate the
fund’s net asset value (NAV), there may be times when the
market price and the NAV vary significantly. You may pay more
than NAV when you buy shares of the fund in the secondary
market, and you may receive less than NAV when you sell those
shares in the secondary market.
Lack of Governmental Insurance or Guarantee. An
investment in the fund is not a bank deposit and it is not
insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other government agency.
For more information on the risks of investing in the fund
please see the “Fund details” section in the
prospectus.
Performance
The fund is new and therefore does not have a performance
history. Once the fund has completed a full calendar year of
operations a bar chart and table will be included that will
provide some indication of the risks of investing in the fund by
showing the variability of the fund’s returns and comparing
the fund’s performance to the index.
Investment
adviser
Charles Schwab Investment Management, Inc.
Portfolio
managers
Matthew Hastings, CFA, a managing director and portfolio
manager of the investment adviser, has
day-to-day
responsibility for the co-management of the fund. He has managed
the fund since 2011.
Steven Chan, CFA, a portfolio manager of the investment
adviser, has
day-to-day
responsibility for the co-management of the fund. He has managed
the fund since 2011.
Brandon Matsui, CFA, a portfolio manager of the
investment adviser, has
day-to-day
responsibility for the co-management of the fund. He has managed
the fund since 2011.
Steven Hung, a managing director and portfolio manager of
the investment adviser, has
day-to-day
responsibility for the co-management of the fund. He has managed
the fund since 2011.
| Summary Prospectus August 22, 2011 | 3 of 4 | Schwab U.S. Aggregate Bond ETFtm |
Alfonso Portillo, Jr., a managing director and
portfolio manager of the investment adviser, has
day-to-day
responsibility for the co-management of the fund. He has managed
the fund since 2011.
Purchase
and sale of fund shares
The fund issues and redeems shares at its NAV only in large
blocks of shares, typically 200,000 shares or more
(“Creation Units”). These transactions are usually in
exchange for a basket of securities included in the index and an
amount of cash. As a practical matter, only institutions or
large investors purchase or redeem Creation Units. Except when
aggregated in Creation Units, shares of the fund are not
redeemable securities.
Individual shares of the fund trade on national securities
exchanges and elsewhere during the trading day and can only be
bought and sold at market prices throughout the trading day
through a broker-dealer. Because fund shares trade at market
prices rather than NAV, shares may trade at a price greater than
NAV (premium) or less than NAV (discount).
Tax
information
Dividends and capital gains distributions received from the fund
will generally be taxable as ordinary income or capital gains,
unless you are investing through an IRA, 401(k) or other
tax-advantaged account.
Schwab
ETFstm
REG62485FLD-01
Schwab
U.S. Aggregate Bond
ETFtm;
Ticker Symbol: SCHZ
| Summary Prospectus August 22, 2011 | 4 of 4 | Schwab U.S. Aggregate Bond ETFtm |