INVESTMENT OBJECTIVE: The Schwab Fundamental U.S. Small Company Index ETF seeks to track as closely as possible, before fees and expenses, the total return of the Russell Fundamental U.S. Small Company Index.

INDEX DESCRIPTION: The Russell Fundamental U.S. Small Company Index selects, ranks, and weights securities by fundamental measures of company size adjusted sales, retained operating cash flow, and dividends plus buybacks rather than market capitalization. The Index measures the performance of the small company size segment by fundamental overall company scores, which are created using as the universe the companies included in the Russell 3000 Index (the Russell Index). Securities are grouped in order of decreasing score and each company receives a weight based on the total weights of the companies within the Russell Index. Companies with weights below the 87.5% mark make up the Index. The weights of the companies included in the Index are determined annually and are implemented using a quarterly reconstitution methodology in which the Index is split into four equal segments and each segment is rebalanced on a rolling quarterly basis.

FUND STRATEGY: To pursue its goal, the Fund generally invests in securities that are included 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. The Fund will generally give the same weight to a given security as the Index does. However, when the Adviser believes it is appropriate to do so, such as to avoid purchasing odd-lots (i.e., purchasing less than the usual number of shares traded for a security), for tax considerations, or to address liquidity considerations with respect to a security, the Adviser may cause the Fund’s weighting of a security to be more or less than the Index’s weighting of the security. The Fund may sell securities that are represented in the Index in anticipation of their removal from the Index, or buy securities that are not yet represented in the Index in anticipation of their addition to the Index. 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 other investment companies and derivatives, principally futures contracts. The Fund may use futures contracts and other derivatives primarily to seek returns on the Fund’s otherwise uninvested cash assets to help it better track the Index. The Fund may also invest in cash and cash equivalents and may lend its securities to minimize the difference in performance that naturally exists between an Index fund and its corresponding Index. 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.