INVESTMENT OBJECTIVE: The Schwab U.S. Aggregate Bond ETF seeks investment results that track, as closely as possible, before fees and expenses, the total return of the Barclays Capital U.S. Aggregate Bond Index.

INDEX DESCRIPTION: The Barclays Capital U.S. Aggregate Bond 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.

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. 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 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 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.