THE SCHWAB FUNDS
CODE OF BUSINESS CONDUCT AND ETHICS
FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
OUR VISION
Provide shareholders with the most useful and ethical Mutual Funds in the world.
OUR VALUES
Be fair, empathetic and responsive in serving our shareholders.
Strive relentlessly to innovate what we do and how we do it.
Always earn and be worthy of our shareholders' trust.
SHAREHOLDER VALUE
The Schwab Funds' Principal Executive Officer and Principal Financial Officer
and any other officers who serve a similar function shall endeavor to act
in the best interests of the Schwab Funds and their shareholders.
INTRODUCTION
The Schwab Funds Code of Business Conduct and Ethics ("Code") covers all of the
investment companies within the Schwab Funds' complex. This Code applies to the
Schwab Funds' Principal Executive Officer and Principal Financial Officer and
any other officers who serve a similar function (each an "Officer").
The Schwab Funds are committed to the highest standards of ethical conduct in
the fulfillment of our Vision and Values. We are proud of our long-standing
reputation for integrity and honesty that strengthens our Vision to provide our
shareholders with the most useful and ethical mutual funds in the world. This
reputation is not just a source of competitive advantage in the financial
services industry; it is fundamental to the way we do business.
This Code provides guidance on how you, as an Officer, uphold these ethical
standards. It applies to your service to the Schwab Funds.
The Code consists of an outline of policies regarding conduct in several key
areas: ethical behavior and legal compliance, conflicts of interest,
confidentiality and business practices. You are responsible for reviewing the
Code and for acting in compliance with the Code in your daily activities.
The Code is not exhaustive; it provides guidance for carrying out your
responsibilities on behalf of the Schwab Funds and observing the highest
standards of ethical conduct. Because the Code does not address every possible
situation that may arise, you are responsible for exercising good judgment,
applying ethical principles, and raising questions when in doubt. Your integrity
and good judgment enhance the Schwab Funds' brand, build the Schwab Funds'
reputation, and are the foundation of trust for our shareholder and business
relationships.
GENERAL SCHWAB FUNDS AND PERSONAL STANDARDS OF CONDUCT
As an Officer you have a responsibility to act in a manner in which you earn the
public's trust and confidence. Your conduct is guided by our values, which are
to:
- Be fair, empathetic and responsive in serving our shareholders.
- Strive relentlessly to innovate what we do and how we do it.
- Always earn and be worthy of our shareholders' trust.
- 1 -
SCHWAB FUNDS CONDUCT
The following general principles guide our Schwab Funds conduct:
- You will act in accordance with applicable laws and regulations and
will not tolerate behavior that is otherwise.
- You will make public disclosures as required by law and regulation
and as deemed appropriate to enable reasonable evaluation of the
Schwab Funds.
- You will strive to provide an equitable return for our investors.
- You will provide products and services designed to help shareholders
achieve their financial goals.
- You will conduct business fairly, in open competition.
INDIVIDUAL CONDUCT
The following general principles guide your individual conduct:
- You will not take any action that will violate any applicable law or
regulation.
- You will adhere to the highest standards of ethical conduct.
- You will maintain the confidentiality of all information you obtain
in the course of your employment.
- You will escalate issues which you reasonably believe may place the
Schwab Funds at risk, and report any behavior you reasonably believe
is wrong.
- You will not abuse or take the Schwab Funds' assets or use them for
your personal gain.
- You will not engage in any activities that create a conflict of
interest (as defined below) between you and the Schwab Funds.
- You will comport yourself publicly in a manner that does not bring
discredit on the Schwab Funds.
- You will deal fairly with shareholders, colleagues and others.
- You will comply with this Code.
You have personal responsibility to conduct the Schwab Funds' business in a
manner consistent with these principles, and you cannot avoid this
responsibility by contrary instructions from a supervisor or by turning a blind
eye. Many of these principles are explained in more detail below and in the
Schwab Funds' other polices and procedures. If you have questions on any of
them, you should consult with the Chief Legal Officer of the Schwab Funds or the
Chief Compliance Officer of Charles Schwab Investment Management, Inc. ("CSIM").
ETHICAL BEHAVIOR
Your decisions and behavior have far-reaching implications. Standards of ethical
and professional conduct reflect on the individual, on the Schwab Funds brand,
and on the investment industry as a whole. A strong personal sense of ethics
should always play a significant role in guiding you towards a proper course of
action.
- 2 -
COMPLIANCE WITH LAWS, RULES, REGULATIONS AND POLICIES
The foundation of the Schwab Funds' ethical standards is compliance with the
letter and spirit of the law. You must respect and obey all of the laws, rules
and regulations applicable to our business, including among others, securities
and other federal, state and local laws. You are responsible for being familiar
and complying with the Schwab Funds' policies and procedures. Although you are
not expected to know the details of each law governing our business, you are
expected to be familiar with and comply with the Schwab Funds' policies and
procedures and, when in doubt, to seek advice from the Chief Legal Officer or
Chief Compliance Officer as outlined in this Code.
CONSEQUENCES FOR FAILURE TO COMPLY AND REPORTING CERTAIN CONDUCT
You can be subject to discipline up to and including termination of employment
if you violate this Code. If you know of, or reasonably believe there is, a
violation of applicable laws or this Code, you must report that information
immediately to the Chief Legal Officer. You should not conduct preliminary
investigations, unless authorized to do so by the Chief Legal Officer. Anyone
who in good faith raises an issue regarding a possible violation of law
regulation or Schwab Funds policy or any suspected illegal or unethical behavior
will be protected from retaliation.
CONFLICTS OF INTEREST
To maintain the highest ethical standards in conducting our business, it is
important that you do not place yourself in a position that would cloud your
judgment in carrying out the business affairs of the Schwab Funds. A "conflict
of interest" occurs when your private interest interferes in any way -- or even
appears to interfere -- with the interests of the Schwab Funds. You have a duty
to report any material transaction or relationship that reasonably could be
expected to be or to create a conflict of interest with the Schwab Funds. If you
have any questions regarding what might constitute a conflict of interest, or to
report any transaction or relationship that you believe has occurred or may
occur that might constitute a conflict of interest, contact the Chief Legal
Officer or Chief Compliance Officer.
Certain conflicts of interest arise out of the relationships between Officers
and the Schwab Funds and already are subject to conflict of interest provisions
in the Investment Company Act of 1940 ("Investment Company Act") and the
Investment Advisers Act of 1940 ("Investment Advisers Act"). For example,
Officers may not individually engage in certain transactions (such as the
purchase or sale of securities or other property) with the Schwab Funds because
of their status as "affiliated persons" of the Schwab Funds. The Schwab Funds'
and CSIM's compliance programs and procedures are designed to prevent, or
identify and correct, violations of these provisions. This Code does not, and is
not intended to, repeat or replace these programs and procedures, and such
conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal benefit,
conflicts arise from, or as a result of, the contractual relationship between
the Schwab Funds and CSIM. Each Officer may also be an officer or employee of
CSIM or Schwab. As a result, this Code recognizes that the Officers will, in the
normal course of their duties (whether formally for the Schwab Funds or for
CSIM, or for both), be involved in establishing policies and implementing
decisions that will have different effects on CSIM and the Schwab Funds. The
participation of the Officers in such activities is inherent in the contractual
relationship between the Schwab Funds and CSIM and is consistent with the
performance by the Officers of their duties as officers of the Schwab Funds.
Thus, if performed in conformity with the provisions of the Investment Company
Act and the Investment Advisers Act, such activities will be deemed to have been
handled ethically. In addition, it is recognized by the Trustees that the
Officers may also be officers or employees of one or more other investment
companies covered by this or other codes.
- 3 -
INSIDE INFORMATION
It is unlawful to trade in the securities of any Schwab Funds on the basis of
material nonpublic (or inside) information or to disclose such information to
others who may profit from it. Generally, material information is any
information that an investor would likely consider important in deciding whether
to buy, sell or hold securities or that could affect the market price of the
securities. Examples include actual or estimated financial results or change in
dividends; significant discoveries or product developments; possible mergers,
acquisitions or divestitures; major changes in business strategies; obtaining or
losing significant contracts; and threatened major litigation or related
developments. Do not disclose inside information to anyone except those who have
a need to know it in order to fulfill their responsibilities for the Schwab
Funds and in accordance with Schwab Funds policy. If you have or receive
information and are unsure whether it is within the definition of inside
information or whether its release might be contrary to a fiduciary or other
obligation, contact the Chief Legal Officer prior to disclosing any such
information.
ACCEPTANCE OF GIFTS OR ENTERTAINMENT
The acceptance of gifts or excessive entertainment from shareholders, vendors,
suppliers, competitors or other employees must not constitute a conflict of
interest or create the appearance of impropriety. You may accept small gifts and
entertainment that are worth less than the amount Charles Schwab Corporation
policy sets as a limit, but you must be personally satisfied that the gift or
entertainment is not intended to influence your judgment or the performance of
your duties. If you have any questions regarding the appropriateness of a gift,
you must obtain approval from the Chief Compliance Officer before accepting it.
CONFIDENTIALITY OF INFORMATION
As mutual funds, we have particular responsibilities for safeguarding the
information of our shareholders and the proprietary information of the Schwab
Funds. You should be mindful of this obligation when you use the telephone, fax,
telex, electronic mail, and other electronic means of storing and transmitting
information. You should not discuss confidential information in public areas
where it can be overheard, read confidential documents in public places, nor
leave or discard confidential documents where they can be retrieved by others.
CONFIDENTIALITY OF SHAREHOLDER INFORMATION
Information concerning the identity of Schwab Funds' underlying shareholders and
their transactions and accounts is confidential. Such information may not be
disclosed to persons working on behalf of the Schwab Funds except as they may
need to know it in order to fulfill their responsibilities to the Schwab Funds.
You may not disclose such information to anyone or any firm outside the Schwab
Funds unless (i) the outside firm needs to know the information in order to
perform services for the Schwab Funds and is bound to maintain its
confidentiality; (ii) when the shareholder has consented or been given an
opportunity to request that the information not be shared; (iii) as required by
law; or (iv) as authorized by the Chief Legal Officer or Chief Compliance
Officer.
Information regarding shareholder or Schwab Funds transactions must not be used
in any way to influence trades in personal accounts or in the accounts of other
shareholders, including those of other employees, officers and directors.
Trading ahead of shareholder or Schwab Funds transactions is known as
frontrunning and is prohibited. Following shareholder or Schwab Funds
transactions with your trading activity is known as piggybacking or shadowing
and is likewise prohibited. If you reasonably believe improper trading in
personal, shareholder or Schwab Funds accounts has occurred, you must report
such conduct to the Chief Legal Officer.
- 4 -
PRIVACY
The Schwab Funds is committed to safeguarding its customers' privacy. We do not
sell any personally identifiable customer information. Sharing of such
information with third parties is limited to situations related to the
processing and servicing of customer accounts, and to specifically delineated
exceptions in the federal privacy law. We share information with our affiliates
as allowed by federal law. You must be familiar with the procedural and systemic
safeguards we maintain to protect this information and report any breaches of
these safeguards to the Chief Legal Officer or Chief Compliance Officer.
PROPRIETARY INFORMATION OF THE SCHWAB FUNDS
You have the responsibility to safeguard the Schwab Funds' proprietary
information. Proprietary information includes intellectual property (copyrights,
trademarks or patents or trade secrets), particular know-how (business or
organizational designs, or business, marketing or service plans or ideas) and
sensitive information about the Schwab Funds (databases, records, salary
information or unpublished financial reports). If you have any questions about
what constitutes proprietary information, or if you believe such information has
been compromised, contact the Chief Legal Officer.
PROTECTION AND USE OF SCHWAB FUNDS ASSETS
You are obligated to protect the Schwab Funds' assets and ensure their efficient
use. Theft, carelessness and waste have a direct impact on the Schwab Funds.
Schwab Funds equipment should not be used for non-Schwab Funds business, though
incidental personal use may be permitted. Breaches of this obligation must be
reported to the Chief Legal Officer.
NON-RETALIATION
It is your obligation to report issues regarding possible violations of business
regulations or this Code when you suspect in good faith that a violation may
have or might occur. No Officer will be retaliated against for making a good
faith complaint or bringing inappropriate conduct to the Schwab Funds'
attention, for assisting another Officer in making a good faith report, for
cooperating in an investigation, or for filing an administrative claim with a
state or federal governmental agency. Any employee who engages in retaliatory
conduct in violation of our policies will be subject to disciplinary action, up
to and including termination of employment. If you reasonably believe
retaliatory conduct has occurred, you must report such conduct to the Chief
Legal Officer.
BUSINESS PRACTICES
It is your obligation to report issues regarding possible violations of business
regulations or this Code when you suspect in good faith that a violation may
have or might occur. As a financial institution, it is imperative that we
operate with efficiency, and the highest business standards and that we maintain
and provide accurate information.
FINANCIAL DISCLOSURES
The Schwab Funds are committed to providing full, fair, accurate, timely and
understandable disclosure in reports and documents that the Schwab Funds file
with, or submit to, the Securities and Exchange Commission and other regulatory
agencies and in other public communications made by the Schwab Funds. You are
required to comply with Schwab Funds policies and procedures to provide such
full, fair, accurate, timely and understandable disclosure. If you have any
questions about your duties in supporting the Schwab Funds' financial reporting
processes, contact the Chief Legal Officer or Chief Compliance Officer.
- 5 -
CONDUCT OF AUDITS
Neither you nor any other person acting under your direction shall directly or
indirectly take any action to fraudulently influence, coerce, manipulate, or
mislead any independent public or certified public accountant engaged in the
performance of an audit or review of the Schwab Funds' financial statements.
Types of conduct that constitute improper influence include, but are not limited
to, directly or indirectly:
- Offering or paying bribes or other financial incentives, including
offering future employment or contracts for non-audit services;
- Providing an auditor with inaccurate or misleading legal analysis;
- Threatening to cancel or canceling existing non-audit or audit
engagements if the auditor objects to the issuer's accounting;
- Seeking to have a partner removed from the audit engagement because
the partner objects to the Schwab Funds' accounting;
- Blackmailing; and
- Making physical threats.
If you reasonably believe improper influence has occurred, you must report such
conduct to the Chief Legal Officer or the Chief Compliance Officer.
RECORD-KEEPING
We require honest and accurate recording and reporting of information to
maintain the integrity of our business records and to make responsible business
decisions. The Schwab Funds' books, records and accounts must (i) accurately
reflect all transactions of the Schwab Funds and all other events that are
subject of a specific regulatory record-keeping requirement; (ii) be maintained
in reasonable detail; and (iii) conform both to applicable legal requirements
and to the Schwab Funds' system of internal controls. Unrecorded or "off the
books" funds or assets are prohibited unless permitted by applicable law or
regulation. Business records must not contain exaggeration, derogatory remarks,
guesswork, or inappropriate characterizations of people and companies. This
applies equally to e-mail, internal memoranda, formal reports, and all other
forms of business records. You must be familiar with the Schwab Funds' record
retention policies and always retain or destroy records according to them. In
the event of litigation, governmental investigation or the threat of such
action, you should consult the Chief Legal Officer or the Chief Compliance
Officer regarding record retention.
SALES PRACTICES
If you transact business for shareholders, you are required to know and observe
the Schwab Funds' specific policies and procedures for shareholder sales and
transactions, such as the content and use of sales materials, documentation for
transactions, quotations and suitability. Likewise, if you transact business
with third parties (such as vendors or suppliers), you will be required to know
and observe the Schwab Funds' policies and procedures for such transactions,
such as marketing policies, procedures for performing due diligence on third
parties, and obtaining proper authorizations for any agreements. You must be
familiar with any enumerated policies and procedures governing your sales
activities and use good judgment in complying with them. You must seek advice
from the Chief Legal Officer or the Chief Compliance Officer if you have any
questions.
- 6 -
COMPETITION AND FAIR DEALING
We operate our business fairly and honestly. We seek competitive advantage
through performance and dedication to our Vision and Values and never through
unethical or illegal business practices. It is our policy to comply with
anti-trust laws. These laws are complex and not easily summarized but at a
minimum require that there be no agreement or understanding between the Schwab
Funds and their competitors that affect prices, terms or conditions of sale or
that unreasonably restrain full and fair competition. You must always respect
the rights of and deal fairly with the Schwab Funds' shareholders and
competitors. You must never take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts, or any other unfair dealing practice. If you have any question
about what constitutes an unfair business practice, you should consult the Chief
Legal Officer.
PROHIBITION OF BRIBERY AND KICKBACKS
Our policies prohibit bribery or kickbacks of any kind and to anyone in the
conduct of our business. The U.S. government has a number of laws and
regulations applicable specifically to business gratuities that may be accepted
by U.S. and foreign government personnel. The promise, offer or delivery to an
official or employee of the U.S. government or an official, employee or
candidate of a foreign government of a gift, favor, payment or other gratuity in
violation of these rules would not only violate Schwab Funds policy but could
also be a criminal offense. Similarly, federal law, as well as the laws of many
states, prohibits engaging in "commercial bribery." Commercial bribery involves
soliciting, demanding or agreeing to accept anything of value from any person
intending to influence or be rewarded in connection with any business or
transaction, and prohibits all such behavior, for example, with respect to
vendors, competitors, shareholders, and government employees. If you have any
questions or need any guidance, you should contact the Chief Legal Officer.
COMPLIANCE PROCEDURES
We will work together to ensure compliance with the Code and to take prompt
action in response to reported violations of the Code.
SEEKING GUIDANCE
If you are unsure of what to do in any situation, seek guidance before you act.
Use the Schwab Funds resources, including the Chief Legal Officer or the Chief
Compliance Officer. If you feel that it is not appropriate to discuss a matter
with the Chief Legal Officer or the Chief Compliance Officer, you may contact
the Ombudsperson for the Charles Schwab Corporation. Remember that you must
report all incidents of misconduct, and you may do so without fear of
retaliation. If you have violated the Code, however, making a report will not
protect you from the consequences of your actions.
REPORTING CONDUCT THAT MAY BE IN VIOLATION OF THE CODE
You must report conduct that you believe to be in violation of the Code, Schwab
Funds policy, law or regulation. Reports should be escalated in the following
manner:
- If you have a reasonable belief that a violation has occurred, or
may occur, you must report the conduct to the Chief Legal Officer.
- The Chief Legal Officer will take all appropriate action to
investigate any potential violation reported to the Chief Legal
Officer and will notify counsel for Schwab Funds independent
Trustees ("Trustees") and counsel for the Schwab Funds of the
substance of the potential violation.
- 7 -
- If after investigation, the Chief Legal Officer reasonably believes
that no violation has occurred, the Chief Legal Officer is not
required to take any further action.
- Any matter that the Chief Legal Officer believes is a violation will
be reported to the Trustees.
- If the Trustees concur that a violation has occurred, the Trustees
will consider appropriate action, which may include review of, and
appropriate modification to, applicable policies and procedures;
notification to appropriate personnel of CSIM or its board;
notification to appropriate personnel of the Charles Schwab
Corporation or its board; or a recommendation to dismiss the
Officer.
ROLES IN OBSERVING COMPLIANCE
As Officer of the Schwab Funds, you have a role in observing compliance with the
Code. In general, that includes:
Role of Officers
- Read and be familiar with conduct rules outlined in this Code and
periodically review them.
- Affirm in writing to the Trustees that the Officer has received,
read and understands the Code.
- Annually affirm to the Trustees that the Officer has complied with
the requirements of the Code.
- Comply with the conduct standards outlined in this Code in all
dealings and actions, including those with shareholders, the public
and vendors.
- Report in a timely manner to the Chief Legal Officer any conduct
that may constitute a violation of the Code, Schwab Funds policies,
or laws, rules and regulations.
- Raise questions or concerns about conduct issues with your
supervisor, the Chief Legal Officer or Chief Compliance Officer, and
seek advice when in doubt.
- Cooperate with management during fact-finding investigations and
comply with any confidentiality rules imposed.
Role of Trustees
- Review the Code annually and recommend any changes.
- Review the Officer reports of compliance with the Code.
INTERPRETATION OF CODE AND WAIVERS OF THE CODE
The Chief Legal Officer is responsible for applying the Code to specific
situations in which questions are presented under it and has the authority to
interpret the Code in any particular situation. However, waivers of the Code may
be made only by the Trustees and will be promptly disclosed publicly as required
by law.
AMENDMENTS
This Code may not be amended except in written form, which is specifically
approved or ratified by a majority of the Trustees including a majority of the
independent Trustees. Any amendments will, to the extent required, be disclosed
in accordance with law.
- 8 -
OTHER POLICIES AND PROCEDURES
This Code constitutes the sole code of ethics adopted by the Schwab Funds for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Schwab Funds, CSIM, Charles Schwab & Co., Charles
Schwab Corporation or other Schwab Funds service providers govern or purport to
govern the behavior or activities of an Officer who is subject to this Code,
they are superseded by this Code to the extent that they conflict with the
provisions of this Code. CSIM's code of ethics under Rule 17j-1 pursuant to the
Investment Company Act of 1940 and CSIM's, Charles Schwab & Co.'s, and the
Charles Schwab Corporation's policies and procedures set forth in their
respective compliance manuals and elsewhere are separate requirements applying
to the Officers and are not part of this Code.
CONFIDENTIALITY
All reports and records prepared or maintained pursuant to this Code will be
considered confidential and shall be maintained and protected accordingly.
Except as otherwise required by law or this Code, such matters shall not be
disclosed to anyone other than the Trustees, CSIM, the Charles Schwab
Corporation and their respective counsel.
INTERNAL USE
This Code is intended for internal use by the Schwab Funds and does not
constitute an admission, by or on behalf of any Schwab Funds, as to any fact,
circumstance, or legal conclusion.
CONTACTS
If you have further questions about the Code, or about its applicability with
respect to a particular matter, please contact the Chief Legal Officer or Chief
Compliance Officer. If you feel that it is not appropriate to discuss a matter
with Chief Legal Officer or the Chief Compliance Officer, you may contact the
Ombudsperson.
CHIEF LEGAL OFFICER:
Koji Felton 415-667-3461
CHIEF COMPLIANCE OFFICER:
Randy Fillmore 415-636-3680
CHARLES SCHWAB CORPORATION OMBUDSPERSON:
Sam Scott Miller, Esq. 212-506-5130
Orrick Herrington & Sutcliffe LLP
- 9 -