ETF Investor Snapshot: Q3 2011

Information and insights contained in this Snapshot are based upon analysis of Exchange-Traded Funds (ETFs), regardless of ETF or distributor, custodied at Charles Schwab & Co., Inc., and include both Schwab Retail Clients and RIA Clients. Please see reverse for explanation of terms and conditions of use.
ETF Assets at Schwab: $109B (9% 12-Month Growth)
Growth $100B 12% 37% 1% 17% $109B 11% 48% 39% 63%

12-Month ETF Flows at Schwab (% Segment Share)

6% 3%

51%

6%

50%

Retail Traders Retail Investors RIA Clients

46% 34% Oct 09 Sep 10 Oct 10 Sep 11

Sep 10

Sep 11

ETF TRENDS AT SCHWAB ETF assets custodied at Schwab were at $109 billion, down 12% this quarter compared with a decline of 14% for the S&P 500. Retail Investor ETF assets grew 17% in the past 12 months, outpacing the industry growth rate of 8%. The only client segment with strong positive net flows in Q3 was Retail Investors who favored US Equity ETFs, which gathered 33% of their quarterly flows. Across all client segments, International Equity ETFs saw the largest outflows. While only 5% of ETF assets, Equity Income ETFs account for 11% of total ETF flows and 32% of RIA Client flows year to date.

Q3 SPOTLIGHT: Flows into ETFs

The following is an examination of net flows into ETFs at Schwab from Q1 2009 through Q2 2011. The analysis was undertaken to help shed light on where new dollars invested in ETFs are coming from. Calculation methodology is described on page two. New investments in ETFs came predominantly from Cash. This trend is in line with other recent research findings: RIAs and Retail Investors are using ETFs for diversified market exposure. Diversification is the top benefit cited by RIAs at Schwab and by investors considering purchasing an ETF.
(Advisor Outlook Study 01/2011; Schwab ETF Investor Study 09/2011)

Source of Net Flows into ETFs by Schwab Client Segment*

RIA Clients 5% 6% Retail Investors 4% 9% 19% 15% 13% Retail Traders 4%

96% 72% 64%

ETFs allow investors to own asset classes that were previously inaccessible 50% of ETF owners use ETFs in this way. (Schwab ETF Investor Study 09/2011) Nearly half of RIAs who custody with Schwab use ETFs to maintain market exposure during portfolio transitions (cash equitization). % Share
(Advisor Outlook Study 01/2011)
of Net Flows

-7% 46% Fixed Income 44% Equities Mutual Funds 10% Cash

A much smaller proportion of flows into ETFs were formerly invested in Equities across all client groups, and Mutual Funds primarily among Retail clients.

* Please see reverse side for product type definitions

ETF Investor Snapshot: Q3 2011

FOR QUESTIONS, CONTACT Alyson Nikulicz Public Relations Charles Schwab & Co., Inc. Direct: (212) 403-9240 Email: alyson.nikulicz@schwab.com NOTES All data is as of September 30, 2011 Industry data from Strategic Insight; all other data from Charles Schwab & Co.

DEFINITIONS Schwab means Charles Schwab & Co., Inc., an SEC-registered broker-dealer and investment advisor. Schwab Retail Clients hold brokerage accounts at Schwab and work with Schwab directly either trading on their own or with some help and guidance from Schwab. This includes brokerage assets from retirement accounts (like 401(k)) that come with the ability to open and trade retirement account balances through a Schwab brokerage account. RIA stands for Registered Investment Advisor. RIA Clients: Schwab Advisor Services, supports Independent RIAs whose clients open accounts at Schwab and use Schwab for custodial, operational, and trading support. In this Snapshot, RIA Clients pertains to the end clients served by RIAs unless specifically noted otherwise. Retail Traders: Schwab Retail Clients defined as clients who trade at least 36 times per year (including ETFs and stocks). Retail Investors: All Schwab Retail Clients except Retail Traders plus Schwab Corporate and Retirement Services end clients (which includes corporate brokerage accounts and employee retirement and stock option plans). These have been grouped with Retail Investors for simplicity. Equity Income ETFs: Comprised of Equity High Dividend ETFs as defined by ECS, the ETF Classification System from IndexUnvierse. Funds designated as High Dividend Yield must have a portfolio construction methodology that aims to create a relatively high and stable income stream. These funds differ from Size and Style funds that select or weight by dividends in that High Dividend Yield funds need not be representative of a particular size or style basket, or of the total market. Flows Into ETFs: An examination of net flows into ETFs at Schwab from Q1 2009 Q2 2011, results shown as weighted averages per client segment over the time period. Methodology uses clients quarterly trading activities (buys and sells) to infer new money allocations, based on proportional allocations derived using net trade principal for each product. Flows to sweep and bank deposit products approximated using monthly balance growth rates. Investment product categories included are: Cash: cash, sweep and bank deposit products, money market funds, purchased money market funds, and Certificates of Deposits (CDs); also includes cash and transferred assets into Schwab client accounts. Mutual Funds: mutual funds, including both equity and bond mutual funds. Equities: stocks, including shares in foreign companies and ADRs, REITs, single country index funds and warrants, and options. Fixed Income: all government and corporate and foreign bonds, convertible preferred equities, Treasury Notes and Bills, Strips and Inflation Protected Treasuries (TIPS)

Before purchasing an ETF, investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-4354000. Please read the prospectus carefully before investing. Some specialized exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost.
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