Schwab Launches Fundamental Index(TM) Mutual Funds

SAN FRANCISCO, April 2 /PRNewswire-FirstCall/ -- With the introduction today of three Fundamental Index(TM) mutual funds from Schwab Funds(R), investors have a new alternative to traditional index funds. The Schwab Fundamental US Large Company Index Fund, the Schwab Fundamental US Small-Mid Company Index Fund, and the Schwab Fundamental International Large Company Index Fund are based on the FTSE RAFI(TM) Index Series(1). The new funds leverage the groundbreaking research of Robert D. Arnott and his company, Research Affiliates, as well as FTSE Group's global indexing expertise.

The Fundamental Index approach attempts to offset the risks of overexposure to inflated or understated valuations of individual equities that may occur in market capitalization-weighted indexing, subjecting an investor to the extremes of market cycles. Unlike traditional market capitalization weighted indexes, the FTSE RAFI Index Series selects and weights stocks based on four fundamental financial measures that better reflect underlying company strengths and potential for future performance: sales, cash flow, book value and dividends. This different approach provides the potential for higher investment returns with lower volatility.

"The Fundamental Index methodology is the most important innovation in passive investing since indexing was popularized in the 1970s," said Charles R. Schwab, chairman and CEO of The Charles Schwab Corporation. "Investors who need broad exposure to markets and diversification within their portfolios at a low cost are going to appreciate this new investment tool and its potential to capture greater return with lower volatility. I think we'll look back at this innovation as a watershed moment for the mutual fund investor and for the $5 trillion index fund industry."

Robert D. Arnott first introduced his concepts of fundamentally-derived indexes with the publication of his seminal research in 2005(2) in which he analyzed 45 years' worth of U.S. and international market data comparing results of capitalization-weighted versus fundamental indexing. His research laid the groundwork for the FTSE RAFI Indexes.

"The Fundamental Index reflects a more rational view of a company's success by looking at factors that are reliable signs of a company's strength, such as sales and profits, rather than a narrow view focused simply on how much the market thinks a company is worth," said Mr. Arnott. "Historical analysis shows that the traditional cap-weighting approach tends to overweight overvalued stocks and underweight undervalued stocks. While conventional indexes mirror the composition of the broad stock market, and so are drawn in by the fads, bubbles and crashes of the market, the Fundamental Index(TM) mirrors the composition of the broad economy."

By testing the concept over the last one-, three-, five-, 10- and 15-year periods, Arnott found that the FTSE RAFI U.S. 1000 Index would have outperformed both the Russell 1000(R) Index and the S&P 500(R) in all time periods.

"We are pleased that FTSE's partnership with Schwab makes it possible for investors to reap the benefits of the FTSE RAFI index for the first time in a non-exchange-traded equity mutual fund," said Jerry Moskowitz, president, FTSE Americas. "Now investors have access to the benefits of indexing, but with the advantage of achieving potentially higher investment returns."

Schwab's Fundamental Index funds are available through Schwab on a no-load, no transaction fee basis in three share classes. The Investor Shares have an expense ratio of 0.59 percent per year ($5.90/$1,000 invested) and a $2,500 minimum investment ($100 for custodial accounts, $1,000 for retirement and educational accounts); Select Shares have expenses of 0.44 percent and a $50,000 minimum. Because the funds were designed with investment advisors in mind, Schwab Funds is also offering an Institutional share class with expenses of 0.35 percent and a $500,000 minimum investment. Advisors may aggregate client funds to meet the investment minimums for Select and Institutional Shares. The share class expense ratios are guaranteed through February 27, 2009 (excluding interest, taxes and certain non-routine expenses).

Jeff Mortimer, senior vice president and chief investment officer of equities for Charles Schwab Investment Management, Inc., has overall responsibility for the management of the Schwab Fundamental Index(TM) Funds. He joined Schwab in 1997 after working for nine years in asset allocation and manager selection. Larry Mano, managing director and portfolio manager, and Tom Brown, portfolio manager, are responsible for day-to-day co-management of the funds. More information is available at http://www.schwabfunds.com/fundamentalindex/

About Charles Schwab Investment Management

Founded in 1991, Charles Schwab Investment Management, Inc., a subsidiary of the Charles Schwab Corporation, is one of the nation's largest asset management companies with $197 billion in assets under management as of Feb. 28, 2007. It is among the country's largest money market fund managers and is the third- largest provider of retail index funds. In addition to managing Schwab proprietary funds, CSIM provides oversight for the institutional-style, sub- advised Laudus Fund family. CSIM also manages over $1.3 billion in separately managed accounts as of Feb. 28, 2007. CSIM currently manages 69 mutual funds including 33 actively managed funds and five separate account model portfolios.

About Charles Schwab

The Charles Schwab Corporation (SCHW) is a leading provider of financial services, with more than 300 offices and 6.8 million client brokerage accounts, more than one million corporate retirement plan participants, 150,000 banking accounts, and $1.3 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org/), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Schwab Institutional division. The Charles Schwab Bank, N.A. (member FDIC) provides banking and mortgage services and products. CyberTrader(R), Inc. (member SIPC, http://www.sipc.org/) is an electronic trading technology and brokerage firm providing services to highly active, online traders. More information is available at http://www.schwab.com/. (0407-6011)

PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT INDICATE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE: THEREFORE, REDEMPTION OF SHARES MAY RESULT IN LOSS OF PRINCIPAL.

INVESTORS SHOULD CONSIDER CAREFULLY INFORMATION CONTAINED IN THE MUTUAL FUND PROSPECTUS, INCLUDING INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. YOU CAN REQUEST A MUTUAL FUND PROSPECTUS BY CALLING SCHWAB AT 800-435-4000. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.

THE SCHWAB FUNDAMENTAL INDEX FUNDS DO NOT YET HAVE PERFORMANCE. PERFORMANCE OF THE FTSE RAFI INDEXES INCLUDE DATA THAT PREDATE THE INCEPTION OF THESE INDEXES. THEREFORE, PERFORMANCE MEASUREMENTS FOR THE INDEX PRIOR TO THE INCEPTION DATES ARE THE RESULTS OF BACK TESTED DATA AND REPRESENT WHAT THE INDEX MIGHT HAVE ACHIEVED, BUT DOES NOT REFLECT THE ACTUAL PERFORMANCE OF THE INDEX.

INDEX FIGURES DO NOT INCLUDE TRADING AND MANAGEMENT COSTS, WHICH WOULD LOWER PERFORMANCE OF THE FUNDS. INDEXES ARE UNMANAGED, AND YOU CANNOT INVEST IN THEM DIRECTLY. ALTHOUGH THE FUNDS SEEK TO DUPLICATE THE METHODOLOGY AND PERFORMANCE OF THE FTSE(TM) RAFI(TM) INDEXES, EXPENSES TAXES, TRADING COSTS AND ANY ADJUSTMENT TO THE INDEX METHODOLOGY WILL CAUSE THE TWO TO HAVE DIFFERENT PERFORMANCE RESULTS.

The Fund is not in any way sponsored, endorsed, sold or promoted by FTSE Limited ("FTSE") or by the London Stock Exchange Plc ("Exchange") or by the Financial Times Limited ("FT") or by Research Affiliates LLC ("RA"), and neither FTSE nor Exchange nor FT nor RA makes any warranty or representation whatsoever, expressly or implicitly, as to the results to be obtained from the use of the FTSE(TM) RAFI(TM) 1000 Index ("Index") and/or the figure at which the said index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE in conjunction with RA; however, neither FTSE nor Exchange nor FT nor RA shall be liable (whether in negligence or otherwise) to any person for any error in the index, and neither FTSE nor the Exchange nor FT nor RA shall be under any obligation to advise an person of any error therein. FTSE, Rob Arnott and Research Affiliates are not affiliated with Charles Schwab & Co. its subsidiaries and affiliates and parents. The Fundamental Index(TM) and RAFI(TM) trade names and patent pending concept are the exclusive property of Research Affiliates LLC and are used by Charles Schwab Investment Management under license through FTSE(TM). Each Fund offers Select and investor share classes with lower investment minimums.

  (1)  FTSE is an independent company jointly owned by The Financial Times
       and the London Stock Exchange and is the global distributor of the
       FTSE RAFI Indexes. It calculates over 100,000 indexes covering 98% of
       the world's investable market capitalization. It is estimated that
       $2.5 trillion of assets are under management globally using FTSE
       indexes. RAFI is the Research Affiliates Fundamental Index.

  (2)  Financial Analysts Journal, March/April 2005