When individual investors purchase products or services from Charles Schwab, Hong Kong, Limited and its affiliates (collectively "Schwab"), we may earn money from third parties or affiliates in addition to the fees paid by our clients. This compensation may apply to products or services that are bought, sold or introduced through Schwab, including offshore mutual funds, Schwab affiliated money market funds, or fixed income. Schwab is always acting in agency capacity for all trades apart from certain fixed income trades where Schwab acts in principal capacity.
Offshore Mutual Funds
Schwab Affiliated Money Market Funds
Exchange-Traded Funds (“ETFs”)
Please note that the information provided throughout this document describes how Schwab earns money from third parties, not how clients pay Schwab for services. Information about what clients pay Schwab can be found at www.schwab.com.hk
or in the disclosure brochures that describe Schwab's fee-based advice programs. Schwab may discount its fees and charges from time to time at its absolute discretion.
Offshore Mutual Funds
Schwab receives compensation from offshore mutual fund companies when clients invest in an offshore mutual fund. Schwab receives fees and other remuneration from offshore mutual fund companies or their affiliates for the recordkeeping, shareholder services, and other administrative services that Schwab provides to shareholders of the funds. These shareholder services include transaction processing, settlement of trades, dividend distribution, record maintenance, and distribution of statements, confirmations, prospectuses and other regulatory shareholder documents.
Through Schwab's Offshore Mutual Fund Center, Schwab offers a selection of load-waived offshore mutual funds. Schwab receives remuneration for the shareholder services provided to these funds. To compensate Schwab for various shareholder services, the funds pay Schwab an asset-based annual fee, which usually equals 0.4% of the average fund assets held at Schwab, but may be as high as 0.45%. The fee may be subject to a monthly minimum that generally does not exceed USD$2,000 and applies beginning with the seventh full month after the fund is made available for purchase at Schwab. Also, funds pay Schwab a one-time establishment fee, which Schwab may waive. The amount of this fee generally does not exceed USD$10,000 for the first fund added and USD$1,000 for each new fund after that.
To the extent that any part of these fees is paid out of fund assets, fees are included in the fund's operating expense ratio (OER), which means the fees may be indirectly borne by the fund's shareholders.
Schwab Affiliated Money Market Funds
Schwab's affiliate, Charles Schwab Investment Management, Inc. (“CSIM”), serves as the investment manager to the Charles Schwab Worldwide Funds plc, an investment company with variable capital incorporated in Ireland. The company is constituted as an umbrella fund and the one money market fund available to Schwab Hong Kong clients is the Schwab U.S. Dollar Liquid Assets Fund. This fund pays CSIM a fee for investment advisory services, the amount of which is described in the prospectus. This fee is included in the fund's OER and is indirectly borne by the fund's shareholders unless the OER is waived.
The fund has adopted a shareholder servicing plan pursuant to which they may pay fees for shareholder services up to 0.25%, plus up to an additional 0.15% annually for administrative services that Schwab provides to shareholders invested in the fund as the optional sweep fund available for clients of Charles Schwab, Hong Kong, Ltd. These fees are part of the fund's OER and are indirectly borne by the fund's shareholders.
Schwab may act as principal or agent in executing individual bond and other fixed income trades in client accounts.
Acting as agent means Schwab executes trades on behalf of clients but does not own the securities being traded. Acting as principal means Schwab sells securities directly to clients, either by owning securities that sell on the secondary market, by participating in selling groups, or by entering into distribution agreements that allow Schwab to acquire inventory of new-issue securities.
When Schwab sells clients a fixed income security from its own account or purchase from clients a fixed income security into its own account, the price the clients pay or receive reflects the bid-ask spread at which an order is executed. Schwab also stands to make or lose money depending on what has happened to the price of the security while we have held it. Likewise, when Schwab sells clients new-issue securities, Schwab receives a customary selling concession, which ranges from less than 0.01% to 2% of the par value, or face amount, of the bond, depending on the product. The percentage rate of the selling concession may differ not only between different new-issue offerings, but also between different series and bond maturities within a single offering.
Schwab has entered into a fixed income dealer agreement with J.P. Morgan Securities LLC ("J.P. Morgan") to purchase from J.P. Morgan, and, acting as principal, sell to Schwab clients certain new-issue fixed income securities from offerings in which J.P. Morgan acts as an underwriter or a selling group member. Pursuant to this agreement, Schwab receives a portion, and in some cases all, of the relevant selling concession. The percentage of the selling concession received by Schwab ranges from less than 0.01% to 2% of the par value of the security depending upon the type of offering, the type of security, and the underwriting syndicate's arrangement with the issuer. Although Schwab's aggregate compensation for a particular offering increases with the number of securities in the offering that Schwab sells to its clients, the portion of the selling concession Schwab receives in an offering does not vary based upon the number of securities sold to its clients.
Exchange-Traded Funds ("ETFs")
Schwab’s affiliate, CSIM, serves as investment advisor to a family of Schwab-affiliated ETFs, which compensate CSIM out of the applicable operating expense ratios.
CSIM will receive compensation from the fund on the amount you invest. The amounts paid to CSIM for Schwab ETFs will vary depending on the particular fund in which you invest and may range from 0.06% to 0.35% of assets. Specific information concerning the advisory fees paid to CSIM by each Schwab ETF is available in the applicable fund prospectus.
Charles Schwab & Co. Inc (the "Clearing Broker") has established the Schwab ETF OneSource™ program ("ETF OneSource") under which ETFs can be traded without a commission on buy and sell transactions. Schwab receives payments from the third-party ETF sponsors or their affiliates participating in ETF OneSource for recordkeeping, shareholder services and other administrative services that Schwab provides to participating ETFs. A portion of the fees paid to Schwab offsets some or all of Schwab's costs of promoting and administering the program. Schwab does not receive payment to promote any particular ETF to its customers.
ETF sponsors or their affiliates pay a fixed program fee to Schwab each year for each ETF participating in ETF OneSource. The program fees vary, but can range up to USD$250,000 per year for each participating ETF. ETF sponsors or their affiliates also pay Schwab an asset-based fee based on a percentage of total ETF assets purchased by Schwab customers after the ETF was added to ETF OneSource. The amount of the asset-based fee can range up to 0.15% annually.
Disclosure: This note is for your information only and is not intended as an offer, or a solicitation, to buy or sell any investment or specific product. It may not be reproduced and/or circulated without prior authority of Charles Schwab, Hong Kong, Ltd. All information in this note is subject to change without notice.