Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-22311
Schwab Strategic Trust – Schwab U.S. REIT ETF and Fundamental Index ETFs
(Exact name of registrant as specified in charter)
211 Main Street, San Francisco, California 94105
(Address of principal executive offices) (Zip code)
Marie Chandoha
Schwab Strategic Trust
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 627-7000
Date of fiscal year end: February 28
Date of reporting period: August 31, 2017
Item 1: Report(s) to Shareholders.
Table of Contents
Semiannual
Report | August 31, 2017
Schwab U.S. REIT ETF™
In This Report
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM).
Distributor: SEI Investments Distribution Co. (SIDCO)
The Sector/Industry classifications in this report use the
Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of MSCI Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles
Schwab & Co., Inc. The Industry classifications used in the schedule of Portfolio Holdings are sub-categories of Sector classifications.
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Performance at a
Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or
higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
| Total Returns for the 6 Months Ended August 31, 2017 | |
| Schwab U.S. REIT ETF (Ticker Symbol: SCHH) | |
| Market Price Return1 | -1.10% |
| NAV Return1 | -1.17% |
| Dow Jones U.S. Select REIT IndexTM | -1.11% |
| ETF Category: Morningstar Real Estate2 | 1.02% |
| Performance Details | pages 7-8 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
For index definitions, please see the
Glossary.
Small-company stocks are subject to greater
volatility than many other asset classes.
The fund is
subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets.
Performance does not reflect the deduction of taxes that a
shareholder would pay on fund distributions or on the redemption of fund shares.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Index ownership — Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). The Dow Jones U.S. Select REIT Index is a product of S&P Dow Jones
Indices LLC and/or its affiliates, and has been licensed for use by CSIM. The Schwab U.S. REIT ETF is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, or any of their respective affiliates and neither S&P
Dow Jones Indices LLC, Dow Jones, nor any of their respective affiliates make any representation regarding the advisability of investing in such product.
| 1 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 2 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Asset
Class Performance Comparison % returns during the 6 months ended August 31, 2017
These figures
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not a
guarantee of future results.
For index
definitions, please see the Glossary.
Data
source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of
a security by the investment adviser.
Management views may have changed since the report
date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
| 1 | Morningstar, “9 Partners for the Next Decade.” Laura Pavlenko Lutton and Greggory Warren, CFA: April 27, 2017. Morningstar looked collectively across four traits (differentiation, low costs, repeatable investment processes, and adaptable business models) to identify firms that they believe are representative of these trends. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
The Investment
Environment
Over the six-month reporting period ended August 31, 2017,
U.S. REITs produced mixed returns, with the Industrial and Diversified sectors producing solid returns while the Office and Retail sectors fell behind. The broader U.S. economy continued its slow but steady recovery and overall real estate
fundamentals stayed resilient. Driven by a strong job market and low mortgage rates, housing demand remained strong, with foreign investment in the U.S. housing market reaching record highs over the reporting period. In this environment, the Dow
Jones U.S. Select REIT IndexTM returned -1.11% for the six-month reporting period, and the FTSE EPRA/NAREIT Global Index (Net), representing general
trends in eligible real estate securities worldwide, returned 5.28%. The overall U.S. stock market, as measured by the S&P 500® Index, returned
5.65% for the reporting period.
The U.S. economy
continued to chug along over the reporting period as it entered its ninth year of expansion. Nonfarm payrolls were steady and U.S. gross domestic product (GDP) grew modestly, while consumer confidence remained high. A stable economy, combined with
relatively low short-term interest rates, generally supported the overall U.S. real estate market. A positive consumer outlook was especially evident in the residential housing market, with the Fannie Mae Home Purchase Sentiment Index®, matching its all-time high in June. Over the reporting period, the office market saw tenant demand solidify as new supply increased, while industrial
rents maintained an upward trajectory and reached an all-time high in the second quarter of 2017. The U.S. retail market fell over the reporting period with a decline in overall retail investments and headwinds from the sustained growth of
e-commerce. Some additional signs of weakness were present during the six-month reporting period, including rising commercial mortgage defaults and softening rental growth in the U.S. family property market, though overall positive economic
measurements helped offset some of these negative factors.
During the reporting period, the Federal Reserve (Fed)
continued making progress toward a more normalized monetary policy environment. The Fed raised the target federal funds rate by 0.25% at meetings in March and in June, with short-term interest rates ending the reporting period in a target range of
1.00% to 1.25%. The Fed also communicated plans to begin unwinding its massive balance sheet later in 2017 by allowing securities to mature without reinvesting the proceeds. According to Fed Chair Janet Yellen, the Fed anticipates
“…reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis.” These shifts in policy signaled the Fed’s increasing confidence in
the strength of the U.S. economy, as well as in its progress toward goals of price stability and maximum sustainable employment. While dividend-paying investments (including REITs) are subject to interest-rate risk and can lose ground in a rising
rate environment, continued strength in U.S. economic fundamentals provided a tailwind to some of these types of securities over the reporting period.
Over the six-month reporting period, the performance of U.S.
REITs was mixed. Retail REITs had the worst returns in the Dow Jones U.S. Select REIT Index, due in large part to the negative performance of regional malls amid the closing of anchor stores and tenant bankruptcies. Continued competition from
e-commerce and declining occupancy rates also played a role, as did rising short-term interest rates. By comparison, Industrial REITs generated double-digit returns and continued to be a top performer in the Dow Jones U.S. Select REIT Index.
Industrial rents maintained an upward trajectory and reached an all-time high in the second quarter of 2017 as demand for space from e-commerce companies was greater than available supply. Industrials are also less sensitive to rising interest
rates, helped even further by the high rent growth, and so were less affected by the Fed’s federal funds rate increases.
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Fund Management
 |
Christopher Bliss, CFA, Vice President and Head of the Passive Equity Team, leads the portfolio management team for Schwab’s Passive Equity Funds and ETFs. He also has overall responsibility for all aspects of the management of the fund. Prior to joining CSIM in 2016, Mr. Bliss spent 12 years at BlackRock (formerly Barclays Global Investors) managing and leading institutional index teams, most recently as a Managing Director and Head of Americas Institutional Index team. Prior to BlackRock, he worked as an equity analyst and portfolio manager for Harris Bretall and before that, as a research analyst for JP Morgan. |
 |
Ferian Juwono, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and nearly two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California. |
 |
Sabya Sinha, Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2015, Mr. Sinha spent a year at F-Squared Investments on the product development and analytics team. Prior to F-Squared, he worked at IndexIQ Advisors as a senior index portfolio manager for three years and for Bank of America’s Columbia Management subsidiary as a portfolio manager for three years. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 5 Years | Since Inception* |
| Fund: Schwab U.S. REIT ETF (1/13/11) | ||||
| Market Price Return2 | -1.10% | -3.28% | 8.52% | 10.36% |
| NAV Return2 | -1.17% | -3.32% | 8.54% | 10.35% |
| Dow Jones U.S. Select REIT IndexTM | -1.11% | -3.13% | 8.67% | 10.50% |
| ETF Category: Morningstar Real Estate3 | 1.02% | 0.32% | 8.52% | 9.82% |
| Fund Expense Ratio4: 0.07% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Small-company stocks may be subject to greater volatility than
many other asset classes.
The fund is subject to risks
associated with the direct ownership of real estate securities, and an investment in the fund will be closely linked to the performance of the real estate markets.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Index ownership — Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). The Dow Jones U.S. Select REIT Index is a product of S&P Dow Jones
Indices LLC and/or its affiliates, and has been licensed for use by CSIM. The Schwab U.S. REIT ETF is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, or any of their respective affiliates and neither S&P
Dow Jones Indices LLC, Dow Jones, nor any of their respective affiliates make any representation regarding the advisability of investing in such product.
| * | Inception (1/13/11) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 4 | As stated in the prospectus. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Performance and Fund
Facts as of August 31, 2017
Top Equity Holdings % of Net Assets5
Portfolio holdings may have changed since the report
date.
An index is a statistical composite of a specified
financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S& P and MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 5 | This list is not a recommendation of any security by the investment adviser. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 3/1/17 |
Ending
Account Value (Net of Expenses) at 8/31/17 |
Expenses
Paid During Period 3/1/17-8/31/172 | |
| Schwab U.S. REIT ETF | ||||
| Actual Return | 0.07% | $1,000.00 | $ 988.30 | $0.35 |
| Hypothetical 5% Return | 0.07% | $1,000.00 | $1,024.85 | $0.36 |
| 1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period. |
| 2 | Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by 365 days of the fiscal year. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
3/1/13–
2/28/14 |
3/1/12–
2/28/13 | |
| Per-Share Data | ||||||
| Net asset value at beginning of period | $42.08 | $37.71 | $40.04 | $33.06 | $31.96 | $28.30 |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.75 1 | 1.04 1 | 1.03 1 | 0.92 | 0.80 | 0.72 |
| Net realized and unrealized gains (losses) | (1.24) | 4.48 | (2.38) | 6.91 | 1.08 | 3.71 |
| Total from investment operations | (0.49) | 5.52 | (1.35) | 7.83 | 1.88 | 4.43 |
| Less distributions: | ||||||
| Distributions from net investment income | (0.36) | (1.15) | (0.98) | (0.85) | (0.78) | (0.77) |
| Net asset value at end of period | $41.23 | $42.08 | $37.71 | $40.04 | $33.06 | $31.96 |
| Total return | (1.17%) 2 | 14.74% | (3.41%) | 24.04% | 6.08% | 15.83% |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.07% 3 | 0.07% | 0.07% | 0.07% | 0.07% | 0.10% 4 |
| Net investment income (loss) | 3.65% 3 | 2.50% | 2.70% | 2.56% | 2.52% | 2.43% |
| Portfolio turnover rate5 | 5% 2 | 14% | 12% | 15% | 11% | 7% |
| Net assets, end of period (x 1,000) | $3,613,831 | $3,037,968 | $1,823,208 | $1,269,306 | $790,052 | $466,567 |
| * | Unaudited. |
1
Calculated based on the average shares outstanding during
the period.
2
Not annualized.
3
Annualized.
4
Effective September 20, 2012, the annual operating expense
ratio was reduced. The ratio presented for the period ended 2/28/13 is a blended ratio.
5
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to
value the fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $3,604,650,280 | $— | $— | $3,604,650,280 | |
| Other Investment Companies1 | 12,064,044 | — | — | 12,064,044 | |
| Futures Contracts2 | 29,224 | — | — | 29,224 | |
| Total | $3,616,743,548 | $— | $— | $3,616,743,548 |
| 1 | As categorized in Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between
Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $3,447,834,766) including securities on loan of $4,854,060 | $3,611,790,574 | |
| Collateral invested for securities on loan, at value (cost $4,923,750) | 4,923,750 | |
| Deposit with broker for futures contracts | 415,800 | |
| Receivables: | ||
| Fund shares sold | 2,061,512 | |
| Dividends | 1,765,082 | |
| Variation margin on futures contracts | 48,027 | |
| Income from securities on loan | + | 15,822 |
| Total assets | 3,621,020,567 | |
| Liabilities | ||
| Collateral held for securities on loan | 4,923,750 | |
| Payables: | ||
| Investments bought | 2,053,906 | |
| Investment adviser fees | + | 211,962 |
| Total liabilities | 7,189,618 | |
| Net Assets | ||
| Total assets | 3,621,020,567 | |
| Total liabilities | – | 7,189,618 |
| Net assets | $3,613,830,949 | |
| Net Assets by Source | ||
| Capital received from investors | 3,446,112,834 | |
| Net investment income not yet distributed | 33,355,241 | |
| Net realized capital losses | (29,622,158) | |
| Net unrealized capital appreciation | 163,985,032 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $3,613,830,949 | 87,650,000 | $41.23 | ||
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends | $61,772,328 | |
| Securities on loan, net | + | 81,349 |
| Total investment income | 61,853,677 | |
| Expenses | ||
| Investment adviser fees | 1,163,888 | |
| Total expenses | – | 1,163,888 |
| Net investment income | 60,689,789 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (29,276,726) | |
| Net realized gains on in-kind redemptions | 12,021,811 | |
| Net realized gains on futures contracts | + | 410,085 |
| Net realized losses | (16,844,830) | |
| Net change in unrealized appreciation (depreciation) on investments | (76,609,118) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (162,255) |
| Net change in unrealized appreciation (depreciation) | + | (76,771,373) |
| Net realized and unrealized losses | (93,616,203) | |
| Decrease in net assets resulting from operations | ($32,926,414) | |
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $60,689,789 | $64,188,275 | ||
| Net realized gains (losses) | (16,844,830) | 28,034,704 | ||
| Net change in unrealized appreciation (depreciation) | + | (76,771,373) | 194,880,849 | |
| Increase (decrease) in net assets resulting from operations | (32,926,414) | 287,103,828 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | ($28,367,700) | ($71,668,635) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 16,900,000 | $696,227,893 | 27,750,000 | $1,158,636,462 | ||||
| Shares redeemed | + | (1,450,000) | (59,070,909) | (3,900,000) | (159,311,136) | |||
| Net transactions in fund shares | 15,450,000 | $637,156,984 | 23,850,000 | $999,325,326 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 72,200,000 | $3,037,968,079 | 48,350,000 | $1,823,207,560 | ||||
| Total increase | + | 15,450,000 | 575,862,870 | 23,850,000 | 1,214,760,519 | |||
| End of period | 87,650,000 | $3,613,830,949 | 72,200,000 | $3,037,968,079 | ||||
| Net investment income not yet distributed | $33,355,241 | $1,033,152 | ||||||
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Schwab U.S. REIT ETF | Semiannual Report
See financial notes
Schwab U.S. REIT ETF
Financial Notes,
unaudited
1. Business Structure of the Fund:
Schwab U.S.
REIT ETF is a series of Schwab Strategic Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the 1940
Act). The list below shows all the operational funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:
| SCHWAB STRATEGIC TRUST (ORGANIZED JANUARY 27, 2009) | |
| Schwab U.S. REIT ETF | Schwab U.S. TIPS ETF™ |
| Schwab U.S. Broad Market ETF™ | Schwab Short-Term U.S. Treasury ETF™ |
| Schwab U.S. Large-Cap ETF™ | Schwab Intermediate-Term U.S. Treasury ETF™ |
| Schwab U.S. Large-Cap Growth ETF™ | Schwab U.S. Aggregate Bond ETF™ |
| Schwab U.S. Large-Cap Value ETF™ | Schwab Fundamental U.S. Broad Market Index ETF |
| Schwab U.S. Mid-Cap ETF™ | Schwab Fundamental U.S. Large Company Index ETF |
| Schwab U.S. Small-Cap ETF™ | Schwab Fundamental U.S. Small Company Index ETF |
| Schwab U.S. Dividend Equity ETF™ | Schwab Fundamental International Large Company Index ETF |
| Schwab International Equity ETF™ | Schwab Fundamental International Small Company Index ETF |
| Schwab International Small-Cap Equity ETF™ | Schwab Fundamental Emerging Markets Large Company Index ETF |
| Schwab Emerging Markets Equity ETF™ | |
The fund issues and redeems shares at its net asset value per
share (NAV) only in large blocks of shares, typically 50,000 shares or more (Creation Units). These transactions are usually in exchange for a basket of securities and/or an amount of cash. As a practical matter, only institutions or large investors
purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the fund are not redeemable securities.
Individual shares of the fund trade on national securities
exchanges and elsewhere during the trading day and can only be bought and sold at market prices throughout the trading day through a broker-dealer. Because fund shares trade at market prices rather than NAV, shares may trade at a price greater than
NAV (premium) or less than NAV (discount).
The fund
maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is
a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard
Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).
The fund may invest in certain other investment companies
(underlying funds). For more information about the underlying funds' operations and policies, please refer to those funds' semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (SEC).
Effective August 1, 2017, the fund adopted disclosure
requirement changes for SEC Regulation S-X. The adopted changes are reflected throughout this report.
(a) Security Valuation:
Under procedures approved by the fund's Board of Trustees (the
Board), the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair
market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The fund values the securities in its portfolio every business
day. The fund uses the following policies to value various types of securities:
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Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
•
Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that
the fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
•
Underlying funds: Mutual funds are valued at their respective NAVs. Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price that day or the
official closing price, if applicable.
In accordance
with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair
value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that
are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation.
If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with
orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities, ETFs and futures contracts. Investments in mutual funds are valued daily at their NAV, and
investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying
fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations.
•
Level 3—significant unobservable inputs (including the fund's own assumptions in determining the fair value of
investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When
observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the
original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3
prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may
significantly impact the resulting fair value and therefore the fund’s results of operations.
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Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
The inputs or methodology used for valuing securities are
not necessarily an indication of the risk associated with investing in those securities.
The levels associated with valuing the fund's investments
as of August 31, 2017 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date.
The fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or
received by the fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures
contracts are traded publicly on exchanges, and their market value may change daily.
Securities Lending: Under
the trust's Securities Lending Program, the fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or
fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the current
value of the securities loaned. The lending agent provides the fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of securities
loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. The fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the fund or the
lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreements. Securities lending
income, as disclosed in the fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and broker rebates
which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between the fund and the lending agent. The aggregate market value of
securities loaned will not at any time exceed one-third of the total assets of the fund, including collateral received from the loan. Total costs and expenses, including lending agent fees and broker rebates, associated with securities lending
activities under the trust’s Securities Lending Program paid to the unaffiliated lending agents start at 10% of gross lending revenue, with subsequent breakpoints to a low of 7.5%.
As of August 31, 2017, the fund had securities on loan, all
of which were classified as common stocks. The value of the securities on loan and the related collateral as of August 31, 2017 are disclosed in the fund's Portfolio Holdings. The value of the securities on loan and investment of cash collateral are
also disclosed in the fund's Statement of Assets and Liabilities.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
When the fund closes out a futures contract position, it
calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
The fund invests in real estate investment trusts (REITs)
which report information on the source of their distributions annually. The fund policy is to record all REIT distributions initially as dividend income on the ex-dividend date and then re-designate them as return of capital and/or capital gain
distributions at the end of the reporting period based on information provided annually by each REIT, and management estimates such re-designations when actual information has not yet been reported.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and
distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date. Any
distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
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Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
(e) Expenses:
Pursuant to the Investment Advisory Agreement (Advisory
Agreement) between Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) and the trust, the investment adviser will pay the operating expenses of the fund, excluding taxes, any brokerage expenses, and extraordinary or
non-routine expenses. Taxes, any brokerage expenses and extraordinary or non-routine expenses that are specific to the fund are charged directly to the fund.
(f) Distributions to Shareholders:
The fund makes distributions from net investment income, if
any, quarterly and from net realized capital gains, if any, once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform to
GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that
once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The fund intends to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its shareholders
each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(i) Indemnification:
Under the fund's organizational documents, the officers and
trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general
indemnifications. The fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to these
arrangements to be remote.
3. Risk Factors:
Investing in the fund may involve
certain risks, as discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets
rise and fall in response to a variety of factors, sometimes rapidly and unpredictable. As with any investment whose performance is tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose
money over short or long periods.
Investment Style
Risk. The fund is not actively managed. Therefore, the fund follows the securities included in the index during upturns as well as downturns. Because of its indexing strategy, the fund does not take steps to reduce
market exposure or to lessen the effects of a declining market. In addition, because of the fund's expenses, the fund’s performance may be below that of the index.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to
fall over short or extended periods of time.
Market
Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market
capitalization fall behind other types of investments, the fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Mid-Cap Company Risk. Mid-cap
companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.
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Financial Notes,
unaudited (continued)
3. Risk Factors (continued):
Small-Cap Company Risk.
Securities issued by small-cap companies may be risker than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.
Real Estate Investment
Risk. Due to the composition of the index, the fund concentrates its investments in real estate companies and companies related to the real estate industry. As such, the fund is subject to risks associated with the
direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets. These risks include, among others: declines in the value of real estate; risks related to general and
local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest
rates.
REITs Risk. In addition to the risks associated with investing in securities of real estate companies and real estate related companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in the
value of the underlying properties owned by the trusts. Further, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, or in a small geographic area or a single property
type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences to the fund. In addition, REITs have their own expenses, and the fund will bear a proportionate share of those expenses.
Tracking Error Risk. As an
index fund, the fund seeks to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of the fund and its benchmark index, positive or negative, is called “tracking
error.” Tracking error can be caused by many factors and it may be significant.
Derivatives Risk. The
principal types of derivatives used by the fund are futures contracts. A futures contract is an agreement to buy or sell a financial instrument at a specific price on a specific day. The fund’s use of derivative instruments involves risks
different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as leverage risk, market risk and liquidity risk, are discussed elsewhere. The
fund's use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
The fund’s use of derivatives is also subject to
credit risk, lack-of-availability risk, valuation risk, correlation risk and tax risk. Credit risk is the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations. Lack-of-availability risk is the risk that
suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the
value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gains. The fund’s use of
derivatives could reduce the fund’s performance, increase the fund’s volatility, and cause the fund to lose more than the initial amount invested.
Concentration Risk. To the
extent that the fund's or the index's portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class (including the real estate industry, as described above), the fund may be
adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of
industries, sector or asset class.
Liquidity
Risk. The fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.
Market Trading Risk.
Although fund shares are listed on national securities exchanges, there can be no assurance that an active trading market for fund shares will develop or be maintained. If an active market is not maintained, investors may find it difficult to buy or
sell fund shares.
Shares of the Fund May Trade
at Prices Other Than NAV. Fund shares may be bought and sold in the secondary market at market prices. Although it is expected that the market price of the shares of the fund will approximate the fund’s NAV,
there may be times when the market price and the NAV vary significantly. An investor may pay more than NAV when buying shares of the fund in the secondary market, and an investor may receive less than NAV when selling those shares in the secondary
market. The market price of the fund shares may deviate, sometimes significantly, from NAV during periods of market volatility.
Please refer to the fund’s prospectus for a more
complete description of the principal risks of investing in the fund.
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Financial Notes,
unaudited (continued)
4. Affiliates and Affiliated Transactions:
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as the fund’s investment adviser pursuant to an Advisory Agreement between CSIM and the trust.
For its advisory services to the fund, CSIM is entitled to
receive an annual fee, payable monthly, equal to 0.07% of the fund's average daily net assets.
Investment from Affiliates
Certain Schwab funds may own shares of other Schwab funds.
The table below reflects the percentage of shares of the fund that are owned by other Schwab funds as of August 31, 2017.
| Schwab VIT Balanced Portfolio | 0.1% |
| Schwab VIT Balanced with Growth Portfolio | 0.2% |
| Schwab VIT Growth Portfolio | 0.2% |
| Schwab Target 2010 Index Fund | 0.0%* |
| Schwab Target 2015 Index Fund | 0.0%* |
| Schwab Target 2020 Index Fund | 0.0%* |
| Schwab Target 2025 Index Fund | 0.0%* |
| Schwab Target 2030 Index Fund | 0.0%* |
| Schwab Target 2035 Index Fund | 0.0%* |
| Schwab Target 2040 Index Fund | 0.0%* |
| Schwab Target 2045 Index Fund | 0.0%* |
| Schwab Target 2050 Index Fund | 0.0%* |
| Schwab Target 2055 Index Fund | 0.0%* |
| Schwab Target 2060 Index Fund | 0.0%* |
| * | Less than 0.05% |
Interfund Transactions
The fund may engage in direct transactions with certain other
Schwab funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and/or officers. For the period ended August 31, 2017, the fund's total aggregate security transactions with other Schwab funds was $22,366,005 and includes realized losses of $2,475,264.
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the fund may
enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the
average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds/portfolios. The interfund lending facility
is subject to the oversight and periodic review of the Board. The fund had no interfund borrowing or lending activity during the period.
5. Other Service Providers:
SEI Investments
Distribution Co. is the principal underwriter and distributor of shares of the fund.
State Street Bank and Trust Company (State Street) serves as
the fund’s transfer agent. As part of these services, the transfer agent maintains records pertaining to the sale, redemption and transfer of the fund’s shares.
State Street also serves as custodian and accountant for the
fund. The custodian is responsible for the daily safekeeping of securities and cash held by the fund. The fund’s accountant maintains all books and records related to the fund’s transactions.
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Financial Notes,
unaudited (continued)
6. Board of Trustees:
The Board may include people who are officers and/or directors
of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust
does not pay any interested or non-interested trustees (independent trustees). The independent trustees are paid by CSIM. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
7. Borrowing from Banks:
During the period, the fund
was a participant with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $555 million line of credit (the Credit Facility). Under the terms of the Credit Facility, in addition to the interest charged on any
borrowings by the fund, the fund paid a commitment fee of 0.15% per annum on its proportionate share of the unused portion of the Credit Facility. Effective March 1, 2017, where applicable, CSIM paid the commitment fee and any interest expense
charged on any borrowings by the fund, since these expenses are now included in the advisory fee. There were no borrowings from the line of credit during the period.
The fund also has access to custodian overdraft facilities. The
fund may have utilized the overdraft facility and incurred an interest expense. Since March 1, 2017, where applicable, CSIM paid any interest expense charged. The interest expense is determined based on a negotiated rate above the Federal Funds
Rate.
8. Derivatives:
The fund entered into equity index
futures contracts during the report period. The fund invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at August 31, 2017 are presented on the Portfolio Holdings and Statement
of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the fund’s accounting policies with respect
to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended August 31, 2017, the month-end average notional amounts of futures contracts held by the fund was $9,744,423
and the month-end average number of contracts held was 81.
9. Purchases and Sales/Maturities of Investment Securities:
For the period ended August 31, 2017, purchases and
sales/maturities of securities (excluding in-kind transactions and short-term obligations) were as follows:
| Purchases
of Securities |
Sales/Maturities
of Securities | |
| Schwab U.S. REIT ETF | $213,124,117 | $177,583,879 |
10. In-Kind Transactions:
The consideration for the
purchase of Creation Units of the fund often consists of the in-kind deposit of a designated portfolio of equity securities, which constitutes an optimized representation of the securities involved in a relevant fund’s underlying index, and an
amount of cash. Investors purchasing and redeeming Creation Units are subject to a standard creation transaction fee and a standard redemption transaction fee paid to the custodian to offset transfer and other transaction costs associated with the
issuance and redemption of Creation Units. Purchasers and redeemers of Creation Units for cash are subject to an additional variable charge paid to the fund that will offset the transaction costs to the fund of buying or selling portfolio
securities. In addition, purchasers and redeemers of shares in Creation Units are responsible for payment of the costs of transferring securities to or out of the fund. From time to time, CSIM may cover the cost of any transaction fees when believed
to be in the best interests of the fund.
The in-kind
transactions for the period ended August 31, 2017, were as follows:
| In-Kind
Purchases of Securities |
In-Kind
Sales of Securities | |
| Schwab U.S. REIT ETF | $686,406,058 | $52,621,925 |
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Financial Notes,
unaudited (continued)
10. In-Kind Transactions (continued):
For the period ended August 31, 2017, the fund realized net
capital gains or losses resulting from in-kind redemptions of Creation Units. Because such gains or losses are not taxable to the fund and are not distributed to existing fund shareholders, the gains or losses are reclassified from accumulated net
realized gains or losses to capital received from investors at the end of the fund's tax year. These reclassifications have no effect on net assets or net asset values per share. The net realized in-kind gains or losses for the period ended August
31, 2017 are disclosed in the fund's Statement of Operations.
11. Federal Income Taxes
As of August 31, 2017, the
tax basis cost of the fund's investments and gross unrealized appreciation and depreciation were as follows:
| Tax cost | $3,458,163,149 |
| Gross unrealized appreciation | $308,566,275 |
| Gross unrealized depreciation | (150,334,006) |
| Net unrealized appreciation (depreciation) | $158,232,269 |
Capital loss carryforwards may be
used to offset future realized capital gains for federal income tax purposes. As of February 28, 2017, the fund had no capital loss carryforwards.
As of February 28, 2017, management has reviewed the tax
positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the
fund's financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 28, 2017, the fund did not incur any
interest or penalties.
12. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Investment Advisory
Agreement Approval
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Trustees and
Officers
The tables below give information about the trustees and
officers for the Schwab Strategic Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab
Strategic Trust and Laudus Trust. The Fund Complex includes 105 funds.
The address for all trustees and officers is 211 Main Street,
San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 105 | Director, PS Business Parks, Inc. (2005 – 2012) |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015). | 105 | Director, Gilead Sciences, Inc. (2005 – present) |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012). | 105 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 105 | Director,
Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present) |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013). | 105 | Director, KLA-Tencor Corporation (2008 – present) |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant, Patmore Management Consulting (management consulting) (2008 – present). | 105 | None |
| Charles
A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015) |
Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015). | 105 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present). | 105 | Director,
Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012) |
| Joseph
H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present). | 105 | Board
Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present) |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); Director, Schwab Holdings, Inc. (May 2008 – present); and Director, Charles Schwab Investment Management, Inc. (July 2016 – present). | 105 | Director, The Charles Schwab Corporation (2008 – present) |
| Marie
A. Chandoha2 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). | 105 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Senior Executive Vice President (July 2015 – present), Chief Financial Officer (July 2015 – May 2017), Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – May 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc. | 105 | None |
| Officers of the Trust | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Marie
A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). |
| Mark
Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011). |
28
Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| George
Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009) |
Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present). |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009). |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (Apr. 2006 – Jan. 2008). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present). |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Ms. Chandoha and Mr. Martinetto are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
Glossary
30
Schwab U.S. REIT ETF | Semiannual Report
Schwab U.S. REIT ETF
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Schwab U.S. REIT ETF | Semiannual Report
Notes
Schwab U.S. REIT ETF
Schwab ETFs™
Schwab ETFs are designed to be low-cost, diversified
investments which follow broad market indices and provide exposure to specific segments of the market. These ETFs can serve as part of the foundation of a diversified portfolio. The list below shows all currently available Schwab ETFs.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus and brochure for any Schwab ETF. Please read the prospectus carefully
before you invest. This report must be preceded or accompanied by a current prospectus.
Proxy Voting Policies, Procedures and Results
A description of the proxy voting policies and procedures
used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting the Schwab ETFs’ website at www.schwabfunds.com/schwabetfs_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab ETFs at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabetfs_prospectus or the SEC’s
website at www.sec.gov.
Schwab ETFs™
| * | FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC. |
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MFR63740-06
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00199032
Table of Contents
Semiannual
Report | August 31, 2017
Schwab Fundamental Index* ETFs
Schwab Fundamental
U.S. Broad Market Index ETF
U.S. Broad Market Index ETF
Schwab Fundamental
U.S. Large Company Index ETF
U.S. Large Company Index ETF
Schwab
Fundamental
U.S. Small Company Index ETF
U.S. Small Company Index ETF
Schwab Fundamental
International Large Company
Index ETF
International Large Company
Index ETF
Schwab
Fundamental
International Small Company
Index ETF
International Small Company
Index ETF
Schwab Fundamental
Emerging Markets Large
Company Index ETF
Emerging Markets Large
Company Index ETF
| * | SCHWAB is a registered
trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC. |
In This Report
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM).
Distributor: SEI Investments Distribution Co. (SIDCO)
The Sector/Industry classifications in this report use the
Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of MSCI Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by
Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Condensed Portfolio Holdings are sub-categories of Sector classifications.
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
Performance at a
Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or
higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for each fund is the
fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Performance does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or on the redemption of fund shares.
Shares are bought and sold at market price, which may
be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental Index ETFs and are not in any way connected to them
and do not accept any liability in relation to their issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of the funds. For full disclaimer please see the funds' statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 1 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 2 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
Asset
Class Performance Comparison % returns during the 6 months ended August 31, 2017
These figures
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not a
guarantee of future results.
For index
definitions, please see the Glossary.
Data
source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of
a security by the investment adviser.
Management views may have changed since the report
date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
| 1 | Morningstar, “9 Partners for the Next Decade.” Laura Pavlenko Lutton and Greggory Warren, CFA: April 27, 2017. Morningstar looked collectively across four traits (differentiation, low costs, repeatable investment processes, and adaptable business models) to identify firms that they believe are representative of these trends. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
The Investment
Environment
Over the six-month reporting period ended August 31, 2017,
most equity markets performed well amid generally accommodative monetary policies and a strengthening global economy. Even with several spikes over the reporting period, overall market volatility lessened, and many stocks, both in the U.S. and
abroad, continued to rise in the wake of expectations for policy changes from the Trump administration. Meanwhile, the U.S. dollar weakened against many major currencies over the reporting period, including the euro and the British pound. In this
environment, the S&P 500® Index, a bellwether for the overall U.S. stock market, returned 5.65%, while the Russell RAFI™ US Large Company
Index returned 1.96% over the same timeframe. In U.S. small-cap markets, the Russell 2000® Index and the Russell RAFI™ US Small Company Index
returned 2.04% and -0.69%, respectively. Internationally, the MSCI EAFE ® Index (Net), a broad measure of developed international equity
performance, returned 12.14%, while the Russell RAFI™ Developed ex US Large Company Index (Net) returned 10.90%. In emerging markets, the MSCI Emerging Markets Index (Net) and the Russell RAFI™ Emerging Markets Large Company Index (Net)
returned 18.02% and 10.47%, respectively.
Central bank
policies remained fairly accommodative over the six-month reporting period as inflation generally remained below targets, supporting both the global economy and global stock markets. Though the Federal Reserve (Fed) took additional steps toward a
more normalized monetary policy environment, including raising the federal funds rate in March and June, short-term interest rates in the U.S. remained low compared to historical averages. Outside the U.S., the Bank of Japan maintained negative
interest rates and continued to utilize yield curve management as a policy tool, while emphasizing that Japan’s policy stance would not change until inflation moved above the 2% target. The Bank of England left key interest rates at record
lows and the European Central Bank (ECB) kept its interest rates unchanged, including a negative deposit facility rate. The ECB also reiterated on several occasions that though policy normalization was on the horizon, its bond purchase program would
continue until at least the end of 2017. In emerging markets, central banks remained in different phases of monetary policy. For example, the People’s Bank of China maintained a “prudent and neutral” policy stance amid a generally
stabilized Chinese economy, while the Central Bank of Brazil cut short-term interest rates several times over the six-month reporting period.
Global economic growth continued to improve over the reporting
period, with the world’s major economies growing together for the first time in 10 years.1 In the U.S., the economy continued to chug along as it
entered its ninth year of expansion. Nonfarm payrolls were steady and U.S. gross domestic product (GDP) grew modestly, while consumer confidence remained high and unemployment hovered near a 16-year low. Outside the U.S., many international
economies continued to gain momentum. Unemployment in the eurozone fell to its lowest level in more than eight years, and solid retail sales and manufacturing Purchasing Managers Index helped propel economic growth in the region. Meanwhile
Japan’s economy grew for the sixth straight quarter amid robust domestic demand and increased business spending. China’s economic outlook was positive as growth remained steady, and according to the International Monetary Fund, the
country has the potential to sustain strong growth over the medium term. Low oil prices and U.S. sanctions continued to negatively affect the Russian economy, while Brazil emerged from its worst recession on record in 2017 amid two consecutive
quarters of growth. However, charges of corruption against Brazil’s president weighed on local stocks and threatened to derail the fragile recovery.
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| 1 | As of August 2017, Organization for Economic Cooperation and Development. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
Fund Management
 |
Christopher Bliss, CFA, Vice President and Head of the Passive Equity Team, leads the portfolio management team for Schwab’s Passive Equity Funds and ETFs. He also has overall responsibility for all aspects of the management of the funds. Prior to joining CSIM in 2016, Mr. Bliss spent 12 years at BlackRock (formerly Barclays Global Investors) managing and leading institutional index teams, most recently as a Managing Director and Head of Americas Institutional Index team. Prior to BlackRock, he worked as an equity analyst and portfolio manager for Harris Bretall and before that, as a research analyst for JP Morgan. |
 |
Chuck Craig, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc. |
 |
Ferian Juwono, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and nearly two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California. |
 |
Jane Qin, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. Prior to joining CSIM in 2012, Ms. Qin spent more than four years at The Bank of New York Mellon Corporation. During that time, Ms. Qin spent more than two years as an associate equity portfolio manager and nearly two years as a performance analyst. She also worked at Wells Fargo Funds Management as a mutual fund analyst and at CIGNA Reinsurance in Risk Management group as a risk analyst. |
 |
David Rios, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. He joined CSIM in 2008 and became a Portfolio Manager in September 2014. Prior to this role, Mr. Rios served as an Associate Portfolio Manager on the Schwab Equity Index Strategies team for four years. His first role with CSIM was as a trade operation specialist. He also previously worked as a senior fund accountant at Investors Bank & Trust (subsequently acquired by State Street Corporation). |
 |
Sabya Sinha, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF. Prior to joining CSIM in 2015, Mr. Sinha spent a year at F-Squared Investments on the product development and analytics team. Prior to F-Squared, he worked at IndexIQ Advisors as a senior index portfolio manager for three years and for Bank of America’s Columbia Management subsidiary as a portfolio manager for three years. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental U.S. Broad Market Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental U.S. Broad Market Index ETF (8/15/13) | ||||
| Market Price Return2 | 1.55% | 12.02% | 7.03% | 10.08% |
| NAV Return2 | 1.67% | 12.22% | 7.04% | 10.11% |
| Russell RAFITM US Index | 1.74% | 12.46% | 7.33% | 10.43% |
| Russell 3000® Index | 5.23% | 16.06% | 9.08% | 11.82% |
| ETF Category: Morningstar Large Value3 | 1.62% | 12.48% | 6.11% | 8.61% |
| Fund Expense Ratio4: 0.25% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental U.S. Broad Market Index ETF and are not in any way
connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 4 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental U.S. Broad Market Index ETF
Performance and Fund
Facts as of August 31, 2017
Top Equity Holdings % of Net Assets5
Portfolio holdings may have changed since the report
date.
An index is a statistical composite of a specified
financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S& P and MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 5 | This list is not a recommendation of any security by the investment adviser. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental U.S. Large Company Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental U.S. Large Company Index ETF (8/15/13) | ||||
| Market Price Return2 | 1.93% | 12.16% | 7.06% | 10.15% |
| NAV Return2 | 1.90% | 12.20% | 7.06% | 10.15% |
| Russell RAFITM US Large Company Index | 1.96% | 12.45% | 7.36% | 10.47% |
| Russell 1000® Index | 5.50% | 16.16% | 9.21% | 12.07% |
| ETF Category: Morningstar Large Value3 | 1.62% | 12.48% | 6.11% | 8.61% |
| Fund Expense Ratio4: 0.25% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental U.S. Large Company Index ETF and are not in any way
connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 4 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental U.S. Large Company Index ETF
Performance and Fund
Facts as of August 31, 2017
Top Equity Holdings % of Net Assets5
Portfolio holdings may have changed since the report
date.
An index is a statistical composite of a specified
financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S& P and MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 5 | This list is not a recommendation of any security by the investment adviser. |
10
Schwab Fundamental Index ETFs | Semiannual
Report
Schwab Fundamental U.S. Small Company Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental U.S. Small Company Index ETF (8/15/13) | ||||
| Market Price Return2 | -0.68% | 12.22% | 6.76% | 9.61% |
| NAV Return2 | -0.71% | 12.26% | 6.74% | 9.60% |
| Russell RAFITM US Small Company Index | -0.69% | 12.46% | 6.99% | 9.91% |
| Russell 2000® Index | 2.04% | 14.91% | 7.67% | 9.02% |
| ETF Category: Morningstar Small Blend3 | 0.69% | 12.67% | 5.80% | 7.72% |
| Fund Expense Ratio4: 0.25% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
Small-company stocks may be subject to greater volatility than
many other asset classes.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental U.S. Small Company Index ETF and are not in any way
connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 4 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental U.S. Small Company Index ETF
Performance and Fund
Facts as of August 31, 2017
Top Equity Holdings % of Net Assets5
Portfolio holdings may have changed since the report
date.
An index is a statistical composite of a specified
financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S& P and MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 5 | This list is not a recommendation of any security by the investment adviser. |
12
Schwab Fundamental Index ETFs | Semiannual
Report
Schwab Fundamental International Large Company Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental International Large Company Index ETF (8/15/13) | ||||
| Market Price Return2 | 11.42% | 19.65% | 2.32% | 5.30% |
| NAV Return2 | 11.00% | 19.68% | 2.29% | 5.20% |
| Russell RAFITM Developed ex US Large Company Index (Net)3 | 10.90% | 19.79% | 2.39% | 5.39% |
| MSCI EAFE® Index (Net)3 | 12.14% | 17.64% | 2.83% | 4.84% |
| ETF Category: Morningstar Foreign Large Value4 | 11.01% | 17.42% | 1.24% | 4.25% |
| Fund Expense Ratio5: 0.25% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
International investing may involve risk of capital loss from
unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental International Large Company Index ETF and are not in
any way connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 5 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental International Large Company Index ETF
Performance and Fund
Facts as of August 31, 2017
Portfolio holdings may have changed since the
report date.
An index is a statistical
composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S&P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | This list is not a recommendation of any security by the investment adviser. |
| 5 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
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Schwab Fundamental Index ETFs | Semiannual
Report
Schwab Fundamental International Small Company Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental International Small Company Index ETF (8/15/13) | ||||
| Market Price Return2 | 13.45% | 22.08% | 7.80% | 9.18% |
| NAV Return2 | 12.77% | 21.86% | 7.81% | 9.05% |
| Russell RAFITM Developed ex US Small Company Index (Net)3 | 12.74% | 22.18% | 8.17% | 9.55% |
| S&P Developed ex-U.S. Small Cap Index (Net)3 | 14.62% | 20.16% | 6.54% | 8.63% |
| ETF Category: Morningstar Foreign Small/Mid Blend4 | 15.28% | 22.16% | 6.16% | 7.92% |
| Fund Expense Ratio5: 0.39% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
International investing may involve risk of capital loss from
unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
Small-company stocks may be subject to greater volatility than
many other asset classes.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental International Small Company Index ETF and are not in
any way connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 5 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental International Small Company Index ETF
Performance and Fund
Facts as of August 31, 2017
Portfolio holdings may have changed since the
report date.
An index is a statistical
composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S&P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | This list is not a recommendation of any security by the investment adviser. |
| 5 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
16
Schwab Fundamental Index ETFs | Semiannual
Report
Schwab Fundamental Emerging Markets Large Company Index ETF
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may
be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.
Average
Annual Total Returns1
| Fund and Inception Date | 6 Months | 1 Year | 3 Years | Since Inception* |
| Fund: Schwab Fundamental Emerging Markets Large Company Index ETF (8/15/13) | ||||
| Market Price Return2 | 11.15% | 26.91% | 1.70% | 4.90% |
| NAV Return2 | 10.28% | 26.39% | 1.68% | 4.83% |
| Russell RAFITM Emerging Markets Large Company Index (Net)3 | 10.47% | 27.07% | 2.22% | 5.43% |
| MSCI Emerging Markets Index (Net)3 | 18.02% | 24.53% | 2.38% | 5.41% |
| ETF Category: Morningstar Diversified Emerging Markets4 | 16.68% | 21.69% | 1.68% | 4.54% |
| Fund Expense Ratio5: 0.39% | ||||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Shares are bought and sold at market price, which may be higher
or lower than the net asset value (NAV). Brokerage commissions will reduce returns.
International investing may involve risk of capital loss from
unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
Emerging markets involve heightened risks related to the same
factors as international investing, as well as increased volatility and lower trading volume.
Index ownership — Russell® is a trademark owned by Frank Russell Company (Russell). The Russell RAFI™ Index Series are calculated by Russell in conjunction with Research
Affiliates® LLC (RA). Neither Russell nor RA sponsor, endorse or promote the Schwab Fundamental Emerging Markets Large Company Index ETF and are not
in any way connected to it and do not accept any liability in relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in Russell. “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” trade names are the exclusive property of RA. CSIM has obtained full license from Russell to use such intellectual property
rights in the creation of this fund. For full disclaimer please see the fund’s statement of additional information. Effective December 1, 2016, the name of the index was changed by the index provider. No other changes to the index have
occurred.
| * | Inception (8/15/13) represents the date that the shares began trading in the secondary market. |
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date. |
| 5 | As stated in the prospectus. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Emerging Markets Large Company Index ETF
Performance and Fund
Facts as of August 31, 2017
Portfolio holdings may have changed since the
report date.
An index is a statistical
composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S&P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | Not annualized. |
| 3 | Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions. |
| 4 | This list is not a recommendation of any security by the investment adviser. |
| 5 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
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Schwab Fundamental Index ETFs | Semiannual
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Schwab Fundamental Index ETFs
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 3/1/17 |
Ending
Account Value (Net of Expenses) at 8/31/17 |
Expenses
Paid During Period 3/1/17-8/31/172 | |
| Schwab Fundamental U.S. Broad Market Index ETF | ||||
| Actual Return | 0.25% | $1,000.00 | $1,016.70 | $1.27 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.94 | $1.28 |
| Schwab Fundamental U.S. Large Company Index ETF | ||||
| Actual Return | 0.25% | $1,000.00 | $1,019.00 | $1.27 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.94 | $1.28 |
| Schwab Fundamental U.S. Small Company Index ETF | ||||
| Actual Return | 0.25% | $1,000.00 | $ 992.90 | $1.26 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.94 | $1.28 |
| Schwab Fundamental International Large Company Index ETF | ||||
| Actual Return | 0.25% | $1,000.00 | $1,110.00 | $1.33 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.94 | $1.28 |
| Schwab Fundamental International Small Company Index ETF | ||||
| Actual Return | 0.39% | $1,000.00 | $1,127.70 | $2.09 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.23 | $1.99 |
| Schwab Fundamental Emerging Markets Large Company Index ETF | ||||
| Actual Return | 0.39% | $1,000.00 | $1,102.80 | $2.07 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.23 | $1.99 |
| 1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. |
| 2 | Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 365 days of the fiscal year. |
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Schwab Fundamental U.S. Broad Market Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $33.82 | $27.37 | $30.54 | $27.36 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.40 2 | 0.67 2 | 0.65 2 | 0.54 | 0.21 | |
| Net realized and unrealized gains (losses) | 0.16 | 6.45 | (3.18) | 3.14 | 2.28 | |
| Total from investment operations | 0.56 | 7.12 | (2.53) | 3.68 | 2.49 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.32) | (0.67) | (0.64) | (0.50) | (0.13) | |
| Net asset value at end of period | $34.06 | $33.82 | $27.37 | $30.54 | $27.36 | |
| Total return | 1.67% 3 | 26.32% | (8.34%) | 13.54% | 9.99% 3 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% 4 | 0.32% | 0.32% | 0.32% | 0.32% 4 | |
| Net investment income (loss) | 2.33% 4 | 2.17% | 2.23% | 2.14% | 2.11% 4 | |
| Portfolio turnover rate5 | 5% 3 | 10% | 12% | 10% | 5% 3 | |
| Net assets, end of period (x 1,000) | $267,385 | $263,785 | $166,985 | $212,247 | $58,823 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Annualized.
5
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
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Schwab Fundamental Index ETFs | Semiannual
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See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
21
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The fund may engage in certain transactions
involving affiliates. For instance, the fund may own shares of The Charles Schwab Corporation (CSC) if that company is included in its index. Below is the summary of investment activities involving CSC shares owned by the fund during the report
period:
| Balance
of Shares Held at 2/28/17 |
Gross
Purchases |
Gross
Sales |
Balance
of Shares Held at 8/31/17 |
Net
change in unrealized appreciation (depreciation) |
Realized
Gains(Losses) 3/1/17 to 8/31/17 |
Dividends
Received 3/1/17 to 8/31/17 | |
| The Charles Schwab Corp. | 3,460 | 154 | (88) | 3,526 | ($3,435) | $1,440 | $566 |
22
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $266,109,436 | $— | $— | $266,109,436 | |
| Other Investment Companies1 | 2,173,550 | — | — | 2,173,550 | |
| Futures Contracts2 | 7,219 | — | — | 7,219 | |
| Total | $268,290,205 | $— | $— | $268,290,205 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
23
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in affiliated issuers, at value (cost $101,692) | $140,687 | |
| Investments in unaffiliated issuers, at value (cost $236,024,168) including securities on loan of $1,592,372 | 266,495,401 | |
| Collateral invested for securities on loan, at value (cost $1,646,898) | 1,646,898 | |
| Deposit with broker for futures contracts | 37,800 | |
| Receivables: | ||
| Dividends | 758,021 | |
| Variation margin on futures contracts | 6,476 | |
| Income from securities on loan | + | 3,066 |
| Total assets | 269,088,349 | |
| Liabilities | ||
| Collateral held for securities on loan | 1,646,898 | |
| Payables: | ||
| Investment adviser fees | + | 56,521 |
| Total liabilities | 1,703,419 | |
| Net Assets | ||
| Total assets | 269,088,349 | |
| Total liabilities | – | 1,703,419 |
| Net assets | $267,384,930 | |
| Net Assets by Source | ||
| Capital received from investors | 235,247,524 | |
| Net investment income not yet distributed | 1,369,637 | |
| Net realized capital gains | 250,322 | |
| Net unrealized capital appreciation | 30,517,447 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $267,384,930 | 7,850,000 | $34.06 | ||
24
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends received from affiliated issuer | $566 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $420) | 3,440,497 | |
| Securities on loan, net | + | 16,217 |
| Total investment income | 3,457,280 | |
| Expenses | ||
| Investment adviser fees | 335,155 | |
| Total expenses | – | 335,155 |
| Net investment income | 3,122,125 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on affiliated issuer | 1,440 | |
| Net realized losses on unaffiliated investments | (274,715) | |
| Net realized gains on in-kind redemptions on unaffiliated investments | 3,248,150 | |
| Net realized gains on futures contracts | + | 46,513 |
| Net realized gains | 3,021,388 | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | (3,435) | |
| Net change in unrealized appreciation (depreciation) on unaffiliated investments | (1,682,506) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 1,265 |
| Net change in unrealized appreciation (depreciation) | + | (1,684,676) |
| Net realized and unrealized gains | 1,336,712 | |
| Increase in net assets resulting from operations | $4,458,837 | |
25
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $3,122,125 | $4,494,021 | ||
| Net realized gains (losses) | 3,021,388 | (1,845,642) | ||
| Net change in unrealized appreciation (depreciation) | + | (1,684,676) | 45,114,560 | |
| Increase in net assets resulting from operations | 4,458,837 | 47,762,939 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | ($2,520,160) | ($4,414,601) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 350,000 | $11,763,644 | 1,700,000 | $53,451,725 | ||||
| Shares redeemed | + | (300,001) | (10,101,985) | — | — | |||
| Net transactions in fund shares | 49,999 | $1,661,659 | 1,700,000 | $53,451,725 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 7,800,001 | $263,784,594 | 6,100,001 | $166,984,531 | ||||
| Total increase | + | 49,999 | 3,600,336 | 1,700,000 | 96,800,063 | |||
| End of period | 7,850,000 | $267,384,930 | 7,800,001 | $263,784,594 | ||||
| Net investment income not yet distributed | $1,369,637 | $767,672 | ||||||
26
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $33.91 | $27.57 | $30.55 | $27.27 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.41 2 | 0.70 2 | 0.69 2 | 0.52 | 0.21 | |
| Net realized and unrealized gains (losses) | 0.23 | 6.29 | (3.10) | 3.25 | 2.18 | |
| Total from investment operations | 0.64 | 6.99 | (2.41) | 3.77 | 2.39 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.31) | (0.65) | (0.57) | (0.49) | (0.12) | |
| Net asset value at end of period | $34.24 | $33.91 | $27.57 | $30.55 | $27.27 | |
| Total return | 1.90% 3 | 25.66% | (7.92%) | 13.92% | 9.59% 3 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% 4 | 0.32% | 0.32% | 0.32% | 0.32% 4 | |
| Net investment income (loss) | 2.42% 4 | 2.26% | 2.39% | 2.24% | 2.20% 4 | |
| Portfolio turnover rate5 | 5% 3 | 10% | 11% | 10% | 6% 3 | |
| Net assets, end of period (x 1,000) | $3,018,195 | $2,197,623 | $893,389 | $336,043 | $72,259 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Annualized.
5
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
27
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
28
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The fund may engage in certain transactions
involving affiliates. For instance, the fund may own shares of The Charles Schwab Corporation (CSC) if that company is included in its index. Below is the summary of investment activities involving CSC shares owned by the fund during the report
period:
| Balance
of Shares Held at 2/28/17 |
Gross
Purchases |
Gross
Sales |
Balance
of Shares Held at 8/31/17 |
Net
change in unrealized appreciation (depreciation) |
Realized
Gains(Losses) 3/1/17 to 8/31/17 |
Dividends
Received 3/1/17 to 8/31/17 | |
| The Charles Schwab Corp. | 31,379 | 11,024 | (3,215) | 39,188 | ($19,007) | ($2,065) | $5,956 |
29
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $3,010,324,963 | $— | $— | $3,010,324,963 | |
| Other Investment Companies1 | 24,405,252 | — | — | 24,405,252 | |
| Futures Contracts2 | 82,252 | — | — | 82,252 | |
| Total | $3,034,812,467 | $— | $— | $3,034,812,467 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
30
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in affiliated issuers, at value (cost $1,295,834) | $1,563,601 | |
| Investments in unaffiliated issuers, at value (cost $2,775,025,699) including securities on loan of $17,201,227 | 3,015,365,559 | |
| Collateral invested for securities on loan, at value (cost $17,801,055) | 17,801,055 | |
| Deposit with broker for futures contracts | 474,600 | |
| Receivables: | ||
| Fund shares sold | 18,757,537 | |
| Dividends | 8,857,274 | |
| Variation margin on futures contracts | 40,958 | |
| Income from securities on loan | + | 29,402 |
| Total assets | 3,062,889,986 | |
| Liabilities | ||
| Collateral held for securities on loan | 17,801,055 | |
| Payables: | ||
| Investments bought | 26,270,149 | |
| Investment adviser fees | + | 624,059 |
| Total liabilities | 44,695,263 | |
| Net Assets | ||
| Total assets | 3,062,889,986 | |
| Total liabilities | – | 44,695,263 |
| Net assets | $3,018,194,723 | |
| Net Assets by Source | ||
| Capital received from investors | 2,778,867,353 | |
| Net investment income not yet distributed | 15,088,156 | |
| Net realized capital losses | (16,450,665) | |
| Net unrealized capital appreciation | 240,689,879 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $3,018,194,723 | 88,150,000 | $34.24 | ||
31
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends received from affiliated issuer | $5,956 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $2,879) | 34,972,067 | |
| Securities on loan, net | + | 169,091 |
| Total investment income | 35,147,114 | |
| Expenses | ||
| Investment adviser fees | 3,291,374 | |
| Total expenses | – | 3,291,374 |
| Net investment income | 31,855,740 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (2,065) | |
| Net realized losses on unaffiliated investments | (9,594,454) | |
| Net realized gains on in-kind redemptions on unaffiliated investments | 2,174,371 | |
| Net realized gains on futures contracts | + | 415,695 |
| Net realized losses | (7,006,453) | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | (19,007) | |
| Net change in unrealized appreciation (depreciation) on unaffiliated investments | 28,972,880 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 21,151 |
| Net change in unrealized appreciation (depreciation) | + | 28,975,024 |
| Net realized and unrealized gains | 21,968,571 | |
| Increase in net assets resulting from operations | $53,824,311 | |
32
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $31,855,740 | $32,934,872 | ||
| Net realized gains (losses) | (7,006,453) | 22,627 | ||
| Net change in unrealized appreciation (depreciation) | + | 28,975,024 | 284,349,812 | |
| Increase in net assets resulting from operations | 53,824,311 | 317,307,311 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | ($23,436,435) | ($29,673,625) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 23,800,000 | $805,455,576 | 33,300,000 | $1,044,664,871 | ||||
| Shares redeemed | + | (450,001) | (15,271,681) | (900,000) | (28,064,322) | |||
| Net transactions in fund shares | 23,349,999 | $790,183,895 | 32,400,000 | $1,016,600,549 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 64,800,001 | $2,197,622,952 | 32,400,001 | $893,388,717 | ||||
| Total increase | + | 23,349,999 | 820,571,771 | 32,400,000 | 1,304,234,235 | |||
| End of period | 88,150,000 | $3,018,194,723 | 64,800,001 | $2,197,622,952 | ||||
| Net investment income not yet distributed | $15,088,156 | $6,668,851 | ||||||
33
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $34.89 | $26.47 | $30.68 | $28.44 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.30 2 | 0.45 2 | 0.41 2 | 0.34 | 0.12 | |
| Net realized and unrealized gains (losses) | (0.55) | 8.37 | (4.25) | 2.22 | 3.41 | |
| Total from investment operations | (0.25) | 8.82 | (3.84) | 2.56 | 3.53 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.20) | (0.40) | (0.37) | (0.32) | (0.09) | |
| Net asset value at end of period | $34.44 | $34.89 | $26.47 | $30.68 | $28.44 | |
| Total return | (0.71%) 3 | 33.56% | (12.60%) | 9.06% | 14.14% 3 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% 4 | 0.32% | 0.32% | 0.32% | 0.32% 4 | |
| Net investment income (loss) | 1.71% 4 | 1.43% | 1.43% | 1.32% | 1.16% 4 | |
| Portfolio turnover rate5 | 14% 3 | 23% | 23% | 22% | 9% 3 | |
| Net assets, end of period (x 1,000) | $2,024,968 | $1,568,402 | $608,865 | $187,141 | $55,465 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Annualized.
5
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
34
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
35
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
36
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $2,021,658,372 | $— | $— | $2,021,658,372 | |
| Other Investment Companies1 | 50,227,866 | — | — | 50,227,866 | |
| Futures Contracts2 | 50,418 | — | — | 50,418 | |
| Total | $2,071,936,656 | $— | $— | $2,071,936,656 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
37
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $1,865,943,549) including securities on loan of $47,820,174 | $2,022,790,807 | |
| Collateral invested for securities on loan, at value (cost $49,095,431) | 49,095,431 | |
| Deposit with broker for futures contracts | 130,000 | |
| Receivables: | ||
| Fund shares sold | 11,972,153 | |
| Dividends | 2,100,025 | |
| Income from securities on loan | 179,281 | |
| Variation margin on futures contracts | + | 23,052 |
| Total assets | 2,086,290,749 | |
| Liabilities | ||
| Collateral held for securities on loan | 49,095,431 | |
| Payables: | ||
| Investments bought | 11,809,886 | |
| Investment adviser fees | 416,938 | |
| Due to custodian | + | 118 |
| Total liabilities | 61,322,373 | |
| Net Assets | ||
| Total assets | 2,086,290,749 | |
| Total liabilities | – | 61,322,373 |
| Net assets | $2,024,968,376 | |
| Net Assets by Source | ||
| Capital received from investors | 1,867,422,014 | |
| Net investment income not yet distributed | 7,079,209 | |
| Net realized capital losses | (6,430,523) | |
| Net unrealized capital appreciation | 156,897,676 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $2,024,968,376 | 58,800,000 | $34.44 | ||
38
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends (net of foreign withholding tax of $7,691) | $16,884,332 | |
| Interest | 814 | |
| Securities on loan, net | + | 842,413 |
| Total investment income | 17,727,559 | |
| Expenses | ||
| Investment adviser fees | 2,266,175 | |
| Total expenses | – | 2,266,175 |
| Net investment income | 15,461,384 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (19,452,224) | |
| Net realized gains on in-kind redemptions | 30,850,982 | |
| Net realized gains on futures contracts | 491,258 | |
| Net realized gains on foreign currency transactions | + | 512 |
| Net realized gains | 11,890,528 | |
| Net change in unrealized appreciation (depreciation) on investments | (37,769,244) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 86,054 |
| Net change in unrealized appreciation (depreciation) | + | (37,683,190) |
| Net realized and unrealized losses | (25,792,662) | |
| Decrease in net assets resulting from operations | ($10,331,278) | |
39
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $15,461,384 | $14,363,230 | ||
| Net realized gains | 11,890,528 | 2,593,652 | ||
| Net change in unrealized appreciation (depreciation) | + | (37,683,190) | 256,841,338 | |
| Increase (decrease) in net assets resulting from operations | (10,331,278) | 273,798,220 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | ($10,231,075) | ($12,680,080) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 18,150,000 | $625,942,364 | 23,300,000 | $741,815,537 | ||||
| Shares redeemed | + | (4,300,001) | (148,813,924) | (1,350,000) | (43,396,411) | |||
| Net transactions in fund shares | 13,849,999 | $477,128,440 | 21,950,000 | $698,419,126 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 44,950,001 | $1,568,402,289 | 23,000,001 | $608,865,023 | ||||
| Total increase | + | 13,849,999 | 456,566,087 | 21,950,000 | 959,537,266 | |||
| End of period | 58,800,000 | $2,024,968,376 | 44,950,001 | $1,568,402,289 | ||||
| Net investment income not yet distributed | $7,079,209 | $1,848,900 | ||||||
40
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $26.00 | $22.08 | $27.17 | $28.26 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.55 2 | 0.74 2 | 0.70 2 | 0.30 | 0.36 | |
| Net realized and unrealized gains (losses) | 2.31 | 3.79 | (5.30) | (0.92) 3 | 3.04 | |
| Total from investment operations | 2.86 | 4.53 | (4.60) | (0.62) | 3.40 | |
| Less distributions: | ||||||
| Distributions from net investment income | — | (0.61) | (0.49) | (0.47) | (0.14) | |
| Net asset value at end of period | $28.86 | $26.00 | $22.08 | $27.17 | $28.26 | |
| Total return | 11.00% 4 | 20.62% | (17.02%) | (2.11%) | 13.60% 4 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% 5 | 0.32% | 0.32% | 0.32% | 0.32% 5 | |
| Net investment income (loss) | 3.95% 5 | 2.98% | 2.80% | 2.50% | 4.00% 5 | |
| Portfolio turnover rate6 | 5% 4 | 11% | 12% | 11% | 8% 4 | |
| Net assets, end of period (x 1,000) | $2,854,221 | $1,928,861 | $885,348 | $290,670 | $62,164 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
4
Not annualized.
5
Annualized.
6
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
41
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
42
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
43
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $1,927,165,057 | $— | $— | $1,927,165,057 | |
| Australia | 175,854,528 | — | — * | 175,854,528 | |
| Italy | 104,934,086 | — | 330,413 | 105,264,499 | |
| Japan | 612,996,384 | — | 2,539,893 | 615,536,277 | |
| Preferred Stock1 | 17,438,934 | — | — | 17,438,934 | |
| Other Investment Companies1 | 10,967,961 | — | — | 10,967,961 | |
| Futures Contracts2 | 43,962 | — | — | 43,962 | |
| Total | $2,849,400,912 | $— | $2,870,306 | $2,852,271,218 |
| * | Level 3 amount shown includes securities determined to have no value at August 31, 2017. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers out of Level 1 to Level 3 due to the result of fair valued securities for which no quoted value was available. There were no transfers between any other Levels
for the period ended August 31, 2017.
44
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $2,563,814,421) including securities on loan of $4,429,591 | $2,847,580,022 | |
| Collateral invested for securities on loan, at value (cost $4,647,234) | 4,647,234 | |
| Deposit with broker for futures contracts | 745,500 | |
| Foreign currency, at value (cost $833,403) | 832,289 | |
| Receivables: | ||
| Investments sold | 12,907 | |
| Dividends | 8,471,503 | |
| Foreign tax reclaims | 1,931,640 | |
| Variation margin on futures contracts | 83,790 | |
| Income from securities on loan | + | 58,470 |
| Total assets | 2,864,363,355 | |
| Liabilities | ||
| Collateral held for securities on loan | 4,647,234 | |
| Payables: | ||
| Investments bought | 4,898,737 | |
| Investment adviser fees | + | 596,859 |
| Total liabilities | 10,142,830 | |
| Net Assets | ||
| Total assets | 2,864,363,355 | |
| Total liabilities | – | 10,142,830 |
| Net assets | $2,854,220,525 | |
| Net Assets by Source | ||
| Capital received from investors | 2,560,323,276 | |
| Net investment income not yet distributed | 51,639,448 | |
| Net realized capital losses | (41,673,112) | |
| Net unrealized capital appreciation | 283,930,913 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $2,854,220,525 | 98,900,000 | $28.86 | ||
45
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends (net of foreign withholding tax of $4,590,811) | $50,590,419 | |
| Securities on loan, net | + | 525,396 |
| Total investment income | 51,115,815 | |
| Expenses | ||
| Investment adviser fees | 3,044,871 | |
| Total expenses | – | 3,044,871 |
| Net investment income | 48,070,944 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (12,164,532) | |
| Net realized gains on in-kind redemptions | 3,715,731 | |
| Net realized gains on futures contracts | 1,013,400 | |
| Net realized gains on foreign currency transactions | + | 323,771 |
| Net realized losses | (7,111,630) | |
| Net change in unrealized appreciation (depreciation) on investments | 204,955,669 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 47,974 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 133,160 |
| Net change in unrealized appreciation (depreciation) | + | 205,136,803 |
| Net realized and unrealized gains | 198,025,173 | |
| Increase in net assets resulting from operations | $246,096,117 | |
46
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $48,070,944 | $39,216,892 | ||
| Net realized losses | (7,111,630) | (25,018,453) | ||
| Net change in unrealized appreciation (depreciation) | + | 205,136,803 | 219,421,896 | |
| Increase in net assets resulting from operations | 246,096,117 | 233,620,335 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | $— | ($37,964,160) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 25,300,000 | $695,929,069 | 34,100,000 | $847,856,850 | ||||
| Shares redeemed | + | (600,001) | (16,665,778) | — | — | |||
| Net transactions in fund shares | 24,699,999 | $679,263,291 | 34,100,000 | $847,856,850 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 74,200,001 | $1,928,861,117 | 40,100,001 | $885,348,092 | ||||
| Total increase | + | 24,699,999 | 925,359,408 | 34,100,000 | 1,043,513,025 | |||
| End of period | 98,900,000 | $2,854,220,525 | 74,200,001 | $1,928,861,117 | ||||
| Net investment income not yet distributed | $51,639,448 | $3,568,504 | ||||||
47
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $29.99 | $24.81 | $27.22 | $27.75 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.42 2 | 0.55 2 | 0.43 2 | 0.41 | 0.15 | |
| Net realized and unrealized gains (losses) | 3.41 | 5.18 | (2.49) | (0.53) 3 | 2.78 | |
| Total from investment operations | 3.83 | 5.73 | (2.06) | (0.12) | 2.93 | |
| Less distributions: | ||||||
| Distributions from net investment income | — | (0.55) | (0.35) | (0.41) | (0.18) | |
| Net asset value at end of period | $33.82 | $29.99 | $24.81 | $27.22 | $27.75 | |
| Total return | 12.77% 4 | 23.26% | (7.64%) | (0.32%) | 11.73% 4 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% 5 | 0.46% | 0.46% | 0.46% | 0.46% 5 | |
| Net investment income (loss) | 2.58% 5 | 1.94% | 1.65% | 1.73% | 1.09% 5 | |
| Portfolio turnover rate6 | 10% 4 | 25% | 22% | 21% | 18% 4 | |
| Net assets, end of period (x 1,000) | $1,342,466 | $866,749 | $379,667 | $68,046 | $24,977 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
4
Not annualized.
5
Annualized.
6
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
48
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
49
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
50
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $1,296,036,891 | $— | $— | $1,296,036,891 | |
| Luxembourg | 7,620,596 | — | — * | 7,620,596 | |
| Portugal | 7,409,117 | — | — * | 7,409,117 | |
| Singapore | 26,516,858 | — | 99,296 | 26,616,154 | |
| Preferred Stock1 | 1,209,189 | — | — | 1,209,189 | |
| Other Investment Companies1 | 43,879,552 | — | — | 43,879,552 | |
| Futures Contracts2 | 17,840 | — | — | 17,840 | |
| Total | $1,382,690,043 | $— | $99,296 | $1,382,789,339 |
| * | Level 3 amount shown includes securities determined to have no value at August 31, 2017. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
51
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $1,158,400,252) including securities on loan of $39,283,192 | $1,341,530,806 | |
| Collateral invested for securities on loan, at value (cost $41,240,693) | 41,240,693 | |
| Deposit with broker for futures contracts | 234,500 | |
| Foreign currency, at value (cost $1,221,886) | 1,224,434 | |
| Receivables: | ||
| Dividends | 1,830,505 | |
| Foreign tax reclaims | 380,787 | |
| Income from securities on loan | 161,204 | |
| Variation margin on futures contracts | + | 22,725 |
| Total assets | 1,386,625,654 | |
| Liabilities | ||
| Collateral held for securities on loan | 41,240,693 | |
| Payables: | ||
| Investments bought | 2,481,220 | |
| Investment adviser fees | + | 437,317 |
| Total liabilities | 44,159,230 | |
| Net Assets | ||
| Total assets | 1,386,625,654 | |
| Total liabilities | – | 44,159,230 |
| Net assets | $1,342,466,424 | |
| Net Assets by Source | ||
| Capital received from investors | 1,155,002,144 | |
| Net investment income not yet distributed | 12,404,604 | |
| Net realized capital losses | (8,108,781) | |
| Net unrealized capital appreciation | 183,168,457 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,342,466,424 | 39,700,000 | $33.82 | ||
52
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends (net of foreign withholding tax of $1,619,668) | $16,256,133 | |
| Securities on loan, net | + | 583,288 |
| Total investment income | 16,839,421 | |
| Expenses | ||
| Investment adviser fees | 2,213,045 | |
| Total expenses | – | 2,213,045 |
| Net investment income | 14,626,376 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments (net of foreign capital gains tax of $3,963) | (4,823,149) | |
| Net realized gains on in-kind redemptions | 13,369,978 | |
| Net realized gains on futures contracts | 554,738 | |
| Net realized gains on foreign currency transactions | + | 149,791 |
| Net realized gains | 9,251,358 | |
| Net change in unrealized appreciation (depreciation) on investments | 108,624,924 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 22,512 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 12,333 |
| Net change in unrealized appreciation (depreciation) | + | 108,659,769 |
| Net realized and unrealized gains | 117,911,127 | |
| Increase in net assets resulting from operations | $132,537,503 | |
53
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $14,626,376 | $11,098,149 | ||
| Net realized gains (losses) | 9,251,358 | (10,038,314) | ||
| Net change in unrealized appreciation (depreciation) | + | 108,659,769 | 109,298,861 | |
| Increase in net assets resulting from operations | 132,537,503 | 110,358,696 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | $— | ($13,315,200) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 13,300,000 | $424,696,839 | 14,100,000 | $403,432,348 | ||||
| Shares redeemed | + | (2,500,001) | (81,516,821) | (500,000) | (13,394,058) | |||
| Net transactions in fund shares | 10,799,999 | $343,180,018 | 13,600,000 | $390,038,290 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 28,900,001 | $866,748,903 | 15,300,001 | $379,667,117 | ||||
| Total increase | + | 10,799,999 | 475,717,521 | 13,600,000 | 487,081,786 | |||
| End of period | 39,700,000 | $1,342,466,424 | 28,900,001 | $866,748,903 | ||||
| Net investment income not yet distributed/Distributions in excess of net investment income | $12,404,604 | ($2,221,772) | ||||||
54
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Financial Statements
Financial
Highlights
| 3/1/17–
8/31/17* |
3/1/16–
2/28/17 |
3/1/15–
2/29/16 |
3/1/14–
2/28/15 |
8/14/13
1– 2/28/14 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $26.06 | $17.78 | $24.16 | $24.98 | $25.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss) | 0.56 2 | 0.49 2 | 0.57 2 | 0.37 | 0.12 | |
| Net realized and unrealized gains (losses) | 2.12 | 8.18 | (6.58) | (0.87) | (0.00) 3 | |
| Total from investment operations | 2.68 | 8.67 | (6.01) | (0.50) | 0.12 | |
| Less distributions: | ||||||
| Distributions from net investment income | — | (0.39) | (0.37) | (0.32) | (0.14) | |
| Net asset value at end of period | $28.74 | $26.06 | $17.78 | $24.16 | $24.98 | |
| Total return | 10.28% 4 | 49.03% | (24.92%) | (1.98%) | 0.45% 4 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% 5 | 0.46% | 0.46% | 0.46% | 0.46% 5 | |
| Net investment income (loss) | 4.17% 5 | 2.14% | 2.80% | 2.20% | 1.01% 5 | |
| Portfolio turnover rate6 | 8% 4 | 14% | 20% | 13% | 6% 4 | |
| Net assets, end of period (x 1,000) | $1,523,232 | $1,011,273 | $359,092 | $96,642 | $22,482 | |
| * | Unaudited. |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Per-share amount was less than $0.005.
4
Not annualized.
5
Annualized.
6
Portfolio turnover rate excludes securities received or
delivered from processing of in-kind creations or redemptions.
55
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited)
This section shows the fund's 50 largest portfolio holdings in
unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete
schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at
www.sec.gov.
In
addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website and may be viewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's website at www.schwabfunds.com/schwabetfs_prospectus.
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notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
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Schwab Fundamental Emerging Markets Large Company Index ETF
Condensed Portfolio
Holdings as of August 31, 2017 (Unaudited) (continued)
The following is a summary of the inputs used to value the
fund’s investments as of August 31, 2017 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $1,369,576,191 | $— | $— | $1,369,576,191 | |
| Preferred Stock1 | 148,147,400 | — | — | 148,147,400 | |
| Other Investment Company1 | 2,812,293 | — | — | 2,812,293 | |
| Futures Contracts2 | 66,696 | — | — | 66,696 | |
| Total | $1,520,602,580 | $— | $— | $1,520,602,580 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1,
Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2017.
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Schwab Fundamental Emerging Markets Large Company Index ETF
Statement of Assets
and Liabilities
As of August 31, 2017; unaudited
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $1,270,931,272) | $1,520,535,884 | |
| Deposit with broker for futures contracts | 252,000 | |
| Foreign currency, at value (cost $660,417) | 660,051 | |
| Receivables: | ||
| Dividends | 2,889,068 | |
| Foreign tax reclaims | 2,209 | |
| Variation margin on futures contracts | 1,780 | |
| Income from securities on loan | + | 23 |
| Total assets | 1,524,341,015 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser fees | 483,707 | |
| Foreign capital gains tax | + | 624,921 |
| Total liabilities | 1,108,628 | |
| Net Assets | ||
| Total assets | 1,524,341,015 | |
| Total liabilities | – | 1,108,628 |
| Net assets | $1,523,232,387 | |
| Net Assets by Source | ||
| Capital received from investors | 1,267,532,198 | |
| Net investment income not yet distributed | 27,539,881 | |
| Net realized capital losses | (20,893,470) | |
| Net unrealized capital appreciation | 249,053,778 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,523,232,387 | 53,000,000 | $28.74 | ||
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Schwab Fundamental Emerging Markets Large Company Index ETF
Statement of
Operations
For the period March 1, 2017 through August 31, 2017;
unaudited
| Investment Income | ||
| Dividends (net of foreign withholding tax of $4,113,466) | $28,759,839 | |
| Securities on loan, net | + | 9,367 |
| Total investment income | 28,769,206 | |
| Expenses | ||
| Investment adviser fees | 2,459,444 | |
| Total expenses | – | 2,459,444 |
| Net investment income | 26,309,762 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (1,392,167) | |
| Net realized gains on futures contracts | 980,016 | |
| Net realized losses on foreign currency transactions | + | (67,357) |
| Net realized losses | (479,508) | |
| Net change in unrealized appreciation (depreciation) on investments (net of change in foreign capital gains tax of $128,327) | 104,459,455 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 72,942 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (151,070) |
| Net change in unrealized appreciation (depreciation) | + | 104,381,327 |
| Net realized and unrealized gains | 103,901,819 | |
| Increase in net assets resulting from operations | $130,211,581 | |
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Schwab Fundamental Emerging Markets Large Company Index ETF
Statement of Changes
in Net Assets
For the current and prior report periods
Figures for the current period are unaudited
| Operations | ||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||
| Net investment income | $26,309,762 | $13,726,905 | ||
| Net realized losses | (479,508) | (9,584,840) | ||
| Net change in unrealized appreciation (depreciation) | + | 104,381,327 | 226,124,106 | |
| Increase in net assets resulting from operations | 130,211,581 | 230,266,171 | ||
| Distributions to Shareholders | ||||
| Distributions from net investment income | $— | ($12,995,400) | ||
| Transactions in Fund Shares | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 14,200,000 | $381,747,441 | 18,600,000 | $434,910,865 | ||||
| Shares redeemed | + | (1) | (26) | — | — | |||
| Net transactions in fund shares | 14,199,999 | $381,747,415 | 18,600,000 | $434,910,865 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 3/1/17-8/31/17 | 3/1/16-2/28/17 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 38,800,001 | $1,011,273,391 | 20,200,001 | $359,091,755 | ||||
| Total increase | + | 14,199,999 | 511,958,996 | 18,600,000 | 652,181,636 | |||
| End of period | 53,000,000 | $1,523,232,387 | 38,800,001 | $1,011,273,391 | ||||
| Net investment income not yet distributed | $27,539,881 | $1,230,119 | ||||||
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Schwab Fundamental Index ETFs
Financial Notes,
unaudited
1. Business Structure of the Funds:
Each of the
funds in this report is a series of Schwab Strategic Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended
(the 1940 Act). The list below shows all the operational funds in the trust as of the end of the period, including the funds discussed in this report, which are highlighted:
| SCHWAB STRATEGIC TRUST (ORGANIZED JANUARY 27, 2009) | |
| Schwab Fundamental U.S. Broad Market Index ETF | Schwab U.S. Small-Cap ETF™ |
| Schwab Fundamental U.S. Large Company Index ETF | Schwab U.S. Dividend Equity ETF™ |
| Schwab Fundamental U.S. Small Company Index ETF | Schwab U.S. REIT ETF™ |
| Schwab Fundamental International Large Company Index ETF | Schwab International Equity ETF™ |
| Schwab Fundamental International Small Company Index ETF | Schwab International Small-Cap Equity ETF™ |
| Schwab Fundamental Emerging Markets Large Company Index ETF | Schwab Emerging Markets Equity ETF™ |
| Schwab U.S. Broad Market ETF™ | Schwab U.S. TIPS ETF™ |
| Schwab U.S. Large-Cap ETF™ | Schwab Short-Term U.S. Treasury ETF™ |
| Schwab U.S. Large-Cap Growth ETF™ | Schwab Intermediate-Term U.S. Treasury ETF™ |
| Schwab U.S. Large-Cap Value ETF™ | Schwab U.S. Aggregate Bond ETF™ |
| Schwab U.S. Mid-Cap ETF™ | |
The funds issue and redeem shares at their net asset value per
share (NAV) only in large blocks of shares, typically 50,000 shares or more (Creation Units). These transactions are usually in exchange for a basket of securities and/or an amount of cash. As a practical matter, only institutions or large investors
purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the funds are not redeemable securities.
Individual shares of the funds trade on national securities
exchanges and elsewhere during the trading day and can only be bought and sold at market prices throughout the trading day through a broker-dealer. Because fund shares trade at market prices rather than NAV, shares may trade at a price greater than
NAV (premium) or less than NAV (discount).
Each fund
maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard
Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).
The funds may invest in certain other investment companies
(underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more
information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the SEC.
Effective August 1, 2017, the funds adopted disclosure
requirement changes for SEC Regulation S-X. The adopted changes are reflected throughout this report.
(a) Security Valuation:
Under procedures approved by the funds’ Board of Trustees
(the Board), the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect
fair market value. Among other things, these procedures allow the funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The funds value the securities in their portfolios every
business day. The funds use the following policies to value various types of securities:
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Schwab Fundamental Index ETFs
Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
•
Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
• Underlying funds: Mutual funds are valued at their respective NAVs.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which
are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations.
•
Level 3—significant unobservable inputs (including the funds’ own assumptions in determining the fair value of
investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When
observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the
original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3
prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may
significantly impact the resulting fair value and therefore the funds’ results of operations.
The inputs or methodology used for valuing securities are
not necessarily an indication of the risk associated with investing in those securities.
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Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
The levels associated with valuing the funds' investments
as of August 31, 2017 are disclosed in the Condensed Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A
fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received
by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures contracts are
traded publicly on exchanges, and their market value may change daily.
Securities Lending: Under
the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued
or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the
current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of
securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the
funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement.
Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and
broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending agent. The aggregate market value
of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan. Total costs and expenses, including lending agent fees and broker rebates, associated with securities lending
activities under the trust’s Securities Lending Program paid to the unaffiliated lending agents start at 10% of gross lending revenue, with subsequent breakpoints to a low of 7.5%.
As of August 31, 2017, the funds had securities on loan,
all of which were classified as common stocks. The value of the securities on loan and the related collateral as of August 31, 2017, if any, are disclosed in each fund's Condensed Portfolio Holdings. The value of the securities on loan and the
investment of cash collateral are also disclosed in each fund's Statement of Assets and Liabilities.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies
are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and
expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or
depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are
reported in foreign currency transactions or translations on the Statement of Operations. The funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in
market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Gains realized by the funds on the sale of securities in
certain foreign countries may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities.
When a fund closes out a futures contract position, it
calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
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Schwab Fundamental Index ETFs
Financial Notes,
unaudited (continued)
2. Significant Accounting Policies (continued):
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and
distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain foreign security dividends on the day they learn of the ex-dividend date. Any
distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
Income received from foreign sources may result in
withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate
is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
(e) Expenses:
Pursuant to the Amended and Restated Investment Advisory
Agreement (Advisory Agreement) between Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) and the trust, the investment adviser will pay the operating expenses of each fund, excluding taxes, any brokerage expenses, and
extraordinary or non-routine expenses. Taxes, any brokerage expenses and extraordinary or non-routine expenses that are specific to a fund are charged directly to the fund. Prior to March 1, 2017, under the previous investment advisory agreement,
the funds were responsible for interest expenses.
(f) Distributions to Shareholders:
Schwab Fundamental U.S. Broad Market Index ETF, Schwab
Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF generally make distributions from net investment income, if any, quarterly. Schwab Fundamental International Large Company Index ETF, Schwab Fundamental
International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF generally make distributions from net investment income, if any, annually. All funds generally make distributions from net realized capital gains,
if any, once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform to
GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that
once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of August 31, 2017, if any, are reflected in each fund's Statement of Assets and Liabilities.
(j) Indemnification:
Under the funds’ organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide
general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to
these arrangements to be remote.
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Schwab Fundamental Index ETFs
Financial Notes,
unaudited (continued)
3. Risk Factors:
Investing in the funds may involve certain risks, as
discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial
markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in a fund will fluctuate, which means that the investors
could lose money over short or long periods.
Investment Style Risk. The
funds are not actively managed. Therefore, each fund follows the securities included in its respective index during upturns as well as downturns. Because of their indexing strategies, the funds do not take steps to reduce market exposure or to
lessen the effects of a declining market. In addition, because of the funds' expenses, the funds' performance may be below that of their respective index.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to
fall over short or extended periods of time.
Market Capitalization Risk.
Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall
behind other types of investments, a fund’s performance could be impacted.
Large-Cap Company Risk.
Certain funds invest in large-cap company stocks. Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities
issued by small- or mid-cap companies.
Mid-Cap
Company Risk. Certain funds invest in mid-cap company stocks. Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities
issued by these companies may move sharply.
Small-Cap Company Risk.
Certain funds invest in small-cap company stocks. Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns
and downturns.
Foreign Investment Risk. A fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in
foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government
restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of a fund's
investments, and could impair the fund's ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies
will decline in value relative to the U.S. dollar. Foreign securities also include American Depositary receipts (ADRs), Global Depositary receipts (GDRs) and European Depositary receipts (EDRs) which may be less liquid than the underlying shares in
their primary trading market and GDRs, many of which are issued by companies in emerging markets, may be more volatile. To the extent the fund’s investments in a single country or a limited number of countries represent a large percentage of
the fund’s assets, a fund’s performance may be adversely affected by the economic, political, regulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that is
geographically diversified.
Emerging Markets
Risk. Certain funds invest in emerging markets. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging
market countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may
be more precarious than in developed countries. As a result, there may be an increased risk of liquidity and price volatility associated with a fund’s investments in emerging market countries, which may be magnified by currency fluctuations
relative to the U.S. dollar and, at times, it may be difficult to value such investments.
Sampling Index Tracking Risk. Certain funds may not fully replicate the index and may hold securities not included in the index. As a result, a fund is subject to the risk that the investment adviser’s investment management strategy, the
implementation of which is subject to a number of constraints, may not produce the intended results. Because certain funds utilize a sampling approach they may not track the return of their respective index as well as they would if the funds
purchased all of the securities in their respective index.
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Financial Notes,
unaudited (continued)
3. Risk Factors (continued):
Tracking Error Risk. As
index funds, each fund seeks to track the performance of its respective index, although it may not be successful in doing so. The divergence between the performance of a fund and the index, positive or negative, is called “tracking
error.” Tracking error can be caused by many factors and it may be significant.
Derivatives Risk. Each fund
may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific date. A
future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain
securities and a predetermined amount. A fund's use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause the fund to become a commodity pool, which would require the fund to comply with certain
CFTC rules.
A fund’s use of derivative
instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk and market risk, are discussed
elsewhere in this section. The fund’s use of derivatives is also subject to lack of availability risk, credit risk, leverage risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative
transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small
percentage of assets invested in derivatives can have a disproportionately large impact on the fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the
derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gains. A fund's use of derivatives could reduce the
fund's performance, increase the fund's volatility, and could cause the fund to lose more than the initial amount invested.
Liquidity Risk. A fund may
be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or a fund may have to sell them at a loss.
Securities Lending Risk.
Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Concentration Risk. To the
extent that a fund's or an index's portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the fund may be adversely affected by the performance of those securities, may be
subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.
Market Trading Risk.
Although fund shares are listed on national securities exchanges, there can be no assurance that an active trading market for fund shares will develop or be maintained. If an active market is not maintained, investors may find it difficult to buy or
sell fund shares.
Shares of the Fund May Trade
at Prices Other Than NAV. Fund shares may be bought and sold in the secondary market at market prices. Although it is expected that the market price of the shares of a fund will approximate the fund’s NAV,
there may be times when the market price and the NAV vary significantly. An investor may pay more than NAV when buying shares of a fund in the secondary market, and an investor may receive less than NAV when selling those shares in the secondary
market. The market price of the fund shares may deviate, sometimes significantly, from NAV during periods of market volatility or as a result of other factors impacting foreign securities, including liquidity, irregular trading activity and timing
differences between foreign markets where securities trade and the secondary market where fund shares are sold.
Please refer to the funds’ prospectus for a more
complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as each fund’s investment adviser pursuant to an Advisory Agreement between CSIM and the trust.
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Financial Notes,
unaudited (continued)
4. Affiliates and Affiliated Transactions (continued):
For its advisory services to the funds, CSIM is entitled to
receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:
| Schwab
Fundamental U.S. Broad Market Index ETF |
Schwab
Fundamental U.S. Large Company Index ETF |
Schwab
Fundamental U.S. Small Company Index ETF |
Schwab
Fundamental International Large Company Index ETF |
Schwab
Fundamental International Small Company Index ETF |
Schwab
Fundamental Emerging Markets Large Company Index ETF |
| 0.25% | 0.25% | 0.25% | 0.25% | 0.39% | 0.39% |
Interfund Transactions
The funds may engage in direct transactions with certain other
Schwab funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same
investment adviser, trustees and/or officers. For the period ended August 31, 2017, each fund's total aggregate security transactions with other Schwab funds as well as any realized gains (losses) were as follows:
| Total Aggregate Transactions | Realized Gains (Losses) | |
| Schwab Fundamental U.S. Broad Market Index ETF | $1,704,665 | ($482,171) |
| Schwab Fundamental U.S. Large Company Index ETF | 47,052,920 | (4,043,894) |
| Schwab Fundamental U.S. Small Company Index ETF | 17,489,052 | (1,864,177) |
| Schwab Fundamental International Large Company Index ETF | 32,727,359 | (561,487) |
| Schwab Fundamental International Small Company Index ETF | 4,280,788 | (747,564) |
| Schwab Fundamental Emerging Markets Large Company Index ETF | 283,282 | (94,028) |
Interfund Borrowing and
Lending
Pursuant to an exemptive order issued by the SEC,
the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged
will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds/portfolios. The interfund
lending facility is subject to the oversight and periodic review of the Board. The funds had no interfund borrowing or lending activity during the period.
5. Other Service Providers:
SEI Investments
Distribution Co. is the principal underwriter and distributor of shares of the funds.
State Street Bank and Trust Company (State Street) serves as
the funds’ transfer agent. As part of these services, the transfer agent maintains records pertaining to the sale, redemption and transfer of the funds’ shares.
State Street also serves as custodian and accountant for the
funds. The custodian is responsible for the daily safekeeping of securities and cash held by the funds. The funds’ accountant maintains all books and records related to the funds’ transactions.
6. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations
throughout the report period. The trust does not pay any interested or non-interested trustees (independent trustees). The independent trustees are paid by CSIM. For information regarding the trustees, please refer to the Trustees and Officers table
at the end of this report.
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Financial Notes,
unaudited (continued)
7. Borrowing from Banks:
During the period, the funds were participants with other U.S.
registered investment companies managed by CSIM in a joint, syndicated, committed $555 million line of credit (the Credit Facility). Under the terms of the Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund
paid a commitment fee of 0.15% per annum on its proportionate share of the unused portion of the Credit Facility. Effective March 1, 2017, where applicable, CSIM paid the commitment fee and any interest expense charged on any borrowings by a fund,
since these expenses are now included in the advisory fee. There were no borrowings from the line of credit during the period.
The funds also have access to custodian overdraft facilities. A
fund may have utilized the overdraft facility and incurred an interest expense. Since March 1, 2017, where applicable, CSIM paid any interest expense charged. The interest expense is determined based on a negotiated rate above the Federal Funds
Rate.
8. Derivatives:
Certain funds entered into equity
index futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at August 31, 2017 are presented on the Condensed Portfolio
Holdings and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting
policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended August 31, 2017, the month-end average notional amounts of futures contracts held by the
funds and the month-end average number of contracts held were as follows:
| Notional Amounts | Number of Contracts | |
| Schwab Fundamental U.S. Broad Market Index ETF | $810,399 | 7 |
| Schwab Fundamental U.S. Large Company Index ETF | 7,133,571 | 59 |
| Schwab Fundamental U.S. Small Company Index ETF | 4,422,704 | 63 |
| Schwab Fundamental International Large Company Index ETF | 10,494,947 | 113 |
| Schwab Fundamental International Small Company Index ETF | 4,742,888 | 51 |
| Schwab Fundamental Emerging Markets Large Company Index ETF | 5,899,316 | 116 |
9. Purchases and Sales/Maturities of Investment Securities:
For the period ended August 31, 2017, purchases and
sales/maturities of securities (excluding in-kind transactions and short-term obligations) were as follows:
| Purchases
of Securities |
Sales/Maturities
of Securities | |
| Schwab Fundamental U.S. Broad Market Index ETF | $13,775,684 | $12,391,470 |
| Schwab Fundamental U.S. Large Company Index ETF | 163,995,466 | 133,333,973 |
| Schwab Fundamental U.S. Small Company Index ETF | 311,523,073 | 253,371,569 |
| Schwab Fundamental International Large Company Index ETF | 167,402,662 | 111,897,835 |
| Schwab Fundamental International Small Company Index ETF | 153,514,762 | 107,061,255 |
| Schwab Fundamental Emerging Markets Large Company Index ETF | 437,881,624 | 98,893,864 |
10. In-Kind Transactions:
The consideration for the
purchase of Creation Units of a fund often consists of the in-kind deposit of a designated portfolio of equity securities, which constitutes an optimized representation of the securities involved in a relevant fund’s underlying index, and an
amount of cash. Investors purchasing and redeeming Creation Units are subject to a standard creation transaction fee and a standard redemption transaction fee paid to the custodian to offset transfer and other transaction costs associated with the
issuance and redemption of Creation Units. Purchasers and redeemers of Creation Units for cash are subject to an additional variable charge paid to the fund that will offset the transaction costs to the fund of buying or selling portfolio
securities. In addition, purchasers and redeemers of shares in Creation Units are responsible for payment of the costs of transferring securities to or out of the fund. From time to time, CSIM may cover the cost of any transaction fees when believed
to be in the best interests of a fund.
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Financial Notes,
unaudited (continued)
10. In-Kind Transactions (continued):
The in-kind transactions for the period ended August 31,
2017, were as follows:
| In-Kind
Purchases of Securities |
In-Kind
Sales of Securities | |
| Schwab Fundamental U.S. Broad Market Index ETF | $11,506,594 | $9,825,824 |
| Schwab Fundamental U.S. Large Company Index ETF | 784,594,020 | 8,366,556 |
| Schwab Fundamental U.S. Small Company Index ETF | 596,709,701 | 141,831,483 |
| Schwab Fundamental International Large Company Index ETF | 680,767,866 | 15,881,193 |
| Schwab Fundamental International Small Company Index ETF | 391,573,681 | 78,042,832 |
| Schwab Fundamental Emerging Markets Large Company Index ETF | 70,752,185 | — |
For the period ended August 31,
2017, where applicable, the funds realized net capital gains or losses resulting from in-kind redemptions of Creation Units. Because such gains or losses are not taxable to the funds and are not distributed to existing fund shareholders, the gains
or losses are reclassified from accumulated net realized gains or losses to capital received from investors at the end of the funds' tax year. These reclassifications have no effect on net assets or net asset values per share. The net realized
in-kind gains or losses for the period ended August 31, 2017 are disclosed in the funds' Statements of Operations, if any.
11. Federal Income Taxes
As of August 31, 2017, the
tax basis cost of the funds' investments and gross unrealized appreciation and depreciation were as follows:
| Schwab
Fundamental U.S. Broad Market Index ETF |
Schwab
Fundamental U.S. Large Company Index ETF |
Schwab
Fundamental U.S. Small Company Index ETF |
Schwab
Fundamental International Large Company Index ETF |
Schwab
Fundamental International Small Company Index ETF |
Schwab
Fundamental Emerging Markets Large Company Index ETF | ||||||
| Tax cost | $237,792,799 | $2,794,526,062 | $1,916,427,009 | $2,571,185,116 | $1,200,999,448 | $1,287,583,336 | |||||
| Gross unrealized appreciation | $44,716,769 | $346,133,867 | $258,667,376 | $342,993,326 | $211,006,384 | $257,645,289 | |||||
| Gross unrealized depreciation | (14,219,363) | (105,847,462) | (103,157,729) | (61,907,224) | (29,216,493) | (24,626,045) | |||||
| Net unrealized appreciation (depreciation) | $30,497,406 | $240,286,405 | $155,509,647 | $281,086,102 | $181,789,891 | $233,019,244 |
Capital loss carryforwards may be
used to offset future realized capital gains for federal income tax purposes. As of February 28, 2017, the funds had capital loss carryforwards available to offset future net capital gains as follows:
| Expiration Date | Schwab
Fundamental U.S. Broad Market Index ETF |
Schwab
Fundamental U.S. Large Company Index ETF |
Schwab
Fundamental U.S. Small Company Index ETF |
Schwab
Fundamental International Large Company Index ETF |
Schwab
Fundamental International Small Company Index ETF |
Schwab
Fundamental Emerging Markets Large Company Index ETF | |||||
| No expiration | $2,886,323 | $9,735,348 | $18,248,707 | $32,967,455 | $16,086,481 | $7,761,845 | |||||
| Total | $2,886,323 | $9,735,348 | $18,248,707 | $32,967,455 | $16,086,481 | $7,761,845 |
As of February 28, 2017, management
has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is
required in the funds' financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 28, 2017, the funds did not
incur any interest or penalties.
12. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Investment Advisory
Agreement Approval
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Trustees and
Officers
The tables below give information about the trustees and
officers for the Schwab Strategic Trust, which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab
Strategic Trust and Laudus Trust. The Fund Complex includes 105 funds.
The address for all trustees and officers is 211 Main Street,
San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 105 | Director, PS Business Parks, Inc. (2005 – 2012) |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015). | 105 | Director, Gilead Sciences, Inc. (2005 – present) |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012). | 105 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 105 | Director,
Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present) |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013). | 105 | Director, KLA-Tencor Corporation (2008 – present) |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant, Patmore Management Consulting (management consulting) (2008 – present). | 105 | None |
| Charles
A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015) |
Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015). | 105 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present). | 105 | Director,
Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012) |
| Joseph
H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present). | 105 | Board
Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present) |
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| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); Director, Schwab Holdings, Inc. (May 2008 – present); and Director, Charles Schwab Investment Management, Inc. (July 2016 – present). | 105 | Director, The Charles Schwab Corporation (2008 – present) |
| Marie
A. Chandoha2 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). | 105 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Senior Executive Vice President (July 2015 – present), Chief Financial Officer (July 2015 – May 2017), Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – May 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc. | 105 | None |
| Officers of the Trust | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Marie
A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010). |
| Mark
Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011). |
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| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| George
Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009) |
Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present). |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009). |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (Apr. 2006 – Jan. 2008). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present). |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Ms. Chandoha and Mr. Martinetto are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Glossary
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Notes
Schwab Fundamental Index ETFs
Schwab ETFs™
Schwab ETFs are designed to be low-cost, diversified
investments which follow broad market indices and provide exposure to specific segments of the market. These ETFs can serve as part of the foundation of a diversified portfolio. The list below shows all currently available Schwab ETFs.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus and brochure for any Schwab ETF. Please read the prospectus carefully
before you invest. This report must be preceded or accompanied by a current prospectus.
Proxy Voting Policies, Procedures and Results
A description of the proxy voting policies and procedures
used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting the Schwab ETFs’ website at www.schwabfunds.com/schwabetfs_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab ETFs at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabetfs_prospectus or the SEC’s
website at www.sec.gov.
Schwab ETFs™
| * | FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC. |
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MFR76318-04
00199033
00199033
Table of Contents
Item 2: Code of Ethics.
Not applicable to this semi-annual report.
Item 3: Audit Committee Financial Expert.
Not applicable to this semi-annual report.
Item 4: Principal Accountant Fees and Services.
Not applicable to this semi-annual report.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Schedule of Investments.
Except as noted below, the schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form. The schedules of investments for the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, Schwab Fundamental U.S. Small Company Index ETF, Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF are filed under this Item.
Table of Contents
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
1
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notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
2
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Report
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notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
3
Schwab Fundamental Index ETFs | Semiannual
Report
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notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
4
Schwab Fundamental Index ETFs | Semiannual
Report
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notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
5
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
6
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
7
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
8
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
9
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
10
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
11
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Broad Market Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
12
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
13
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
14
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
15
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
16
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
17
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
18
Schwab Fundamental Index ETFs | Semiannual
Report
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notes
Schwab Fundamental U.S. Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Appreciation ($) | ||||
| Futures Contracts | ||||||
| Long | ||||||
| S&P 500 Index, e-mini, expires 09/15/17 | 62 | 7,657,310 | 82,252 | |||
| * | Non-income producing security. |
| (a) | Issuer is affiliated with the fund's adviser. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $17,201,227. |
| (c) | The rate shown is the 7-day yield. |
19
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
20
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
21
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
22
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
23
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
24
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
25
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
26
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental U.S. Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
27
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
28
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
29
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
30
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
31
Schwab Fundamental Index ETFs | Semiannual
Report
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notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
32
Schwab Fundamental Index ETFs | Semiannual
Report
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notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
33
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
34
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
35
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
36
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
37
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
38
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
39
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
40
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
41
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
42
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
43
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
44
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
45
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
46
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
47
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental International Small Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
| Security | Number
of Shares |
Value ($) |
| Other Investment Companies 3.3% of net assets | ||
| United States 3.3% | ||
| Money Market Fund 0.2% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.93% (c) | 2,638,859 | 2,638,859 |
| Securities Lending Collateral 3.1% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.92% (c) | 41,240,693 | 41,240,693 |
| Total Other Investment Companies | ||
| (Cost $43,879,552) | 43,879,552 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Appreciation ($) | ||||
| Futures Contracts | ||||||
| Long | ||||||
| MSCI EAFE Index, e-mini, expires 09/15/17 | 36 | 3,482,640 | 17,840 | |||
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $39,283,192. |
| (b) | Fair-valued by management in accordance with procedures approved by the Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| ADR — | American Depositary Receipt |
| CDI — | CHESS Depositary Interest |
| CVA — | Dutch Certificate |
| REIT — | Real Estate Investment Trust |
| RSP — | Risparmio (Convertible Savings Shares) |
48
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited)
This section shows all the securities in the fund's portfolio
and their values as of the report date.
The fund files
its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and
copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund's
website at www.schwabfunds.com/schwabetfs_prospectus.
49
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
50
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
51
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index ETF
Portfolio Holdings as of August 31, 2017 (Unaudited) (continued)
52
Schwab Fundamental Index ETFs | Semiannual
Report
See financial
notes
Table of Contents
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
| Item 9: | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
| (a) | Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Marie Chandoha and Registrant’s Chief Financial Officer, Mark Fischer, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. |
| (b) | During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting. |
Item 12: Exhibits.
| (a) | (1) Code of ethics – not applicable to this semi-annual report. |
| (2) | Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. |
| (3) | Not applicable. |
| (b) | A certification for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSRS with the Commission. |
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) Schwab Strategic Trust | ||
| By: | /s/ Marie Chandoha | |
| Marie Chandoha Chief Executive Officer | ||
| Date: | October 17, 2017 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Marie Chandoha | |
| Marie Chandoha Chief Executive Officer | ||
| Date: | October 17, 2017 | |
| By: | /s/ Mark Fischer | |
| Mark Fischer Chief Financial Officer | ||
| Date: | October 17, 2017 | |