nvcsr

Purchase of Securities

Sales/Maturities of Securities

$6,650,000

$14,050,000

Performance at a Glance

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/prospectus.


Total Return for the Report Period


Schwab MarketTrack All Equity Portfolio^tm (Ticker Symbol: SWEGX)			16.62%

All Equity Composite Index			15.64%
Fund Category: Morningstar Large-Cap Blend			15.53%

Performance Details			pages 6-7



Schwab MarketTrack Growth Portfolio^tm

Investor Shares (Ticker Symbol: SWHGX)			14.86%
P Shares (Ticker Symbol: SWPGX)			15.00%
Growth Composite Index			14.41%
Fund Category: Morningstar Large-Cap Blend			15.53%

Performance Details			pages 8-9



Schwab MarketTrack Balanced Portfolio^tm (Ticker Symbol: SWBGX)			12.92%

Balanced Composite Index			12.94%
Fund Category: Morningstar Moderate Allocation			13.46%

Performance Details			pages 10-11



Schwab MarketTrack Conservative Portfolio^tm (Ticker Symbol: SWCGX)			10.98%

Conservative Composite Index			11.32%
Fund Category: Morningstar Conservative Allocation			11.92%

Performance Details			pages 12-13



Minimum Initial Investment¹

Investor Shares			$ 100
P Shares			$100,000

All figures 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 you cannot invest in them directly. Performance results less than one year are not annualized.

Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares.

The All Equity Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 70% Dow Jones U.S. Total Stock Market Index and 30% MSCI EAFE Index. The index is maintained by Charles Schwab Investment Management, Inc.

The Growth Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 60% Dow Jones U.S. Total Stock Market Index, 20% MSCI EAFE Index, 15% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.

The Balanced Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 45% Dow Jones U.S. Total Stock Market Index, 15% MSCI EAFE Index, 35% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.

The Conservative Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 30% Dow Jones U.S. Total Stock Market Index, 10% MSCI EAFE Index, 55% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.


¹	Please see prospectus for further details and eligibility requirements.

2 Schwab MarketTrack Portfolios

From the President

Marie Chandoha is President and CEO of Charles Schwab Investment Management, Inc. and the funds covered in this report.

Dear Shareholder,

During the year that ended October 31, 2010, many investors wrestled with news that was mostly negative—the recovery of the U.S. economy remained tepid, unemployment stayed stubbornly high, and the housing market remained weak. In spite of these events, nearly all stock and bond markets produced positive returns, both in the United States and abroad.

The bellwether S&P 500 Index gained 16.52% during the year and international stock markets also rewarded investors as indicated by a return of 8.82% in the MSCI EAFE Index. Growth stocks generally fared better than value stocks in large-, mid-, and small-cap sectors. In fixed income markets, the Barclays Capital U.S. Aggregate Bond Index returned 8.01%.

For the year ending October 31, 2010, the Schwab MarketTrack Portfolios produced positive total returns comparable to their composite indices, aided by the strong rebound in equities in the latter part of the period and solid continuing performance from the bond markets. The Schwab MarketTrack All Equity Portfolio and Schwab MarketTrack Growth Portfolio slightly outperformed their benchmark indices while the Schwab MarketTrack Balanced Portfolio and the Schwab MarketTrack Conservative Portfolio modestly underperformed them.

Each Schwab MarketTrack Portfolio allocates its investments across several asset classes, according to a specific investment goal. Please read the fund manager’s discussion and analysis on the following pages to learn more about each fund’s approach.

At Schwab, we encourage investors to review their investment strategy periodically in the context of their tolerance for risk, timeline, and established investment plan.

If you have any questions about the Schwab MarketTrack Portfolios or any other Schwab Funds, please call us at 1-800-435-4000. Please also see www.schwabfunds.com for details on each fund including performance results, investment strategy, and prospectus.

Thank you for investing with us.

Sincerely,

Schwab MarketTrack Portfolios 3

The Investment Environment

The past 12 months produced significant positive returns in nearly all major equity and fixed income markets, despite various economic indicators falling short of expectations here in the United States and abroad. Domestic equity markets fared better than international, and growth stocks outperformed value stocks in large-, mid-, and small-cap categories. In the credit markets, inflation-protected bonds were the best performers and U.S. Treasuries had the poorest returns, though they also had solid performance for the 12 months under review.

The return for the S&P 500 Index, which is usually seen as a bellwether for U.S. financial markets, was positive at 16.52%. The international stock markets also had solid overall returns, and the MSCI EAFE Index (Gross) returned 8.82%. In fixed-income, the Barclays Capital U.S. Aggregate Bond Index returned 8.01%, while the Barclays Capital U.S. TIPS Index returned 10.42%, and the Barclays Capital U.S. Treasury Index returned 7.20% for the reporting period.

In a press release dated November 3, 2010, the Federal Reserve (the Fed) described information it had received since its meeting in September 2010, and noted that the pace of recovery in output and employment remained slow. Moreover, persistent high unemployment, coupled with depressed housing prices and a rise in foreclosures, continued to work against the U.S. economic recovery process. In the U.S. fixed income markets, accommodative Fed policy in the form of a near-zero federal funds rate remained intact, and several recent statements from the Fed affirmed that rates will remain low for an extended period of time. Also in November’s press release, the Fed stated that it intended to purchase up to $600 billion of longer-term U.S. Treasuries by the end of the second quarter in 2011.

At the international level, financial markets fluctuated during the reporting period. Ongoing concerns regarding the debt obligations of Greece, Spain, Ireland, and other European countries continued to capture the attention of central banks and resulted in the progressive downgrading of debt in those countries. The news caused temporary turmoil in the U.S. and global financial markets in early May 2010. While there has been some rebounding to pre-May levels in the markets, central banks remain attentive to debt ratios, monetary exchange rates, interest rates, and inflation measurements.

During the reporting period, two economic events caused volatility in the equity and fixed income markets. First, was the Deepwater Horizon oil spill in the Gulf of Mexico on April 20, 2010. The costs—in terms of environmental impact and loss of oil—affected energy-related stocks, which declined on the news. For the reporting period, the Energy Sector was the weakest performing sector in the S&P 500 Index. Second, investor confidence in the United States and abroad was further shaken on May 6, 2010, when the Dow Jones Industrial Average dropped 999 points, within a 30-minute timeframe, before partially regaining some of the decline. The equity market event was subsequently named the “flash crash.” As a result of the flash crash, more than 16,000 trades were cancelled by the major U.S. stock exchanges.

On a more general note in the United States, real Gross Domestic Product (GDP) growth remained lower than hoped for during the reporting period, with the Bureau of Economic Analysis estimating that GDP grew at a rate of 2.0% for the third quarter of 2010. Likewise, the national unemployment rate—as reported by the Bureau of Labor Statistics—was an ongoing concern and hovered just below 10% throughout the 12-month period. Finally, high delinquencies, foreclosures, and stalled foreclosures weighed heavily on the housing sector. The discovery that some institutions had improper or incomplete paperwork on original loan documents brought at least a temporary halt to some foreclosures.

Asset Class Performance Comparison % returns during the report period

This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.



		16.52%		S&P 500^{^®} Index: measures U.S. large-cap stocks

		26.58%		Russell 2000^{^®} Index: measures U.S. small-cap stocks

		8.82%		MSCI EAFE^{^®} Index (Gross): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		8.01%		Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market

		0.11%		Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations

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 an indication of future results.

Data source: Charles Schwab & Co., Inc.

Nothing in this report represents a recommendation of a security by the investment adviser.

Manager views and portfolio holdings may have changed since the report date.

4 Schwab MarketTrack Portfolios

Schwab MarketTrack All Equity Portfolio™

The Schwab MarketTrack All Equity Portfolio (the portfolio) seeks high capital growth through an all-stock portfolio. To pursue its goal, the portfolio maintains a defined asset allocation. The portfolio’s target allocation is 100% in stock investments, with certain percentages for different segments of the stock market. It is the portfolio’s policy that, under normal circumstances, it will invest at least 80% of its net assets in stock investments; typically the actual percentage is considerably higher.

The portfolio’s allocation focuses on stock investments for long-term growth. The portfolio seeks to remain close to the target allocations of 45% in large-cap, 30% in international and 25% in small-cap stocks, and typically does not change its target allocation.

The portfolio invests mainly in other Schwab Funds, particularly three of the Equity Index Funds. These underlying funds seek to track the total returns of various stock market indices. They typically invest in the stocks included in the index they are tracking, and generally give each stock the same weight as the index does. Each underlying fund focuses on a different segment of the stock market. For more information on the portfolio’s objective and strategy, please see the portfolio’s prospectus.

The portfolio returned 16.62% for the period. Its comparative index, the All Equity Composite Index, returned 15.64%. The portfolio was overweight U.S. small-cap stocks, compared to the composite index, and this contributed to both absolute and relative fund performance. (For current allocations of the All Equity Composite Index, please refer to footnote 3 on the following page.)

U.S. equities, as measured by the Dow Jones U.S. Total Stock Market Index, returned 18.76%, while international stocks, as measured by the MSCI EAFE Index, returned 8.82% for the reporting period. Within the U.S. equity market, small-cap stocks outperformed large-cap stocks. The Russell 2000 Index, which measures small-cap stocks, returned 26.58% for the reporting period, while the Russell 1000 Large Cap Index, which measures large-cap stocks, returned 17.67%.

The Schwab Small-Cap Index Fund was the top contributor to the portfolio’s outperformance. The fund returned 27.85%, underperforming the Schwab Small-Cap Index, which returned 28.08%. The Schwab S&P 500 Index Fund returned 16.50%, underperforming the S&P 500 Index, which returned 16.52%. On the international side, the Schwab International Index Fund returned 9.31%, outperforming the Schwab International Index, which returned 8.05%.

As of 10/31/10:

Statistics


Number of Holdings		4
Portfolio Turnover Rate		8%

Asset Class Weightings % of Investments


Large-Cap Stocks		45.0%
International Stocks		29.8%
Small-Cap Stocks		24.9%
Short-Term Investments		0.3%
Total		100.0%

Top Holdings % Net Assets¹


Schwab S&P 500 Index Fund		45.0%
Schwab International Index Fund		29.8%
Schwab Small-Cap Index Fund		24.9%
Total		99.7%

Manager views and portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk.


¹		This list is not a recommendation of any security by the investment adviser.

6 Schwab MarketTrack Portfolios

Schwab MarketTrack All Equity Portfolio^tm

Performance Summary as of 10/31/10

October 31, 2000 – October 31, 2010
Performance of a Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2


Portfolio and Inception Date	1 Year			5 Years			10 Years

Portfolio: Schwab MarketTrack All Equity Portfolio^tm (5/19/98)		16.62	%		2.53	%		1.58	%
All Equity Composite Index³		15.64	%		2.72	%		1.68	%
S&P 500^® Index		16.52	%		1.73	%		-0.02	%
Fund Category: Morningstar Large-Cap Blend		15.53	%		1.57	%		0.69	%

Portfolio Expense Ratios⁴: Net 0.65%; Gross 0.69%

Style Assessment⁵


¹		Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares.
²		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		The All Equity Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 70% Dow Jones U.S. Total Stock Market Index and 30% MSCI EAFE Index. The index is maintained by Charles Schwab Investment Management, Inc.
⁴		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.15%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁵		Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio’s market capitalization placement is determined by the geometric mean of its holdings’ market capitalizations. The assessment reflects the portfolio’s holdings as of 10/31/10, which may have changed since then, and is not a precise indication of risk or performance—past, present, or future.

Schwab MarketTrack Portfolios 7

Schwab MarketTrack Growth Portfolio™

The Schwab MarketTrack Growth Portfolio (the portfolio) seeks high capital growth with less volatility than an all-stock portfolio. To pursue its goal, the portfolio maintains a defined asset allocation. The portfolio’s target allocation includes stock, bond, and cash investments. The portfolio’s allocation focuses on stock investments, while including some bonds and cash investments in seeking to reduce the portfolio’s volatility.

The portfolio seeks to remain close to the target allocations of 80% stocks, 15% bonds, 5% cash, and typically does not change its target allocation. The stock allocation is further divided into three segments: 40% of assets for large-cap, 20% for small-cap, and 20% for international.

The portfolio invests mainly in other Schwab Funds, including index funds, which seek to track the total returns of various market indices. Index funds typically invest in the securities included in the index they are tracking, and give each security the same weight as the index does. Each underlying fund focuses on a different market segment. For more information on the portfolio’s objective and strategy, please see the portfolio’s prospectus.

The portfolio returned 14.86% for the 12-month period. Its comparative index, the Growth Composite Index, returned 14.41%. The portfolio was overweight U.S. small-cap stocks, compared to the composite index, and this contributed to both absolute and relative fund performance. (For current allocations of the Growth Composite Index, please refer to footnote 3 on the following page.)

Stocks outperformed fixed income securities for the period under review. For example, U.S. equities, as measured by the Dow Jones U.S. Total Stock Market Index, returned 18.76%, while international stocks, as measured by the MSCI EAFE Index, returned 8.82%. Within the U.S. equity market, small-cap stocks outperformed large-cap stocks. The Russell 2000 Index, which measures small-cap stocks, returned 26.58% for the reporting period, while the Russell 1000 Index, which measures large-cap stocks, returned 17.67%. By comparison, the Barclays Capital U.S. Aggregate Bond Index returned 8.01%, and the Barclays Capital U.S. Treasury Bill Index returned 0.11%.

Within the equity portion of the portfolio, the Schwab Small-Cap Index Fund contributed to the portfolio’s outperformance. The fund returned 27.85%, underperforming the Schwab Small-Cap Index, which returned 28.08%. The Schwab S&P 500 Index Fund returned 16.50%, underperforming the S&P 500 Index, which returned 16.52%. On the international side, the Schwab International Index Fund returned 9.31%, outperforming the Schwab International Index, which returned 8.05%.

As for the fixed income portion of the portfolio, the Schwab Total Bond Market Fund detracted from relative portfolio performance. The underlying fund returned 7.46%, underperforming the Barclays Capital U.S. Aggregate Index, which returned 8.01%.

As of 10/31/10:

Statistics


Number of Holdings		6
Portfolio Turnover Rate		14%

Asset Class Weightings % of Investments


Large-Cap Stocks		40.2%
Small-Cap Stocks		20.1%
International Stocks		20.1%
Bonds		14.8%
Short-Term Investments		4.8%
Total		100.0%

Top Holdings % Net Assets¹


Schwab S&P 500 Index Fund		40.3%
Schwab Small-Cap Index Fund		20.1%
Schwab International Index Fund		20.1%
Schwab Total Bond Market Fund		14.8%
Schwab Value Advantage Money Fund, Institutional Shares		3.6%
Total		98.9%

Manager views and portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk.


¹		This list is not a recommendation of any security by the investment adviser.

8 Schwab MarketTrack Portfolios

Schwab MarketTrack Growth Portfolio^tm

Performance Summary as of 10/31/10

October 31, 2000 – October 31, 2010
Performance of a Hypothetical
$10,000 Investment in Investor Shares^1,3

April 6, 2006 – April 30, 2010
Performance of a Hypothetical
$100,000 Investment in P Shares¹

Average Annual Total Returns^1,2


Portfolio Class and Inception Date	1 Year			5 Years			10 Years			Since Inception

Investor Shares (11/20/95)		14.86	%		2.96	%		2.29	%		6.08	%
P Shares (4/6/06)		15.00	%		n/a			n/a			1.11	%
Growth Composite Index³		14.41	%		3.50	%		2.57	%		(11/20/95) 6.47%
											(4/6/06) 1.56%
S&P 500^® Index		16.52	%		1.73	%		-0.02	%		(11/20/95) 6.54%
											(4/6/06) -0.13%
Barclays Capital U.S. Aggregate Bond Index		8.01	%		6.45	%		6.38	%		(11/20/95) 6.34%
											(4/6/06) 6.87%
Fund Category: Morningstar Large-Cap Blend		15.53	%		1.57	%		0.69	%		(11/20/95) 6.36%
											(4/6/06) -0.51%

Portfolio Expense Ratios⁴: Investor Shares: Net 0.70%; Gross 0.72% / P Shares: Net 0.55%; Gross 0.58%

Style Assessment⁵


¹		Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares.
²		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		The Growth Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 60% Dow Jones U.S. Total Stock Market Index, 20% MSCI EAFE Index, 15% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.
⁴		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.20%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁵		Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio’s market capitalization placement is determined by the geometric mean of its holdings’ market capitalizations. The assessment reflects the portfolio’s holdings as of 10/31/10, which may have changed since then, and is not a precise indication of risk or performance—past, present, or future.

Schwab MarketTrack Portfolios 9

Schwab MarketTrack Balanced Portfolio™

The Schwab MarketTrack Balanced Portfolio (the portfolio) seeks both capital growth and income. To pursue its goal, the portfolio maintains a defined asset allocation. The portfolio’s target allocation includes bond, stock, and cash investments. The portfolio’s allocation is weighted toward stock investments, while including substantial bond investments in seeking to add income and reduce the portfolio’s volatility.

The portfolio seeks to remain close to the target allocations of 60% stocks, 35% bonds, 5% cash, and typically does not change its target allocation. The stock allocation is further divided into three segments: 30% of assets for large-cap, 15% for small-cap, and 15% for international.

The portfolio returned 12.92% for the 12-month period. Its comparative index, the Balanced Composite Index, returned 12.94%. The portfolio was overweight U.S. small-cap stocks, compared to the composite index, and this contributed to absolute and relative fund performance. (For current allocations of the Balanced Composite Index, please refer to footnote 3 on the following page.)

Within the equity portion of the portfolio, the Schwab Small-Cap Index Fund was the best performing equity holding. The fund returned 27.85%, underperforming the Schwab Small-Cap Index, which returned 28.08%. The Schwab S&P 500 Index returned 16.50%, underperforming the S&P 500 Index, which returned 16.52%. On the international side, the Schwab International Index Fund returned 9.31%, outperforming the Schwab International Index, which returned 8.05%.

As for the fixed income portion of the portfolio, the Schwab Total Bond Market Fund detracted from relative portfolio performance. It returned 7.46%, underperforming the Barclays Capital U.S. Aggregate Bond Index, which returned 8.01%.

As of 10/31/10:

Statistics


Number of Holdings		6
Portfolio Turnover Rate		22%

Asset Class Weightings % of Investments


Bonds		35.0%
Large-Cap Stocks		30.0%
Small-Cap Stocks		15.1%
International Stocks		15.1%
Short-Term Investments		4.8%
Total		100.0%

Top Holdings % Net Assets¹


Schwab Total Bond Market Fund		34.9%
Schwab S&P 500 Index Fund		30.0%
Schwab Small-Cap Index Fund		15.1%
Schwab International Index Fund		15.1%
Schwab Value Advantage Money Fund, Institutional Shares		3.3%
Total		98.4%

Manager views and portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk.


¹		This list is not a recommendation of any security by the investment adviser.

10 Schwab MarketTrack Portfolios

Schwab MarketTrack Balanced Portfolio^tm

Performance Summary as of 10/31/10

October 31, 2000 – October 31, 2010
Performance of a Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2


Portfolio and Inception Date	1 Year			5 Years			10 Years

Portfolio: Schwab MarketTrack Balanced Portfolio^tm (11/20/95)		12.92	%		3.23	%		3.00	%
Balanced Composite Index³		12.94	%		4.40	%		3.66	%
S&P 500^® Index		16.52	%		1.73	%		-0.02	%
Barclays Capital U.S. Aggregate Bond Index		8.01	%		6.45	%		6.38	%
Fund Category: Morningstar Moderate Allocation		13.46	%		3.44	%		3.21	%

Portfolio Expense Ratios⁴: Net 0.78%; Gross 0.80%


¹		Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares.
²		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		The Balanced Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 45% Dow Jones U.S. Total Stock Market Index, 15% MSCI EAFE Index, 35% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.
⁴		As stated in the prospectus. Includes expenses of the underlying funds in which the Portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.28%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab MarketTrack Portfolios 11

Schwab MarketTrack Conservative Portfolio™

The Schwab MarketTrack Conservative Portfolio (the portfolio) seeks income and more growth potential than an all-bond portfolio. To pursue its goal, the portfolio maintains a defined asset allocation. The portfolio’s target allocation includes bond, stock, and cash investments. The portfolio’s allocation is weighted toward bond investments, while including substantial stock investments in seeking to obtain long-term growth.

The portfolio seeks to remain close to the target allocations of 55% bonds, 40% stocks, 5% cash, and typically does not change its target allocation. The stock allocation is further divided into three segments: 20% of assets for large-cap, 10% for small-cap, and 10% for international.

The portfolio returned 10.98% for the 12-month period. Its comparative index, the Conservative Composite Index, returned 11.32%. The portfolio was overweight U.S. small-cap stocks, compared to the composite index, and this contributed to absolute and relative fund performance. (For current allocations of the Conservative Composite Index, please refer to footnote 3 on the following page.)

Within the fixed income portion of the portfolio, the Schwab Total Bond Market Fund detracted from relative portfolio performance. It returned 7.46%, underperforming the Barclays Capital U.S. Aggregate Index, which returned 8.01%.

As for the equity portion of the portfolio, the Schwab Small-Cap Index Fund was the best performing equity holding. The fund returned 27.85%, underperforming the Schwab Small-Cap Index, which returned 28.08%. The Schwab S&P 500 Index Fund returned 16.50%, underperforming the S&P 500 Index, which returned 16.52%. On the international side, the Schwab International Index Fund returned 9.31%, outperforming the Schwab International Index, which returned 8.05%.

As of 10/31/10:

Statistics


Number of Holdings		6
Portfolio Turnover Rate		25%

Asset Class Weightings % of Investments


Bonds		54.9%
Large-Cap Stocks		20.2%
Small-Cap Stocks		10.1%
International Stocks		10.0%
Short-Term Investments		4.8%
Total		100.0%

Top Holdings % Net Assets¹


Schwab Total Bond Market Fund		54.9%
Schwab S&P 500 Index Fund		20.2%
Schwab Small-Cap Index Fund		10.1%
Schwab International Index Fund		10.0%
Schwab Value Advantage Money Fund, Institutional Shares		3.8%
Total		99.0%

Manager views and portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than other asset categories. Foreign securities can involve risks such as political and economic instability and currency risk.


¹		This list is not a recommendation of any security by the investment adviser.

12 Schwab MarketTrack Portfolios

Schwab MarketTrack Conservative Portfolio^tm

Performance Summary as of 10/31/10

October 31, 2000 – October 31, 2010
Performance of a Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2


Portfolio and Inception Date	1 Year			5 Years			10 Years

Portfolio: Schwab MarketTrack Conservative Portfolio^tm (11/20/95)		10.98	%		3.42	%		3.61	%
Conservative Composite Index³		11.32	%		5.15	%		4.62	%
S&P 500^® Index		16.52	%		1.73	%		-0.02	%
Barclays Capital U.S. Aggregate Bond Index		8.01	%		6.45	%		6.38	%
Fund Category: Morningstar Conservative Allocation		11.92	%		4.11	%		3.96	%

Portfolio Expense Ratios⁴: Net 0.87%; Gross 0.90%


¹		Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares.
²		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		The Conservative Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 30% Dow Jones U.S. Total Stock Market Index, 10% MSCI EAFE Index, 55% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc.
⁴		As stated in the prospectus. Includes expenses of the underlying funds in which the Portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.37%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab MarketTrack Portfolios 13

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees, and ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning May 1, 2010 and held through October 31, 2010.

Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”

Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 5/1/10		at 10/31/10		5/1/10–10/31/10

Schwab MarketTrack All Equity Portfolio^tm
Actual Return		0.50%	$	1,000	$	1,016.20	$	2.54
Hypothetical 5% Return		0.50%	$	1,000	$	1,022.68	$	2.55


Schwab MarketTrack Growth Portfolio^tm
Investor Shares
Actual Return		0.50%	$	1,000	$	1,019.30	$	2.54
Hypothetical 5% Return		0.50%	$	1,000	$	1,022.68	$	2.55
P Shares
Actual Return		0.35%	$	1,000	$	1,020.00	$	1.78
Hypothetical 5% Return		0.35%	$	1,000	$	1,023.44	$	1.79


Schwab MarketTrack Balanced Portfolio^tm
Actual Return		0.50%	$	1,000	$	1,027.50	$	2.56
Hypothetical 5% Return		0.50%	$	1,000	$	1,022.68	$	2.55


Schwab MarketTrack Conservative Portfolio^tm
Actual Return		0.50%	$	1,000	$	1,035.40	$	2.57
Hypothetical 5% Return		0.50%	$	1,000	$	1,022.68	$	2.55


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. The expenses incurred by the underlying funds in which the funds invest are not included in this ratio.
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 the 184 days of the period, and divided by the 365 days of the fiscal year.

14 Schwab MarketTrack Portfolios

Schwab MarketTrack All Equity Portfolio™

Financial Statements

Financial Highlights


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			11/1/05–
	10/31/10			10/31/09			10/31/08			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		9.82			9.44			15.58			13.63			11.55

Income (loss) from investment operations:
Net investment income (loss)		0.12			0.30			0.20			0.21			0.11
Net realized and unrealized gains (losses)		1.50			0.83			(6.11	)		2.01			2.10

Total from investment operations		1.62			1.13			(5.91	)		2.22			2.21
Less distributions:
Distributions from net investment income		(0.14	)		(0.23	)		(0.22	)		(0.27	)		(0.13	)
Distributions from net realized gains		—			(0.52	)		(0.01	)		—			—

Total distributions		(0.14	)		(0.75	)		(0.23	)		(0.27	)		(0.13	)

Net asset value at end of period		11.30			9.82			9.44			15.58			13.63

Total return (%)		16.62			13.54			(38.46	)		16.55			19.31

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses¹		0.50			0.50			0.50			0.50			0.50
Gross operating expenses¹		0.54			0.67			0.73			0.72			0.74
Net investment income (loss)		1.14			3.46			1.46			1.24			0.89
Portfolio turnover rate		8			10			10			0	²		8
Net assets, end of period ($ x 1,000,000)		489			461			429			682			527

¹ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

² Less than 1%.

See financial notes 15

Schwab MarketTrack All Equity Portfolio

Portfolio Holdings as of October 31, 2010

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 http://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 schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting Schwab’s website at www.schwabfunds.com/prospectus.

Cost

Value

Holdings by Category

($)

.7%

Other Investment Companies

441,511,369

487,525,024

.3%

Short-Term Investment

1,291,385

100

.0%

Total Investments

442,802,754

488,816,409

.0%

Other Assets and Liabilities, Net

28,415

100

.0%

Total Net Assets

488,844,824


	Number		Value
Security	of Shares		($)

Other Investment Companies 99.7% of net assets

Equity Funds 99.7%
Schwab International Index Fund (a)		8,401,452		145,429,142
Schwab S&P 500 Index Fund (a)		11,775,575		220,203,255
Schwab Small-Cap Index Fund (a)		6,355,194		121,892,627

Total Other Investment Companies
(Cost $441,511,369)				487,525,024



	Face
Security	Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investment 0.3% of net assets

Time Deposit 0.3%
HSBC Bank USA
0.03%, 11/01/10		1,291,385		1,291,385

Total Short-Term Investment
(Cost $1,291,385)				1,291,385



End of Investments.

At 10/31/10, the tax basis cost of the fund’s investments was $464,518,643 and the unrealized appreciation and depreciation were $24,297,766 and ($0), respectively, with a net unrealized appreciation of $24,297,766.


(a)		Issuer is affiliated with the fund’s adviser.

16 See financial notes

Schwab MarketTrack All Equity Portfolio

Statements of

Changes in Net Assets

For the current and prior report periods.



Operations


11/1/09-10/31/10				11/1/08-10/31/09
Net investment income		$5,427,072			$13,923,424
Net realized losses		(12,137,638	)		(28,943,419	)
Net unrealized gains	+	79,404,855			67,086,206

Increase in net assets from operations		72,694,289			52,066,211

Distributions to Shareholders

Distributions from net investment income		6,503,913			10,447,556
Distributions from net realized gains	+	—			23,861,871

Total distributions		$6,503,913			$34,309,427

Transactions in Fund Shares


		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		VALUE			SHARES		VALUE
Shares sold			4,882,516		$51,641,399			8,708,360		$74,118,956
Shares reinvested			582,150		6,141,683			3,933,902		32,336,678
Shares redeemed	+		(9,135,207	)	(96,082,498	)		(11,183,572	)	(92,388,572	)

Net transactions in fund shares			(3,670,541	)	($38,299,416	)		1,458,690		$14,067,062

Shares Outstanding and Net Assets

		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			46,940,054		$460,953,864			45,481,364		$429,130,018
Total increase or decrease	+		(3,670,541	)	27,890,960			1,458,690		31,823,846

End of period			43,269,513		$488,844,824			46,940,054		$460,953,864


Net investment income not yet distributed					$80,791					$566,615

See financial notes 19

Schwab MarketTrack Growth Portfolio™

Financial Statements

Financial Highlights


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			11/1/05–
Investor Shares	10/31/10			10/31/09			10/31/08			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		14.51			13.71			21.09			19.16			16.81

Income (loss) from investment operations:
Net investment income (loss)		0.19			0.39			0.37			0.40			0.30
Net realized and unrealized gains (losses)		1.95			1.25			(6.94	)		2.16			2.33

Total from investment operations		2.14			1.64			(6.57	)		2.56			2.63
Less distributions:
Distributions from net investment income		(0.30	)		(0.40	)		(0.41	)		(0.46	)		(0.28	)
Distributions from net realized gains		—			(0.44	)		(0.40	)		(0.17	)		—

Total distributions		(0.30	)		(0.84	)		(0.81	)		(0.63	)		(0.28	)

Net asset value at end of period		16.35			14.51			13.71			21.09			19.16

Total return (%)		14.86			12.95			(32.27	)		13.69			15.83

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses¹		0.50			0.50			0.50			0.50			0.50
Gross operating expenses¹		0.52			0.66			0.71			0.70			0.71
Net investment income (loss)		1.25			3.03			1.99			1.94			1.74
Portfolio turnover rate		14			23			10			4			7
Net assets, end of period ($ x 1,000,000)		549			507			454			686			602


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			4/6/06²–
P Shares	10/31/10			10/31/09			10/31/08			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		14.51			13.72			21.10			19.18			18.32

Income (loss) from investment operations:
Net investment income (loss)		0.21			0.43			0.37			0.42			0.10
Net realized and unrealized gains (losses)		1.94			1.22			(6.91	)		2.16			0.76

Total from investment operations		2.15			1.65			(6.54	)		2.58			0.86
Less distributions:
Distributions from net investment income		(0.31	)		(0.42	)		(0.44	)		(0.49	)		—
Distributions from net realized gains		—			(0.44	)		(0.40	)		(0.17	)		—

Total distributions		(0.31	)		(0.86	)		(0.84	)		(0.66	)		—

Net asset value at end of period		16.35			14.51			13.72			21.10			19.18

Total return (%)		15.00			13.09			(32.14	)		13.83			4.69	³

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses¹		0.35			0.35			0.35			0.35			0.35	⁴
Gross operating expenses¹		0.37			0.51			0.56			0.55			0.56	⁴
Net investment income (loss)		1.43			3.31			2.10			2.07			0.95	⁴
Portfolio turnover rate		14			23			10			4			7	³
Net assets, end of period ($ x 1,000,000)		88			84			94			138			119

¹ The expenses incurred by the underlying funds in which the portfolio invests are not included in this ratio.

² Commencement of operations.

³ Not annualized.

⁴ Annualized.

20 See financial notes

Schwab MarketTrack Growth Portfolio

Portfolio Holdings as of October 31, 2010

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.9%

Other Investment Companies

509,699,804

630,187,670

.2%

Short-Term Investment

7,701,947

100

.1%

Total Investments

517,401,751

637,889,617

.1)%

Other Assets and Liabilities, Net

(595,718

)

100

.0%

Total Net Assets

637,293,899


	Number		Value
Security	of Shares		($)

Other Investment Companies 98.9% of net assets

Equity Funds 80.5%
Schwab International Index Fund (a)		7,394,953		128,006,630
Schwab S&P 500 Index Fund (a)		13,732,839		256,804,086
Schwab Small-Cap Index Fund (a)		6,678,878		128,100,889

				512,911,605

Fixed-Income Funds 14.8%
Schwab Total Bond Market Fund (a)		10,027,378		94,257,354

Money Fund 3.6%
Schwab Value Advantage Money Fund, Institutional Prime Shares (a)		23,018,711		23,018,711

Total Other Investment Companies
(Cost $509,699,804)				630,187,670



	Face
Security	Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investment 1.2% of net assets

Time Deposit 1.2%
HSBC Bank USA
0.03%, 11/01/10		7,701,947		7,701,947

Total Short-Term Investment
(Cost $7,701,947)				7,701,947



End of Investments.

At 10/31/10, the tax basis cost of the fund’s investments was $523,409,702 and the unrealized appreciation and depreciation were $114,479,915 and ($0), respectively, with a net unrealized appreciation of $114,479,915.


(a)		Issuer is affiliated with the fund’s adviser.

See financial notes 21

Schwab MarketTrack Growth Portfolio

Statement of

Assets and Liabilities

As of October 31, 2010.



Assets

Investments in affiliated underlying funds, at value (cost $509,699,804)		$630,187,670
Investments in unaffiliated issuers, at value (cost $7,701,947)	+	7,701,947

Total investments, at value (cost $517,401,751)		637,889,617
Cash		19
Receivables:
Fund shares sold		672,815
Dividends		232,989
Interest		19
Prepaid expenses	+	17,647

Total assets		638,813,106

Liabilities

Payables:
Investments bought		230,865
Investment adviser and administrator fees		10,003
Shareholder service fees		12,599
Fund shares redeemed		1,195,569
Accrued expenses	+	70,171

Total liabilities		1,519,207

Net Assets

Total assets		638,813,106
Total liabilities	−	1,519,207

Net assets		$637,293,899

Net Assets by Source
Capital received from investors		557,775,810
Net investment income not yet distributed		45,521
Net realized capital losses		(41,015,298	)
Net unrealized capital gains		120,487,866

Net Asset Value (NAV) by Shares Class


			Shares
Share Class	Net Assets	÷	Outstanding	=	NAV
Investor Shares	$548,855,529		33,571,891			$16.35
P Shares	$88,438,370		5,408,003			$16.35

22 See financial notes

Schwab MarketTrack Growth Portfolio

Statement of

Operations

For November 1, 2009 through October 31, 2010.



Investment Income

Dividends received from affiliated underlying funds		$10,856,673
Interest	+	1,883

Total investment income		10,858,556

Expenses

Investment adviser and administrator fees		1,418,650
Shareholder service fees:
Investor Shares		1,310,834
P Shares		86,202
Shareholder reports		84,160
Transfer agent fees		41,876
Professional fees		41,759
Registration fees		28,303
Portfolio accounting fees		28,017
Custodian fees		15,410
Trustees’ fees		9,431
Other expenses	+	45,958

Total expenses		3,110,600
Expense reduction by adviser and Schwab	−	136,683

Net expenses	−	2,973,917

Net investment income		7,884,639

Realized and Unrealized Gains (Losses)

Net realized losses on sales of affiliated underlying funds		(2,710,235	)
Net realized gains on unaffiliated investments	+	11,972

Net realized losses		(2,698,263	)
Net unrealized gains on affiliated underlying funds	+	79,865,539

Net realized and unrealized gains		77,167,276

Increase in net assets resulting from operations		$85,051,915

See financial notes 23

Schwab MarketTrack Growth Portfolio

Statements of

Changes in Net Assets

For the current and prior report periods.



Operations


11/1/09-10/31/10				11/1/08-10/31/09
Net investment income		$7,884,639			$16,063,334
Net realized losses		(2,698,263	)		(31,086,835	)
Net unrealized gains	+	79,865,539			78,311,394

Increase in net assets from operations		85,051,915			63,287,893

Distributions to Shareholders

Distributions from net investment income
Investor Shares		10,262,889			13,232,317
P Shares	+	1,818,947			2,791,634

Total distributions from net investment income		12,081,836			16,023,951


Distributions from net realized gains
Investor Shares		—			14,725,965
P Shares	+	—			2,923,653

Total distributions from net realized gains		—			17,649,618

Total distributions		$12,081,836			$33,673,569

Transactions in Fund Shares


		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		VALUE			SHARES		VALUE
Shares Sold
Investor Shares			4,875,569		$75,097,555			6,664,962		$86,067,902
P Shares			588,557		9,064,298			673,603		8,706,594

Total shares sold			5,464,126		$84,161,853			7,338,565		$94,774,496


Shares Reinvested
Investor Shares			642,346		$9,802,192			2,157,157		$26,856,610
P Shares	+		119,275		1,818,947			459,798		5,715,288

Total shares reinvested			761,621		$11,621,139			2,616,955		$32,571,898


Shares Redeemed
Investor Shares			(6,890,543	)	($105,976,752	)		(6,983,306	)	($86,229,576	)
P Shares	+		(1,063,878	)	(16,337,229	)		(2,239,609	)	(28,121,336	)

Total shares redeemed			(7,954,421	)	($122,313,981	)		(9,222,915	)	($114,350,912	)

Net transactions in fund shares			(1,728,674	)	($26,530,989	)		732,605		$12,995,482

Shares Outstanding and Net Assets

		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			40,708,568		$590,854,809			39,975,963		$548,245,003
Total increase or decrease	+		(1,728,674	)	46,439,090			732,605		42,609,806

End of period			38,979,894		$637,293,899			40,708,568		$590,854,809


Net investment income not yet distributed					$45,521					$4,242,580

24 See financial notes

Schwab MarketTrack Balanced Portfolio™

Financial Statements

Financial Highlights


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			11/1/05–
	10/31/10			10/31/09			10/31/08			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		13.54			12.74			18.13			17.04			15.46

Income (loss) from investment operations:
Net investment income (loss)		0.23			0.38			0.42			0.47			0.38
Net realized and unrealized gains (losses)		1.50			1.11			(5.06	)		1.41			1.58

Total from investment operations		1.73			1.49			(4.64	)		1.88			1.96
Less distributions:
Distributions from net investment income		(0.31	)		(0.44	)		(0.48	)		(0.50	)		(0.34	)
Distributions from net realized gains		—			(0.25	)		(0.27	)		(0.29	)		(0.04	)

Total distributions		(0.31	)		(0.69	)		(0.75	)		(0.79	)		(0.38	)

Net asset value at end of period		14.96			13.54			12.74			18.13			17.04

Total return (%)		12.92			12.41			(26.59	)		11.38			12.92

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses¹		0.50			0.50			0.50			0.50			0.50
Gross operating expenses¹		0.52			0.66			0.72			0.72			0.73
Net investment income (loss)		1.59			3.09			2.57			2.65			2.35
Portfolio turnover rate		22			30			17			6			8
Net assets, end of period ($ x 1,000,000)		450			434			405			598			534

¹ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

See financial notes 25

Schwab MarketTrack Balanced Portfolio

Portfolio Holdings as of October 31, 2010

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.4%

Other Investment Companies

360,039,482

442,982,091

.5%

Short-Term Investment

6,693,317

.9%

Total Investments

366,732,799

449,675,408

.1%

Other Assets and Liabilities, Net

237,930

100

.0%

Total Net Assets

449,913,338


	Number		Value
Security	of Shares		($)

Other Investment Companies 98.4% of net assets

Equity Funds 60.2%
Schwab International Index Fund (a)		3,918,369		67,826,961
Schwab S&P 500 Index Fund (a)		7,219,661		135,007,664
Schwab Small-Cap Index Fund (a)		3,537,995		67,858,741

				270,693,366

Fixed-Income Funds 34.9%
Schwab Total Bond Market Fund (a)		16,731,545		157,276,522

Money Fund 3.3%
Schwab Value Advantage Money Fund, Institutional Prime Shares (a)		15,012,203		15,012,203

Total Other Investment Companies
(Cost $360,039,482)				442,982,091



	Face
Security	Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investment 1.5% of net assets

Time Deposit 1.5%
HSBC Bank USA
0.03%, 11/01/10		6,693,317		6,693,317

Total Short-Term Investment
(Cost $6,693,317)				6,693,317



End of Investments.

At 10/31/10, the tax basis cost of the fund’s investments was $376,164,949 and the unrealized appreciation and depreciation were $73,510,459 and ($0), respectively, with a net unrealized appreciation of $73,510,459.


(a)		Issuer is affiliated with the fund’s adviser.

26 See financial notes

Schwab MarketTrack Balanced Portfolio

Statement of

Assets and Liabilities

As of October 31, 2010.



Assets

Investments in affiliated underlying funds, at value (cost $360,039,482)		$442,982,091
Investments in unaffiliated issuers, at value (cost $6,693,317)	+	6,693,317

Total investments, at value (cost $366,732,799)		449,675,408
Cash		14
Receivables:
Investments sold		1,800,000
Dividends		389,729
Fund shares sold		224,245
Interest		17
Prepaid expenses	+	12,905

Total assets		452,102,318

Liabilities

Payables:
Investments bought		637,771
Investment adviser and administrator fees		7,183
Shareholder service fees		9,496
Fund shares redeemed		1,484,422
Trustees’ fees		47
Accrued expenses	+	50,061

Total liabilities		2,188,980

Net Assets

Total assets		452,102,318
Total liabilities	−	2,188,980

Net assets		$449,913,338

Net Assets by Source
Capital received from investors		393,171,268
Net investment income not yet distributed		2,367,182
Net realized capital losses		(28,567,721	)
Net unrealized capital gains		82,942,609

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$449,913,338

30,067,198

$14.96

See financial notes 27

Schwab MarketTrack Balanced Portfolio

Statements of

Changes in Net Assets

For the current and prior report periods.



Operations


11/1/09-10/31/10				11/1/08-10/31/09
Net investment income		$7,133,210			$12,157,550
Net realized losses		(128,108	)		(24,139,690	)
Net unrealized gains	+	47,433,595			57,965,744

Increase in net assets from operations		54,438,697			45,983,604

Distributions to Shareholders

Distributions from net investment income		9,784,254			14,076,018
Distributions from net realized gains	+	—			7,743,717

Total distributions		$9,784,254			$21,819,735

Transactions in Fund Shares


		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		VALUE			SHARES		VALUE
Shares sold			5,532,474		$78,152,749			5,527,528		$67,634,861
Shares reinvested			663,279		9,246,104			1,742,428		20,734,893
Shares redeemed	+		(8,151,500	)	(115,669,242	)		(7,035,012	)	(84,003,348	)

Net transactions in fund shares			(1,955,747	)	($28,270,389	)		234,944		$4,366,406

Shares Outstanding and Net Assets

		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			32,022,945		$433,529,284			31,788,001		$404,999,009
Total increase or decrease	+		(1,955,747	)	16,384,054			234,944		28,530,275

End of period			30,067,198		$449,913,338			32,022,945		$433,529,284


Net investment income not yet distributed					$2,367,182					$5,018,117

See financial notes 29

Schwab MarketTrack Conservative Portfolio™

Financial Statements

Financial Highlights


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			11/1/05–
	10/31/10			10/31/09			10/31/08			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		12.15			11.34			14.90			14.33			13.42

Income (loss) from investment operations:
Net investment income (loss)		0.24			0.37			0.43			0.49			0.42
Net realized and unrealized gains (losses)		1.08			0.91			(3.40	)		0.78			0.92

Total from investment operations		1.32			1.28			(2.97	)		1.27			1.34
Less distributions:
Distributions from net investment income		(0.25	)		(0.38	)		(0.46	)		(0.51	)		(0.42	)
Distributions from net realized gains		—			(0.09	)		(0.13	)		(0.19	)		(0.01	)

Total distributions		(0.25	)		(0.47	)		(0.59	)		(0.70	)		(0.43	)

Net asset value at end of period		13.22			12.15			11.34			14.90			14.33

Total return (%)		10.98			11.72			(20.59	)		9.12			10.13

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses¹		0.50			0.50			0.50			0.50			0.50
Gross operating expenses¹		0.56			0.68			0.74			0.73			0.74
Net investment income (loss)		1.93			3.31			3.12			3.37			3.12
Portfolio turnover rate		25			25			16			4			11
Net assets, end of period ($ x 1,000,000)		194			181			182			252			232

¹ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

30 See financial notes

Schwab MarketTrack Conservative Portfolio

Portfolio Holdings as of October 31, 2010

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.0%

Other Investment Companies

163,447,586

191,848,704

.0%

Short-Term Investment

1,964,637

100

.0%

Total Investments

165,412,223

193,813,341

.0%

Other Assets and Liabilities, Net

94,679

100

.0%

Total Net Assets

193,908,020


	Number		Value
Security	of Shares		($)

Other Investment Companies 99.0% of net assets

Equity Funds 40.3%
Schwab International Index Fund (a)		1,123,022		19,439,513
Schwab S&P 500 Index Fund (a)		2,098,017		39,232,921
Schwab Small-Cap Index Fund (a)		1,015,787		19,482,791

				78,155,225

Fixed-Income Funds 54.9%
Schwab Total Bond Market Fund (a)		11,315,522		106,365,907

Money Fund 3.8%
Schwab Value Advantage Money Fund, Institutional Prime Shares (a)		7,327,572		7,327,572

Total Other Investment Companies
(Cost $163,447,586)				191,848,704



	Face
Security	Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investment 1.0% of net assets

Time Deposit 1.0%
HSBC Bank USA
0.03%, 11/01/10		1,964,637		1,964,637

Total Short-Term Investment
(Cost $1,964,637)				1,964,637



End of Investments.

At 10/31/10 the tax basis cost of the fund’s investments was $173,709,317 and the unrealized appreciation and depreciation were $20,104,024 and ($0), respectively, with a net unrealized appreciation of $20,104,024.


(a)		Issuer is affiliated with the fund’s adviser.

See financial notes 31

Schwab MarketTrack Conservative Portfolio

Statements of

Changes in Net Assets

For the current and prior report periods.



Operations


11/1/09-10/31/10			11/1/08-10/31/09
Net investment income		$3,617,325		$7,989,293
Net realized gains (losses)		576,992		(19,678,353	)
Net unrealized gains	+	15,393,384		37,078,717

Increase in net assets from operations		19,587,701		25,389,657

Distributions to Shareholders¹

Distributions from net investment income
Investor Shares		3,682,697		5,882,453
P Shares	+	—		2,530,771

Total distributions from net investment income		3,682,697		8,413,224


Distributions from net realized gains
Investor Shares		—		1,450,219
P Shares	+	—		713,644

Total distributions from net realized gains		—		2,163,863

Total distributions		$3,682,697		$10,577,087

Transactions in Fund Shares¹


		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		VALUE			SHARES		VALUE
Shares Sold
Investor Shares			2,981,834		$37,612,079			3,062,687		$34,493,000
P Shares			—		—			860,699		9,543,340

Total shares sold			2,981,834		$37,612,079			3,923,386		$44,036,340


Shares Reinvested
Investor Shares			274,287		$3,440,538			611,891		$6,892,611
P Shares	+		—		—			294,579		3,244,416

Total shares reinvested			274,287		$3,440,538			906,470		$10,137,027


Shares Redeemed
Investor Shares			(3,459,761	)	($43,727,266	)		(4,893,066	)	($53,978,206	)
P Shares	+		—		—			(8,763,549	)	(102,700,469	)

Total shares redeemed			(3,459,761	)	($43,727,266	)		(13,656,615	)	($156,678,675	)

Net transactions in fund shares			(203,640	)	($2,674,649	)		(8,826,759	)	($102,505,308	)

Shares Outstanding and Net Assets

		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			14,871,070		$180,677,665			23,697,829		$268,370,403
Total increase or decrease	+		(203,640	)	13,230,355			(8,826,759	)	(87,692,738	)

End of period			14,667,430		$193,908,020			14,871,070		$180,677,665


Net investment income not yet distributed					$164,159					$229,538


¹		Effective August 4, 2009, all outstanding P shares were redeemed. The Board of Trustees voted that effective December 10, 2009 the fund would no longer offer P shares.

34 See financial notes

Schwab MarketTrack Portfolios

Financial Notes

1. Business Structure of the Funds:

Each of the funds discussed in this report is a series of Schwab Capital Trust (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust including the funds discussed in this report, which are highlighted:



Schwab Capital Trust (organized May 7, 1993) Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Schwab S&P 500 Index Fund Schwab Small-Cap Index Fund Schwab Total Stock Market Index Fund Schwab International Index Fund Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Balanced Fund Schwab Premier Equity Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Large-Cap Growth Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund		Schwab Financial Services Fund Schwab Health Care Fund Schwab International Core Equity Fund Schwab Target 2010 Fund Schwab Target 2015 Fund Schwab Target 2020 Fund Schwab Target 2025 Fund Schwab Target 2030 Fund Schwab Target 2035 Fund Schwab Target 2040 Fund Schwab Fundamental US Large Company Index Fund Schwab Fundamental US Small-Mid Company Index Fund Schwab Fundamental International Large Company Index Fund Schwab Fundamental International Small-Mid Company Index Fund Schwab Fundamental Emerging Markets Index Fund Schwab Monthly Income Fund-Moderate Payout Schwab Monthly Income Fund-Enhanced Payout Schwab Monthly Income Fund-Maximum Payout

The Schwab MarketTrack Portfolios are primarily “fund of funds”. Each of the funds seeks to achieve its investment objective by investing mainly in a combination of other Schwab Funds (underlying funds) in accordance with its target portfolio allocation. The funds may also invest directly in equity or fixed income securities, cash equivalents and futures to achieve their investment objectives. Each fund bears its share of the allocable expenses of the underlying funds in which they invest.

Schwab MarketTrack Growth Portfolio offers two share classes: Investor Shares and P Shares. Shares of each class represented an interest in the same portfolio, but each class has different expenses and investment minimums. Schwab MarketTrack All Equity Portfolio, Schwab MarketTrack Balanced Portfolio and Schwab MarketTrack Conservative Portfolio, each offer one share class.

Shares are bought and sold (subject to a redemption fee, see financial note 8) at closing net asset value(“NAV”), which is the price for all outstanding shares of a fund or share class, as applicable. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.

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 accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the Securities Exchange Commission (“SEC”).

(a) Security Valuation:

The funds value the securities in their portfolios every business day. The funds use the following policies to value various types of securities:


	•	Securities traded on an exchange or over-the-counter: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the valuation date exchange rate.

Schwab MarketTrack Portfolios

Financial Notes (continued)

2. Significant Accounting Policies (continued):


	•	Securities for which no quoted value is available: The Board of Trustees has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, the fund may fair value a security when a security 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 Board of Trustees regularly reviews fair value determinations made by the funds pursuant to the procedures.

	•	Underlying funds: valued at their respective net asset values as determined by the underlying fund in accordance with the 1940 Act for a given day.

	•	Futures and forwards contracts: valued at their settlement prices as of the close of their exchanges (for futures) or at a value based on that day’s exchange rates (for forwards).

	•	Short-term securities (60 days or less to maturity): valued at amortized cost, which approximates market value.

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 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 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements). 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. The funds do not adjust the quoted price for such investments, even in situations where the funds hold a large position and a sale could reasonably impact the quoted prices.

	•	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 certain 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. In addition, international securities whose markets close hours before the funds value their holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	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.

Schwab MarketTrack Portfolios

Financial Notes (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 following is a summary of the inputs used to value the funds’ investments as of October 31, 2010:

Schwab MarketTrack All Equity Portfolio


	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total*

Other Investment Companies(a)		$487,525,024		$—		$—		$487,525,024
Short-Term Investment(a)		—		1,291,385		—		1,291,385

Total		$487,525,024		$1,291,385		$—		$488,816,409

Schwab MarketTrack Growth Portfolio


	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total*

Other Investment Companies(a)		$630,187,670		$—		$—		$630,187,670
Short-Term Investment(a)		—		7,701,947		—		7,701,947

Total		$630,187,670		$7,701,947		$—		$637,889,617

Schwab MarketTrack Balanced Portfolio


	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total*

Other Investment Companies(a)		$442,982,091		$—		$—		$442,982,091
Short-Term Investment(a)		—		6,693,317		—		6,693,317

Total		$442,982,091		$6,693,317		$—		$449,675,408

Schwab MarketTrack Conservative Portfolio


	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total*

Other Investment Companies(a)		$191,848,704		$—		$—		$191,848,704
Short-Term Investment(a)		—		1,964,637		—		1,964,637

Total		$191,848,704		$1,964,637		$—		$193,813,341


*		The fund had no Other Financial Instruments.
(a)		As categorized in Portfolio Holdings.

In January 2010, the Financial Accounting Standards Board issued new guidance requiring reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements of Level 3 securities on a gross basis. The new and revised disclosures are required to be implemented for annual and interim periods beginning after December 15, 2009, except for the disclosures surrounding purchases, sales, issuances and settlements of Level 3 fair value measurements on a gross basis, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.

Schwab MarketTrack Portfolios

Financial Notes (continued)

2. Significant Accounting Policies (continued):

The funds have adopted the new guidance for the period ended October 31, 2010. There were no significant transfers between Level 1 and Level 2 for the period ended October 31, 2010. Management is currently evaluating the impact of the adoption of the other provisions of the new guidance on the funds’ financial statements.

(b) 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.

(c) Investment Income:

Interest income is recorded as it accrues. Dividends and distributions from underlying funds and portfolio securities are recorded on the date they are effective (the ex-dividend date), although the funds may 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.

(d) Expenses:

Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.

For funds offering multiple share classes, net investment income, other than class specific expenses, and the realized and unrealized gains or losses, are allocated daily to each class in proportion to their average daily net assets.

(e) Distributions to Shareholders:

The funds make distributions from net investment income and net realized capital gains, if any, once a year, except for the Schwab MarketTrack Conservative Portfolio, which makes distributions from net investment income quarterly.

(f) Accounting Estimates:

The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. 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 is possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.

(g) Federal Income Taxes:

The funds intend to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the funds distribute substantially all of their net investment income and realized net capital gains, if any, to their respective shareholders each year except for the Schwab MarketTrack Conservative Portfolio, which typically makes distributions at the end of every calendar quarter. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(h) Indemnification:

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 to be remote.

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.

Schwab MarketTrack Portfolios

Financial Notes (continued)

3. Risk factors (continued):

Asset Allocation Risk. The funds are subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of a fund’s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective.

Market Risk. Stock markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of an investment in the funds will fluctuate, which means that an investor could lose money.

Underlying Fund Investment Risk. The value of your investment in the funds is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the funds, investors should assess the risks associated with the underlying funds in which the funds may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although a fund’s exposure to a particular risk will be proportionate to the fund’s overall asset allocation and underlying fund allocation.


	•	Investment Risk. An investment in an underlying fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The funds may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.

	•	Investment Style Risk. The underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Each underlying fund follows these stocks during upturns as well as downturns. Because of their indexing strategy, the underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally 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, the equity market tends to move in cycles, which may cause stock prices to fall over short or extended periods of time.

	•	Tracking Error Risk. As an index fund, each underlying fund seeks to track the performance of its benchmark indices, although it may not be successful in doing so. The divergence between the performance of a 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.

	•	Large-Cap Risk. Many of the risks of the underlying funds are associated with its investment in the large-cap segments of the stock market. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small- cap stocks, for instance — an underlying fund’s large-cap holdings could reduce performance.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — an underlying fund’s small-cap holdings could reduce performance.

	•	Foreign Investment Risk. An underlying 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); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.

	•	Currency Risk. As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in, foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in a fund would be adversely affected.

Schwab MarketTrack Portfolios

Financial Notes (continued)

3. Risk factors (continued):


	•	Derivatives Risk. An underlying 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 and could cause the fund to lose more than the principal amount invested.

	•	Debt Securities Risk. Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by a fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to its issuer’s ability to make timely payments or otherwise honor its obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Securities Lending Risk. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.

Direct Investment Risk. A fund may invest directly in individual securities to maintain its allocations. A fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same security.

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:

Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.

For its advisory and administrative services to each fund, CSIM is entitled to receive an annual fee of 0.23% payable monthly based on each fund’s average daily net assets.

The Board of Trustees has adopted a Shareholder Servicing Plan (the “Plan”) on behalf of the funds. The Plan enables each fund to bear expenses relating to the provision by service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds. Schwab serves as the funds’ paying agent under the Plan for making payments of the shareholder service fee due to the service providers (other than Schwab) under the Plan. All shareholder service fees paid by the funds to Schwab in its capacity as the funds’ paying agent will be passed through to the service providers, and Schwab will not retain any portion of such fees.

Pursuant to the Plan, each fund’s shares are subject to an annual shareholder servicing fee up to 0.25% except for the Schwab MarketTrack Growth Portfolio’s P Shares, which is subject to such annual fee up to 0.10%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab (or, in the case of payments made to Schwab, pursuant to Schwab’s written agreement with the funds). Payments under the Plan are made as described above regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payments received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.

Schwab MarketTrack Portfolios

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

expenses for so long as CSIM serves as the investment adviser to the funds, which may only be amended or terminated with the approval of the funds’ Board of Trustees. The expense limitation as a percentage of average daily net assets is as follows:

Schwab

MarketTrack

All Equity

Growth

Balanced

Conservative

Portfolio

Investor Shares

0.50%

P Shares*

n/a

0.35%

n/a


*		P Shares are currently only offered by Schwab MarketTrack Growth Portfolio

The agreement to limit the funds’ total expenses charged is limited to each fund’s direct operating expenses and, therefore, does not apply to underlying fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying funds.

The funds may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the funds may invest in other related funds. As of October 31, 2010, the percentages of shares of other related funds owned by each Schwab MarketTrack Portfolio are:


	Schwab		Schwab		Schwab		Schwab
	MarketTrack		MarketTrack		MarketTrack		MarketTrack
	All Equity		Growth		Balanced		Conservative
	Portfolio		Portfolio		Portfolio		Portfolio

Equity Funds:
Schwab International Index Fund		9.9%		8.7%		4.6%		1.3%
Schwab S&P 500 Index Fund		2.2%		2.6%		1.3%		0.4%
Schwab Small-Cap Index Fund		8.7%		9.1%		4.8%		1.4%
Fixed-Income Funds:
Schwab Total Bond Market Fund		—%		10.1%		16.8%		11.4%
Money Funds:
Schwab Value Advantage Money Fund		—%		0.1%		0.1%		0.0%	*


*		Less than 0.05%

Below is a summary of the funds’ transactions with their affiliated underlying funds during the period ended October 31, 2010:

Schwab MarketTrack All Equity Portfolio


	Balance							Balance				Realized			Distribution
	of Shares							of Shares		Market		Gain (Loss)			Received*
	Held at		Gross		Gross			Held at		Value at		11/01/2009			11/01/2009
Underlying Fund	10/31/09		Additions		Sales			10/31/10		10/31/10		to 10/31/10			to 10/31/10

Schwab Equity Index Funds:
Schwab International Index Fund		8,562,505		1,245,326		(1,406,379	)		8,401,452		$145,429,142		($1,620,914	)		$3,702,411
Schwab S&P 500 Index Fund		12,790,339		413,916		(1,428,680	)		11,775,575		220,203,255		(6,834,378	)		3,028,785
Schwab Small-Cap Index Fund		7,488,666		582,684		(1,716,156	)		6,355,194		121,892,627		(3,682,690	)		1,095,506

Total											$487,525,024		($12,137,982	)		$7,826,702

Schwab MarketTrack Portfolios

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Schwab MarketTrack Growth Portfolio


	Balance							Balance				Realized			Distribution
	of Shares							of Shares		Market		Gain (Loss)			Received*
	Held at		Gross		Gross			Held at		Value at		11/01/2009			11/01/2009
Underlying Fund	10/31/09		Additions		Sales			10/31/10		10/31/10		to 10/31/10			to 10/31/10

Schwab Equity Index Funds:
Schwab International Index Fund		7,252,275		1,322,597		(1,179,919	)		7,394,953		$128,006,630		$270,836			$3,171,513
Schwab S&P 500 Index Fund		14,588,652		519,795		(1,375,608	)		13,732,839		256,804,086		(2,117,583	)		3,491,923
Schwab Small-Cap Index Fund		7,630,640		795,375		(1,747,137	)		6,678,878		128,100,889		440,323			1,141,836
Schwab Bond Funds:
Schwab Total Bond Market Fund		10,103,612		2,307,331		(2,383,565	)		10,027,378		94,257,354		(1,303,811	)		3,023,009
Schwab Money Funds:
Schwab Value Advantage Money Fund, Institutional Shares		23,260,416		8,851		(23,269,267	)		—		—		—			8,120
Schwab Value Advantage Money Fund, Institutional Prime Shares		—		23,018,711		—			23,018,711		23,018,711		—			20,272

Total											$630,187,670		($2,710,235	)		$10,856,673

Schwab MarketTrack Balanced Portfolio


	Balance							Balance				Realized			Distribution
	of Shares							of Shares		Market		Gain (Loss)			Received*
	Held at		Gross		Gross			Held at		Value at		11/01/2009			11/01/2009
Underlying Fund	10/31/09		Additions		Sales			10/31/10		10/31/10		to 10/31/10			to 10/31/10


Schwab Equity Index Funds:
Schwab International Index Fund		3,947,359		918,226		(947,216	)		3,918,369		$67,826,961		$1,090,329			$1,721,029
Schwab S&P 500 Index Fund		7,893,746		907,105		(1,581,190	)		7,219,661		135,007,664		(1,692,439	)		1,890,987
Schwab Small-Cap Index Fund		4,244,673		666,656		(1,373,334	)		3,537,995		67,858,741		2,884,136			612,165
Schwab Bond Funds:
Schwab Total Bond Market Fund		17,171,458		4,396,933		(4,836,846	)		16,731,545		157,276,522		(2,417,482	)		5,136,280
Schwab Money Funds:
Schwab Value Advantage Money Fund, Institutional Shares		14,732,411		5,649		(14,738,060	)		—		—		—			5,141
Schwab Value Advantage Money Fund, Institutional Prime Shares		—		15,012,203		—			15,012,203		15,012,203		—			13,221

Total											$442,982,091		($135,456	)		$9,378,823

Schwab MarketTrack Portfolios

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Schwab MarketTrack Conservative Portfolio


	Balance							Balance				Realized			Distribution
	of Shares							of Shares		Market		Gain (Loss)			Received*
	Held		Gross		Gross			Held at		Value at		11/01/2009			11/01/2009
Underlying Fund	at 10/31/09		Additions		Sales			10/31/10		10/31/10		to 10/31/10			to 10/31/10

Schwab Equity Index Funds:
Schwab International Index Fund		1,099,466		326,524		(302,968	)		1,123,022		$19,439,513		$483,693			$479,587
Schwab S&P 500 Index Fund		2,190,907		406,172		(499,062	)		2,098,017		39,232,921		440,154			525,273
Schwab Small-Cap Index Fund		1,166,848		286,424		(437,485	)		1,015,787		19,482,791		1,071,771			168,278
Schwab Bond Funds:
Schwab Total Bond Market Fund		11,171,182		2,451,888		(2,307,548	)		11,315,522		106,365,907		(1,419,807	)		3,374,743
Schwab Money Funds:
Schwab Value Advantage Money Fund, Institutional Shares		7,721,069		4,412		(7,725,481	)		—		—		—			4,161
Schwab Value Advantage Money Fund, Institutional Prime Shares		—		7,327,572		—			7,327,572		7,327,572		—			4,389

Total											$191,848,704		$575,811			$4,556,431


*		Distributions received include distributions from net investment income and from capital gains from the underlying funds.

The funds may also let a related party own shares of the funds. As of October 31, 2010, the shares owned by Schwab Charitable Giving Trust (an affiliate of Schwab) as a percentage of the total shares of the Schwab MarketTrack Growth Portfolio is 13.9%.

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 officers. For the year ended October 31, 2010, there were no such security transactions with other Schwab Funds.

Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The funds had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

Trustees may include people who are officers and/or directors of the investment adviser or Schwab. 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 did not pay any of these persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

6. Borrowing from Banks:

The funds may borrow money from banks and custodians. The funds have custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. The funds also pay an annual fee to State Street Bank and Trust Company for the committed line of credit.

There were no borrowings from the lines of credit during the period. However, the funds utilized their overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

Schwab MarketTrack Portfolios

Financial Notes (continued)

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2010, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:


	Purchases		Sales/Maturities
	of Securities		of Securities

Schwab MarketTrack All Equity Portfolio		$36,976,702		$77,550,000
Schwab MarketTrack Growth Portfolio		87,101,440		119,619,273
Schwab MarketTrack Balanced Portfolio		96,171,028		127,408,068
Schwab MarketTrack Conservative Portfolio		46,450,074		50,490,492

8. Redemption Fee:

The funds charge a 2.00% redemption fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts are netted against redemption proceeds on the Statement of Changes in Net Assets. The redemption fees charged during the current and prior periods are:


	Current Period		Prior Period
	(11/01/09-10/31/10)		(11/01/08-10/31/09)

Schwab MarketTrack All Equity Portfolio		$9,734		$17,889
Schwab MarketTrack Growth Portfolio		14,346		19,356
Schwab MarketTrack Balance Portfolio		4,075		7,512
Schwab MarketTrack Conservative Portfolio		3,235		7,195

9. Federal Income Taxes:

As of October 31, 2010, the components of distributable earnings on a tax-basis were as follows:


	Schwab			Schwab		Schwab			Schwab
	MarketTrack			MarketTrack		MarketTrack			MarketTrack
	All Equity			Growth		Balanced			Conservative
	Portfolio			Portfolio		Portfolio			Portfolio

Undistributed ordinary income		$2,054,307	*		$45,521		$2,367,183			$164,160
Undistributed long-term capital gains		—			—		—			—
Unrealized appreciation		24,297,766			114,479,915		73,510,459			20,104,024
Unrealized depreciation		—			—		—			—
Other unrealized appreciation/ (depreciation)		—			—		(2	)		—

Net unrealized appreciation/(depreciation)		$24,297,766			$114,479,915		$73,510,457			$20,104,024

The primary differences between book-basis and tax-basis unrealized appreciation or unrealized depreciation of investments are the tax deferral of losses on wash sales.

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2010, the following funds had capital loss carryforwards available to offset net capital gains before the expiration dates:


	Schwab		Schwab		Schwab		Schwab
	MarketTrack		MarketTrack		MarketTrack		MarketTrack
	All Equity		Growth		Balanced		Conservative
Expiration Date	Portfolio*		Portfolio		Portfolio		Portfolio

December 31, 2016		$12,514,459		—		—		—
October 31, 2017		—		$34,088,913		$19,135,570		$12,775,059
December 31, 2017		31,279,738		—		—		—
October 31, 2018		—		918,434		—		—

Total		$43,794,197		$35,007,347		$19,135,570		$12,775,059

Schwab MarketTrack Portfolios

Financial Notes (continued)

9. Federal Income Taxes (continued):

For tax purposes, realized net capital losses, occurring after October 31, may be deferred and treated as occurring on the first day of the following year. As of December 31, 2009, the Schwab MarketTrack All Equity Portfolio had deferred realized capital losses of $2,538,506 and did not utilize any capital losses to offset capital gains.

As of October 31, 2010, the funds had capital losses utilized as follows:


	Schwab		Schwab
	MarketTrack		MarketTrack
	Balanced		Conservative
	Portfolio		Portfolio

Capital losses utilized		$2,176,003		$1,528,665

The tax-basis components of distributions paid during the current and prior periods were:


	Schwab		Schwab		Schwab		Schwab
	MarketTrack		MarketTrack		MarketTrack		MarketTrack
	All Equity		Growth		Balanced		Conservative
	Portfolio*		Portfolio		Portfolio		Portfolio

Current period distributions
Ordinary income		$6,503,913		$12,081,836		$9,784,254		$3,682,697
Long-term capital gains		—		—		—		—
Return of Capital		—		—		—		—
Prior period distributions
Ordinary income		10,482,210		16,024,915		14,078,570		8,413,678
Long-term capital gains		23,827,217		17,648,654		7,741,165		2,163,429
Return of Capital		—		—		—		—

Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as non-U.S. currency gains and losses, short-term capital gains and losses; capital losses related to wash sales, unrealized appreciation of certain investments in non-U.S. securities; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the funds for financial reporting purposes. The funds may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.

The permanent book and tax basis differences may result in reclassifications between capital account and other accounts as required. The adjustments will have no impact on net assets or the results of operations. As of October 31, 2010, the funds made the following reclassifications:


	Schwab		Schwab			Schwab			Schwab
	MarketTrack		MarketTrack			MarketTrack			MarketTrack
	All Equity		Growth			Balanced			Conservative
	Portfolio*		Portfolio			Portfolio			Portfolio

Capital Shares		$—		$—			$—			$—
Undistributed net investment income		—		138			109			(7	)
Net realized capital gains and losses		—		(138	)		(109	)		7


*		Tax information for Schwab MarketTrack All Equity Portfolio is as of December 31, 2009, the tax year end of the fund.

As of October 31, 2010, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and 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 year ended October 31, 2010, the fund did not incur any interest or penalties.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Schwab MarketTrack All Equity Portfolio

Schwab MarketTrack Growth Portfolio

Schwab MarketTrack Balanced Portfolio

Schwab MarketTrack Conservative Portfolio

In our opinion, the accompanying statements of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab MarketTrack All Equity Portfolio, Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio, and Schwab MarketTrack Conservative Portfolio (four of the portfolios constituting Schwab Capital Trust, hereafter referred to as the “Funds”) at October 31, 2010, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities and investments in the underlying funds at October 31, 2010 by correspondence with the custodian and transfer agent of the underlying funds, respectively, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 15, 2010

Investment Advisory Agreement Approval

The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the Funds at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the Funds for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the Funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the Funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the Funds;

2.	each Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	each Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to each Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Funds and the resources of CSIM and its affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered investments in CSIM’s mutual fund infrastructure, Schwab’s wide range of products, services, and channel alternatives such as free advice, investment and research tools, Internet access, and an array of account features that benefit the Funds and their shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that the vast majority of the Funds’ shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the Funds and the resources of CSIM and its affiliates dedicated to the Funds supported renewal of the Agreement with respect to the Funds.

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreement with respect to the Funds. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other mutual funds and appropriate indices/ benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of each Fund, the Trustees

considered both risk and shareholder risk expectations for such Fund and the appropriateness of the benchmark used to compare the performance of each Fund. The Trustees further considered the level of Fund performance in the context of its review of Fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Funds supported renewal of the Agreement with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each Fund’s net operating expense ratio, in each case, in comparison to those of a peer group of mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep each Fund’s expense cap for so long as CSIM serves as the adviser to such Fund. The Trustees also considered fees charged by CSIM to other mutual funds and exchange-traded funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Funds are reasonable and supported renewal of the Agreement with respect to the Funds.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the Funds, such as whether, by virtue of its management of the Funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Funds.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. The Trustees also considered existing contractual investment advisory fee schedules relating to the Funds that, in each case, include lower fees at higher graduated asset levels. Based on this evaluation the Board concluded, within the context of its full deliberations, that the Funds obtain reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Funds and concluded that the compensation under the Agreement with respect to the Funds is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Trustees and Officers

The tables below give information about the trustees and officers for Schwab Capital 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, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 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 1-800-435-4000.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Capital Trust since 2000.)	Chairman of JDN Corporate Advisory LLC.	73	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007)


John F. Cogan 1947 Trustee (Trustee of Schwab Capital Trust since 2008.)	Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present).	73	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of Schwab Capital Trust since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	73	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Capital Trust since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	73	Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present)


Donald R. Stephens 1938 Trustee (Trustee of Schwab Capital Trust since 2000.)	Managing Partner, D.R. Stephens & Company (investments) (1973 – present).	73	None

Independent Trustees (continued)


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Joseph H. Wender 1944 Trustee (Trustee of Schwab Capital Trust since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005).	73	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)


Michael W. Wilsey 1943 Trustee (Trustee of Schwab Capital Trust since 1993.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).	73	None

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served )	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Capital Trust since 1993.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	73	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Capital Trust since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	84	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 Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Capital Trust since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer, (Sept. 2010 – present), Charles Schwab Investment Management, Inc.; President and Chief Executive Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Dec. 2010 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010); Co-Head and Senior Portfolio Manager, Wells Capital Management (June 1999 – March 2007).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Capital Trust since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds (June 2006 – June 2007).


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Capital Trust since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Funds (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Funds (Nov. 1998 – present) and Schwab ETFs (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds (June 2006 – June 2007).


Catherine MacGregor 1964 Vice President (Officer of Schwab Capital Trust since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk, Laudus Funds (March 2007 – present); Vice President and Assistant Clerk, Schwab Funds (Dec. 2005 – present) and Schwab ETFs (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of Schwab Capital Trust since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Funds; Vice President, Schwab Funds (June 2007 – present) and Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds^® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation.
³		The President, Treasurer and Secretary 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.

Glossary

asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage.

asset class A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes.

beta A historical measure of an investment’s volatility relative to a market index (usually the S&P 500^®). The index is defined as having a beta of 1.00. Investments with a beta higher than 1.00 have been more volatile than the index; those with a beta of less than 1.00 have been less volatile.

bond A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the “coupon rate”) until a specified date (the “maturity date”), at which time the issuer returns the money borrowed (“principal” or “face value”) to the bondholder. Because of their structure, bonds are sometimes called “fixed income securities” or “debt securities.”

An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond’s market value prior to call or maturity. There is no guarantee that a bond’s yield to call or maturity will provide a positive return over the rate of inflation.

bond fund A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund’s net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed.

cap, capitalization See “market cap.”

capital gain, capital loss the difference between the amount paid for an investment and its value at a later time. If the investment has been sold, the capital gain or loss is considered a realized gain or loss. If the investment is still held, the gain or loss is still “on paper” and is considered unrealized.

earnings growth rate For a mutual fund, the average yearly rate at which the earnings of the companies in the fund’s portfolio have grown, measured over the past five years.

earnings per share (EPS) A company’s earnings, or net income, for the past 12 months, divided by the number of shares outstanding.

expense ratio The amount that is taken from a mutual fund’s assets each year to cover the fund’s operating expenses. An expense ratio of 0.50% means that a fund’s expenses amount to half of one percent of its average net assets a year.

gross domestic product (GDP) The output of goods and services produced by labor and property located in the United States.

market cap, market capitalization The value of a company as determined by the total value of all shares of its stock outstanding.

median market cap The midpoint of the range of market caps of the stocks held by a fund. There are different ways of calculating median market cap. With a simple median, half of the stocks in the fund’s portfolio would be larger than the median, and half would be smaller. With a weighted median (the type that is calculated for these funds), half of the fund’s assets are invested in stocks that are larger than the median market cap, and half in stocks that are smaller.

net asset value (NAV) The value of one share of a mutual fund. NAV is calculated by taking the fund’s total assets, subtracting liabilities, and dividing by the number of shares outstanding.

outstanding shares, shares outstanding When speaking of a company or mutual fund, indicates all shares currently held by investors.

price-to-book ratio (P/B) The market price of a company’s stock compared with its “book value.” A mutual fund’s P/B is the weighted average of the P/B of all stocks in the fund’s portfolio.

price-to-earnings ratio (P/E) The market price of a company’s stock compared with earnings over the past year. A mutual fund’s P/E is the weighted average of the P/E of all stocks in the fund’s portfolio.

return on equity (ROE) The average yearly rate of return for each dollar of investors’ money, measured over the past five years.

stock A share of ownership, or equity, in the issuing company.

total return The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested.

weighted average For mutual funds, an average that gives the same weight to each security as the security represents in the fund’s portfolio.

yield The income paid out by an investment, expressed as a percentage of the investment’s market value.

PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT

A Commitment to Your Privacy

Your Privacy Is Not for Sale

We do not and will not sell your personal information to anyone, for any reason.

We are committed to protecting the privacy of information we maintain about you. Below are details about our commitment, including the types of information we collect and how we use and share that information. This Privacy Notice applies to you only if you are an individual who invests directly in the funds by placing orders through the funds’ transfer agent. If you place orders through your brokerage account at Charles Schwab & Co., Inc. or an account with another broker-dealer, investment advisor, 401(k) plan, employee benefit plan, administrator, bank or other financial intermediary, you are covered by the privacy policies of that financial institution and should consult those policies.

How We Collect Information About You

We collect personal information about you in a number of ways.


•	APPLICATION AND REGISTRATION INFORMATION.

We collect personal information from you when you open an account or utilize one of our services. We may also collect information about you from third parties such as consumer reporting agencies to verify your identity. The information we collect may include personal information, including your Social Security number, as well as details about your interests, investments and investment experience.


•	TRANSACTION AND EXPERIENCE INFORMATION.

Once your account has been opened, we collect and maintain personal information about your account activity, including your transactions, balances, positions and history. This information allows us to administer your account and provide the services you have requested.


•	WEBSITE USAGE.

When you visit our websites, we may use devices known as “cookies,” graphic interchange format files (GIFs), or other similar web tools to enhance your web experience. These tools help us to recognize you, maintain your web session, and provide a more personalized experience. To learn more, please click the Privacy link on our website.

How We Share and Use Your Information

We provide access to information about you to our affiliated companies, outside companies and other third parties in certain limited circumstances, including:


•	to help us process transactions for your account;

•	when we use other companies to provide services for us, such as printing and mailing your account statements;

•	when we believe that disclosure is required or permitted under law (for example, to cooperate with regulators or law enforcement, resolve consumer disputes, perform credit/authentication checks, or for risk control).

State Laws

We will comply with state laws that apply to the disclosure or use of information about you.

Safeguarding Your Information — Security Is a Partnership

We take precautions to ensure the information we collect about you is protected and is accessed only by authorized individuals or organizations.

Companies we use to provide support services are not allowed to use information about our shareholders for their own purposes and are contractually obligated to maintain strict confidentiality. We limit their use of information to the performance of the specific services we have requested.

We restrict access to personal information by our employees and agents. Our employees are trained about privacy and are required to safeguard personal information.

We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

Contact Us

To provide us with updated information, report suspected fraud or identity theft, or for any other questions, please call one of the numbers below.

Schwab Funds^® direct investors: 1-800-407-0256

Schwab Funds^® offers you an extensive family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available Schwab Funds.

Whether you are an experienced investor or just starting out, Schwab Funds can help you achieve your financial goals. An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any Schwab Fund. 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 Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at http://www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.

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 Schwab’s website at www.schwabfunds.com/prospectus or the SEC’s website at http://www.sec.gov.

The Schwab Funds Family^®

Stock Funds

Schwab Premier Equity Fund^®

Schwab Core Equity Fund^tm

Schwab Dividend Equity Fund^tm

Schwab Large-Cap Growth Fund^tm

Schwab Small-Cap Equity Fund^tm

Schwab Hedged Equity Fund^tm

Schwab Financial Services Fund^tm

Schwab Health Care Fund^tm

Schwab^® International Core Equity Fund

Schwab Fundamental US Large* Company Index Fund

Schwab Fundamental US Small-Mid* Company Index Fund

Schwab Fundamental International* Large Company Index Fund

Schwab Fundamental International* Small-Mid Company Index Fund

Schwab Fundamental Emerging Markets* Index Fund

Schwab Global Real Estate Fund^tm

Schwab S&P 500 Index Fund

Schwab 1000 Index^® Fund

Schwab Small-Cap Index Fund^®

Schwab Total Stock Market Index Fund^®

Schwab International Index Fund^®

Asset Allocation Funds

Schwab Balanced Fund^tm

Schwab MarketTrack All Equity Portfolio^tm

Schwab MarketTrack Growth Portfolio^tm

Schwab MarketTrack Balanced Portfolio^tm

Schwab MarketTrack Conservative Portfolio^tm

Schwab Target 2010 Fund

Schwab Target 2015 Fund

Schwab Target 2020 Fund

Schwab Target 2025 Fund

Schwab Target 2030 Fund

Schwab Target 2035 Fund

Schwab Target 2040 Fund

Schwab^® Monthly Income Fund – Moderate Payout

Schwab^® Monthly Income Fund – Enhanced Payout

Schwab^® Monthly Income Fund – Maximum Payout

Bond Funds

Schwab YieldPlus Fund^®

Schwab Short-Term Bond Market Fund^tm

Schwab^® Premier Income Fund

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab Inflation Protected Fund^tm

Schwab Tax-Free YieldPlus Fund^tm

Schwab Tax-Free Bond Fund^tm

Schwab California Tax-Free YieldPlus Fund^tm

Schwab California Tax-Free Bond Fund^tm

Schwab Money Funds

Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity¹. Choose from taxable or tax-advantaged alternatives. Many can be linked to your eligible Schwab account to “sweep” cash balances automatically, subject to availability, when you’re between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments^®.


*		SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX, FUNDAMENTAL US LARGE, FUNDAMENTAL US SMALL-MID, FUNDAMENTAL INTERNATIONAL AND FUNDAMENTAL EMERGING MARKETS are trademarks of Research Affiliates LLC.

¹		Investments in money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency and, although they seek to preserve the value of your investment at $1 per share, it is possible to lose money.

Performance at a Glance


Total Return for the Report Period


Schwab Balanced Fund^tm (Ticker Symbol: SWOBX)			12.08%

Balanced Blended Index			13.56%
Fund Category: Morningstar Moderate Allocation			13.46%

Performance Details			pages 6-7



Minimum Initial Investment¹			$ 100

All fund and index figures 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 you cannot invest in them directly. Performance results less than one year are not annualized.

Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.

The Balanced Blended Index is a custom blended index developed by CSIM composed of 60% S&P 500^® Index and 40% Barclays Capital U.S. Aggregate Bond Index.


¹	Please see prospectus for further details and eligibility requirements.

2 Schwab Balanced Fund

From the President

Marie Chandoha is President and CEO of Charles Schwab Investment Management, Inc. and the fund covered in this report.

Dear Shareholder,

For the year ended October 31, 2010, the Schwab Balanced Fund generated a positive absolute return, but underperformed its blended benchmark. The fund kept its asset allocation close to that of its benchmark, with approximately 60% in stocks and 40% in investment grade bonds. Please read the fund manager’s discussion and analysis on the following pages for more details.

At Schwab, we encourage investors to review their investment strategy periodically in the context of their tolerance for risk, timeline, and established investment plan.

If you have any questions about the Schwab Balanced Fund or any other Schwab Funds, please call us at 1-800-435-4000. Please also see www.schwabfunds.com for details on each fund including performance results, investment strategy, and prospectus.

Thank you for investing with us.

Sincerely,

Schwab Balanced Fund 3

The Investment Environment

Asset Class Performance Comparison % returns during the report period

This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.



		16.52%		S&P 500^{^®} Index: measures U.S. large-cap stocks

		26.58%		Russell 2000^{^®} Index: measures U.S. small-cap stocks

		8.82%		MSCI EAFE^{^®} Index (Gross): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		8.01%		Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market

		0.11%		Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations

Data source: Charles Schwab & Co., Inc.

Nothing in this report represents a recommendation of a security by the investment adviser.

Manager views and portfolio holdings may have changed since the report date.

4 Schwab Balanced Fund

Schwab Balanced Fund™

Schwab Balanced Fund (the fund) seeks capital growth and income. To pursue its goal, the fund generally invests in a diversified group of other Schwab and/or Laudus Funds (the underlying funds), in accordance with its target portfolio allocation. For more information on the fund’s objective and strategy, please see the fund’s prospectus.

The fund returned 12.08% for the 12-month period, while its comparative index, the Balanced Blended Index, returned 13.56%. The S&P 500 Index makes up 60% of the Balanced Blended Index, and it returned 16.52% for the reporting period, while the Barclays Capital U.S. Aggregate Bond Index comprises the other 40%, and it returned 8.01%.

Looking at the fund’s equity allocation, the Schwab Core Equity Fund (Core Equity) was the largest detractor from the fund’s relative performance. Core Equity returned 11.77% for the 12-month period, underperforming its comparative index, the S&P 500 Index, which returned 16.52%. On the other hand, the Laudus Small-Cap MarketMasters Fund, Select Shares, which returned 22.66%, was the best performer for the fund and contributed positively to relative return. Within the fund’s fixed-income component, the Schwab Total Bond Market Fund, which underperformed its comparative index by 35 basis points, was a relative detractor.

As of 10/31/10:

Statistics


Number of Holdings		4
Portfolio Turnover Rate		8%

Asset Class Weightings % of Investments


Equity Funds - Domestic		62.4%
Fixed - Income Funds		35.4%
Short-Term Investments		2.2%
Total		100.0%

Top Holdings % of Net Assets¹


Schwab Core Equity Fund		51.4%
Schwab Total Bond Market Fund		35.3%
Laudus Small-Cap MarketMasters Fund, Select Shares		11.1%
State Street Institutional Liquid Reserves Fund - Institutional Class		2.2%
Total		100.0%

Manager views and portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

Small company stocks are subject to greater volatility than other asset classes.

Laudus MarketMasters Funds are part of Schwab Capital Trust and distributed by Charles Schwab & Co., Inc.


¹		This list is not a recommendation of any security by the investment adviser.

6 Schwab Balanced Fund

Schwab Balanced Fund^tm

Performance Summary as of 10/31/10

October 31, 2000 – October 31, 2010
Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab Balanced Fund^tm (11/18/96)		12.08	%		2.34	%		2.64	%
Balanced Blended Index*		13.56	%		3.98	%		2.87	%
S&P 500^® Index		16.52	%		1.73	%		-0.02	%
Barclays Capital U.S. Aggregate Bond Index		8.01	%		6.45	%		6.38	%
Fund Category: Morningstar Moderate Allocation		13.46	%		3.44	%		3.21	%

Fund Expense Ratios³: Net 0.75%; Gross 0.91%

Because the fund originally used a different asset allocation strategy and a multi-fund strategy, its performance prior to June 3, 2002 does not reflect the current strategy and may have been different if it did. From June 3, 2002 to February 28, 2008, the fund used a manager of managers strategy, and therefore its performance during this time does not reflect the fund’s current multi-fund strategy and may have been different if it did.


*		The Balanced Blended Index is a custom blended index developed by CSIM composed of 60% S&P 500^® Index and 40% Barclays Capital U.S. Aggregate Bond Index.
¹		Fund expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		As stated in the prospectus. Includes expenses of the underlying funds in which the fund invests. The annualized weighted average expense ratio of the underlying funds was 0.75%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab Balanced Fund 7

Fund Expenses (Unaudited)

Examples for a $1,000 Investment


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 5/1/10		at 10/31/10		5/1/10–10/31/10

Schwab Balanced Fund^tm
Actual Return		0.00	$	1,000	$	1,010.10	$	0.00
Hypothetical 5% Return		0.00	$	1,000	$	1,025.21	$	0.00


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. The expenses incurred by the underlying funds in which the fund invests are not included in this ratio.
²		Expenses for each share class 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 the 365 days of the fiscal year.

8 Schwab Balanced Fund

Schwab Balanced Fund™

Financial Statements

Financial Highlights


	11/1/09–			11/1/08–			11/1/07–			11/1/06–			11/1/05–
	10/31/10			10/31/09			10/31/08¹			10/31/07			10/31/06


Per-Share Data ($)

Net asset value at beginning of period		9.99			9.82			13.86			13.39			12.85

Income (loss) from investment operations:
Net investment income (loss)		0.17	²		0.22	²		0.20	²		0.25	²		0.25	²
Net realized and unrealized gains (losses)		1.03			0.64			(3.26	)		1.06			0.83

Total from investment operations		1.20			0.86			(3.06	)		1.31			1.08
Less distributions:
Distributions from net investment income		(0.19	)		(0.37	)		(0.29	)		(0.24	)		(0.16	)
Distributions from net realized gains		—			(0.32	)		(0.69	)		(0.60	)		(0.38	)

Total distributions		(0.19	)		(0.69	)		(0.98	)		(0.84	)		(0.54	)

Net asset value at end of period		11.00			9.99			9.82			13.86			13.39

Total return (%)		12.08			9.45			(23.56	)		10.24			8.59

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses³		0.00	⁴		0.00			0.36			1.02	⁵		1.03	⁵
Gross operating expenses³		0.20			0.17			0.53			1.27			1.26
Net investment income (loss)		1.67			2.41			1.81			1.84			1.90
Portfolio turnover rate		8			21			267			244			244
Net assets, end of period ($ x 1,000,000)		88			86			85			112			122

¹ Effective February 28, 2008, the Investor Share class and the Select Share class were combined into a single class of shares of the fund. The financial history as shown in the financial highlights is that of the former Investor Shares.

² Calculated based on the average shares outstanding during the period.

³ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁴ Less than 0.005%; the ratio of net operating expenses would have been 0.00%, if certain non-routine expenses had not been incurred.

⁵ The ratio of net operating expenses would have been 1.10% for periods ended 10/31/06 and 10/31/07, respectively, if custody credits and dividend and interest expenses on short sales had not been incurred.

See financial notes 9

Schwab Balanced Fund

Portfolio Holdings as of October 31, 2010

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

100

.0%

Other Investment Companies

89,687,113

88,197,924

100

.0%

Total Investments

89,687,113

88,197,924

.0%

Other Assets and Liabilities

23,638

100

.0%

Net Assets

88,221,562


	Number		Value
Security	of Shares		($)

Other Investment Companies 100.0% of net assets

Equity Funds 62.4%
Laudus Small-Cap MarketMasters Fund, Select Shares (a)*		838,005		9,754,373
Schwab Core Equity Fund (a)		2,871,209		45,307,683

				55,062,056

Fixed-Income Funds 35.4%
Schwab Total Bond Market Fund (a)		3,317,269		31,182,325

Money Funds 2.2%
State Street Institutional Liquid Reserves Fund - Institutional Class		1,953,543		1,953,543

Total Other Investment Companies
(Cost $89,687,113)				88,197,924



End of Investments.

At 10/31/10, the tax basis cost of the fund’s investments was $90,960,869 and the unrealized appreciation and depreciation were $3,144,886 and ($5,907,831), respectively, with a net unrealized depreciation of ($2,762,945).


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.

10 See financial notes

Schwab Balanced Fund

Statements of

Changes in Net Assets

For the current and prior report periods.



Operations


11/1/09-10/31/10			11/1/08-10/31/09
Net investment income		$1,462,993		$1,941,574
Net realized gains (losses)		860,571		(5,972,403	)
Net unrealized gains	+	7,632,908		11,205,277

Increase in net assets from operations		9,956,472		7,174,448

Distributions to Shareholders

Distributions from net investment income		1,576,121		3,132,669
Distributions from net realized gains	+	—		2,727,245

Total distributions		$1,576,121		$5,859,914

Transactions in Fund Shares


		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		VALUE			SHARES		VALUE
Shares sold			1,058,742		$11,123,536			898,966		$8,337,904
Shares reinvested			142,826		1,479,682			607,671		5,511,579
Shares redeemed	+		(1,739,721	)	(18,264,502	)		(1,583,828	)	(14,502,159	)

Net transactions in fund shares			(538,153	)	($5,661,284	)		(77,191	)	($652,676	)

Shares Outstanding and Net Assets

		11/1/09-10/31/10					11/1/08-10/31/09
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			8,559,210		$85,502,495			8,636,401		$84,840,637
Total increase or decrease	+		(538,153	)	2,719,067			(77,191	)	661,858

End of period			8,021,057		$88,221,562			8,559,210		$85,502,495


Net investment income not yet distributed					$756,596					$869,724

See financial notes 13

Schwab Balanced Fund

Financial Notes

1. Business Structure of the Fund:

Schwab Balanced Fund is a series of Schwab Capital Trust (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust including the fund discussed in this report, which is highlighted:



Schwab Capital Trust (organized May 7, 1993) Schwab Balanced Fund Schwab S&P 500 Index Fund Schwab Small-Cap Index Fund Schwab Total Stock Market Index Fund Schwab International Index Fund Schwab MarketTrack All Equity Portfolio Schwab MarketTrack Growth Portfolio Schwab MarketTrack Balanced Portfolio Schwab MarketTrack Conservative Portfolio Laudus Small-Cap MarketMasters Fund Laudus International MarketMasters Fund Schwab Premier Equity Fund Schwab Core Equity Fund Schwab Dividend Equity Fund Schwab Large-Cap Growth Fund Schwab Small-Cap Equity Fund Schwab Hedged Equity Fund		Schwab Financial Services Fund Schwab Health Care Fund Schwab International Core Equity Fund Schwab Target 2010 Fund Schwab Target 2015 Fund Schwab Target 2020 Fund Schwab Target 2025 Fund Schwab Target 2030 Fund Schwab Target 2035 Fund Schwab Target 2040 Fund Schwab Fundamental US Large Company Index Fund Schwab Fundamental US Small-Mid Company Index Fund Schwab Fundamental International Large Company Index Fund Schwab Fundamental International Small-Mid Company Index Fund Schwab Fundamental Emerging Markets Index Fund Schwab Monthly Income Fund-Moderate Payout Schwab Monthly Income Fund-Enhanced Payout Schwab Monthly Income Fund-Maximum Payout

The Schwab Balanced Fund is a single class “fund of funds” which seeks to achieve its investment objective by investing in a diversified group of other Schwab and/or Laudus Funds, but also may invest in other unaffiliated, third party mutual funds, including exchange traded funds (“ETFs”). In addition, the fund may purchase individual securities to maintain its allocations. The fund bears its share of allocable expenses of the underlying funds in which it invests. The financial statements of the fund should be read in conjunction with the underlying funds’ financial statements.

The fund offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 8) at closing net asset value (“NAV”), which is the price for all outstanding shares of a fund, as applicable. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.

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 accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the Securities Exchange Commission (“SEC”).

(a) Security Valuation:

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Short-term securities (60 days or less to maturity): valued at amortized cost, which approximates market value.

	•	Underlying funds: valued at their respective net asset values as determined by the underlying fund in accordance with the 1940 Act for a given day.

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 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 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the

Schwab Balanced Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):

valuation (level 3 measurements). 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. The fund does not adjust the quoted price for such investments, even in situations where the fund holds a large position and a sale could reasonably impact the quoted price.

	•	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 certain 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. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	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.

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total*

Other Investment Companies(a)

$88,197,924

$—

$88,197,924

Total

$88,197,924

$—

$88,197,924


*		The fund had no Other Financial Instruments.
(a)		As categorized in Portfolio Holdings.

Schwab Balanced Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):

measurements on a gross basis, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.

The fund has adopted the new guidance for the period ended October 31, 2010. There were no significant transfers between Level 1 and Level 2 for the period ended October 31, 2010. Management is currently evaluating the impact of the adoption of the other provisions of the new guidance on the fund’s financial statements.

(b) Accounting Policies for certain Portfolio Investments (if held):

Repurchase Agreements: In a repurchase agreement, a fund buys a security from another party (usually a financial institution) with the agreement that it be sold back in the future. The funds’ repurchase agreements are fully collateralized by cash, U.S. government securities, U.S. government agency securities or other securities. All collateral is held by the funds’ custodian (or, with tri-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement.

(c) Security Transactions:

(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 may record 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 underling funds.

(e) Expenses:

Expenses that are specific to the fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(g) Custody Credit:

The fund has an arrangement with its custodian bank, State Street Bank and Trust Company, under which the fund receives a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.

(h) Accounting Estimates:

The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. 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.

(i) Federal Income Taxes:

The fund intends to meet federal income and excise tax requirements for regulated investment companies.

Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.

Schwab Balanced Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(j) 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 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.

Asset Allocation Risk. The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund’s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective.

Market Risk. Stock and bond markets rise and fall daily. 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.

Underlying Fund Investment Risk. The value of your investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although the fund’s exposure to a particular risk will be proportionate to the fund’s overall asset allocation and underlying fund allocation.


	•	Investment Risk. An investment in an underlying fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.

	•	Management Risk. The underlying funds are actively managed mutual funds. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser) will make poor security selections. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results.

	•	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.

	•	Large- and Mid-Cap Risk. Both large- and mid-cap stocks tend to go in and out of favor based on market and economic conditions. However, stocks of mid-cap companies tend to be more vulnerable to adverse business or economic events than larger more established companies. During a period when large- and mid-cap U.S. stocks fall behind other types of investments — small-cap stocks, for instance — an underlying fund’s large- and mid-cap holdings could reduce performance.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — large-cap and mid-cap stocks, for instance — an underlying fund’s small-cap holdings could reduce performance.

	•	Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. The credit quality of a portfolio investment could also cause a fund’s share price to fall. A fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or otherwise honor its obligations. Fixed income securities may be paid off earlier or later than expected.

Schwab Balanced Fund

Financial Notes (continued)

3. Risk Factors (continued)


		Either situation could cause a fund to hold securities paying lower than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.


	•	ETF Risk. An underlying fund may purchase shares of ETFs to gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.

	•	Derivatives Risk. An underlying 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 and could cause the fund to lose more than the principal amount invested.

	•	Leverage Risk. Certain underlying fund transactions, such as derivatives, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may expose a fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of a fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately larger impact on the fund.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Portfolio turnover risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gain distributions.

Direct Investment Risk. The fund may invest a portion of its assets directly in equity and fixed income securities, as well as other mutual funds or ETFs, to maintain its asset allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same security.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

Charles Schwab Investment Management, Inc. (“CSIM” or “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.

The Board of Trustees has adopted a Shareholder Servicing Plan (the “Plan”) on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. The fund is not subject to any fee under the Plan.

CSIM and Schwab have agreed with the fund to limit (“expense limitation”) the total expenses charged, excluding interest, taxes and certain non-routine expenses of the fund to 0.00% for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the fund’s Board of Trustees.

The agreement to limit the fund’s total expenses charged is limited to the fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expense, which are indirect expenses incurred by a fund through its investments in the underlying funds.

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 officers. During the year ended October 31, 2010, the fund had no security transactions with other Schwab Funds.

Schwab Balanced Fund

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. As of October 31, 2010, the percentages of shares of other related funds owned by the Schwab Balanced Fund are:


Equity Funds:
Laudus Small-Cap MarketMasters Fund			2.4%
Schwab Core Equity Fund			2.5%
Fixed-Income Funds:
Schwab Total Bond Market Fund			3.3%

Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2010:


	Balance							Balance		Market		Realized			Distribution
	of Shares							of Shares		Value		Gain (Loss)			Received*
	Held at		Gross		Gross			Held at		at		11/01/09			11/01/09
Underlying Fund	10/31/09		Additions		Sales			10/31/10		10/31/10		to 10/31/10			to 10/31/10

Laudus Small-Cap MarketMasters Fund, Select Shares		1,528,130		—		(690,125	)		838,005		$9,754,373		$1,257,499			$—
Schwab Core Equity Fund		2,771,812		164,315		(64,918	)		2,871,209		45,307,683		(160,082	)		424,642
Schwab Total Bond Market Fund		3,447,725		477,549		(608,005	)		3,317,269		31,182,325		(281,379	)		1,038,683

Total											$86,244,381		$816,038			$1,463,325


*		Distributions received include distributions from net investment income and capital gains from the underlying funds.

Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The fund had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

6. Borrowing from Banks:

The fund may borrow money from banks and custodians. The fund has custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman. The fund pays interest on the amounts they borrow at rates that are negotiated periodically. The fund also pays an annual fee to State Street Bank and Trust Company for the committed line of credit.

There were no borrowings from the lines of credit during the period. However, the fund utilized its overdraft facility and incurred interest expense, which is included in other expenses in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2010, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

Schwab Balanced Fund

Financial Notes (continued)

8. Redemption Fee:

The fund charges a 2.00% redemption fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts are netted against redemption proceeds on the Statement of Changes in Net Assets. The redemption fees charged during the current and prior periods are $674 and $2,343, respectively.

9. Federal Income Taxes:

As of October 31, 2010, the components of distributable earnings on a tax-basis were as follows:


Undistributed ordinary income	$756,596
Undistributed long-term capital gains	—
Unrealized appreciation	3,144,886
Unrealized depreciation	(5,907,831	)

Net unrealized appreciation/(depreciation)	($2,762,945	)

The primary differences between book-basis and tax-basis unrealized appreciation or unrealized depreciation of investments are the tax deferral of losses on wash sales.

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2010, the fund had capital loss carryforwards $4,290,915 available to offset future net capital gains before October 31, 2017.

As of October 31, 2010, the fund had capital losses utilized as follows:


Capital losses utilized			$908,551

The tax-basis components of distributions paid during the current and prior periods were:


	Current Period		Prior Period

Ordinary income		$1,576,121		$3,133,313
Long-term capital gains		—		2,726,601
Return of capital		—		—

Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as non-U.S. currency gains and losses, short-term capital gains and losses; capital losses related to wash sales, unrealized appreciation of certain investments in non-U.S. securities; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.

As of October 31, 2010, 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 year ended October 31, 2010, the fund did not incur any interest or penalties.

10. 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.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Schwab Balanced Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Balanced Fund (one of the portfolios constituting Schwab Capital Trust, hereafter referred to as the “Fund”) at October 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities and investments in the underlying funds at October 31, 2010 by correspondence with the custodian and transfer agent of the underlying funds, respectively, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 15, 2010

Investment Advisory Agreement Approval

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the Fund at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the Fund for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the Fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered investments in CSIM’s mutual fund infrastructure, Schwab’s wide range of products, services, and channel alternatives such as free advice, investment and research tools, Internet access, and an array of account features that benefit the Fund and its shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that many of the Fund’s shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the Fund and the resources of CSIM, and its affiliates dedicated to the Fund supported renewal of the Agreement with respect to the Fund.

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreement with respect to the Fund. Specifically, the Trustees considered the Fund’s performance relative to a peer category of other mutual funds and appropriate indices/ benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the Fund, the Trustees considered both risk and shareholder risk expectations for the Fund and the appropriateness of the benchmark used to

compare the performance of the Fund. The Trustees further considered the level of Fund performance in the context of its review of Fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the Agreement with respect to the Fund.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s net operating expense ratio, in each case, in comparison to those of a peer group of mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep the Fund’s expense cap for so long as CSIM serves as the adviser to the Fund. The Trustees also considered fees charged by CSIM to other mutual funds and exchange-traded funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Fund.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the Fund, such as whether, by virtue of its management of the Fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Fund and concluded that the compensation under the Agreement with respect to the Fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Trustees and Officers

The tables below give information about the trustees and officers for Schwab Capital 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, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Capital Trust since 2000.)	Chairman of JDN Corporate Advisory LLC.	73	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007)


John F. Cogan 1947 Trustee (Trustee of Schwab Capital Trust since 2008.)	Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present).	73	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of Schwab Capital Trust since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	73	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Capital Trust since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	73	Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present)


Donald R. Stephens 1938 Trustee (Trustee of Schwab Capital Trust since 2000.)	Managing Partner, D.R. Stephens & Company (investments) (1973 – present).	73	None

Independent Trustees (continued)


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Joseph H. Wender 1944 Trustee (Trustee of Schwab Capital Trust since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005).	73	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)


Michael W. Wilsey 1943 Trustee (Trustee of Schwab Capital Trust since 1993.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).	73	None

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served )	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Capital Trust since 1993.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	73	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Capital Trust since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	84	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 Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Capital Trust since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer, (Sept. 2010 – present), Charles Schwab Investment Management, Inc.; President and Chief Executive Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Dec. 2010 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010); Co-Head and Senior Portfolio Manager, Wells Capital Management (June 1999 – March 2007).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Capital Trust since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds (June 2006 – June 2007).


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Capital Trust since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Funds (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Funds (Nov. 1998 – present) and Schwab ETFs (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds (June 2006 – June 2007).


Catherine MacGregor 1964 Vice President (Officer of Schwab Capital Trust since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk, Laudus Funds (March 2007 – present); Vice President and Assistant Clerk, Schwab Funds (Dec. 2005 – present) and Schwab ETFs (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of Schwab Capital Trust since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Funds; Vice President, Schwab Funds (June 2007 – present) and Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds^® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation.
³		The President, Treasurer and Secretary 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.