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Five cost-efficient ways to tap into the power of

the stock market for long-term growth potential.

In This Report


Performance at a Glance		2
From the President		3
Fund Management		5
Fund Summaries
Schwab S&P 500 Index Fund		6
Schwab 1000 Index^{^®} Fund		8
Schwab Small-Cap Index Fund^{^®}		10
Schwab Total Stock Market Index Fund^{^®}		12
Schwab International Index Fund^{^®}		14
Fund Expenses		16
Financial Statements and Portfolio Holdings
Schwab S&P 500 Index Fund		17
Schwab 1000 Index^{^®} Fund		24
Schwab Small-Cap Index Fund^{^®}		30
Schwab Total Stock Market Index Fund^{^®}		37
Schwab International Index Fund^{^®}		44
Financial Notes		50
Report of Independent Registered Public Accounting Firm		65
Other Federal Tax Information		66
Investment Advisory Agreement Approval		67
Trustees and Officers		69
Glossary		73

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor: Charles Schwab & Co., Inc. (Schwab).

The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.

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 S&P 500 Index Fund (Ticker Symbol: SWPPX)			7.97%

S&P 500^® Index			8.09%
Fund Category: Morningstar Large-Cap Blend			5.33%

Performance Details			pages 6-7



Schwab 1000 Index^® Fund (Ticker Symbol: SNXFX)			7.60%

Schwab 1000 Index^®			7.88%
Fund Category: Morningstar Large-Cap Blend			5.33%

Performance Details			pages 8-9



Schwab Small-Cap Index Fund^® (Ticker Symbol: SWSSX)			8.45%

Schwab Small-Cap Index^®			8.59%
Fund Category: Morningstar Small-Cap Blend			6.60%

Performance Details			pages 10-11



Schwab Total Stock Market Index Fund^® (Ticker Symbol: SWTSX)			8.14%

Dow Jones U.S. Total Stock Market Index^SM			8.05%
Fund Category: Morningstar Large-Cap Blend			5.33%

Performance Details			pages 12-13



Schwab International Index Fund^® (Ticker Symbol: SWISX)¹			-4.83%

Schwab International Index^®			-3.82%
Fund Category: Morningstar Foreign Large-Cap Blend			-6.43%

Performance Details			pages 14-15



Minimum Initial Investment²			$ 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 may have been partially absorbed by CSIM and its affiliates. Without these reductions, the funds’ 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.


¹	The fund’s performance relative to the index may be affected by fair-value pricing and timing differences in foreign exchange calculations, see financial note 2 for more information.

²	Please see prospectus for further details and eligibility requirements.

2 Schwab Equity Index Funds

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 12-month period that ended October 31, 2011, global financial markets saw ongoing challenges with Europe’s sovereign debt crisis, the downgrade of long-term U.S. Treasury debt, and a global economy that lost steam in the middle months of the period but showed pockets of improvement by its end. U.S. stocks provided respectable returns in that environment, while stocks in many developed markets outside of the United States generated losses. Long-term interest rates in the United States continued to decline, boosting prices of Treasury securities.

As slow economic growth continued throughout most of the reporting period, the Federal Reserve kept short-term interest rates at or near zero to spur job growth and the U.S. economy. Concerns intensified throughout the world, however, about the high debt levels of sovereign nations, including the United States. In August, credit rating agency Standard & Poor’s downgraded the credit rating of long-term U.S. debt from AAA to AA+ and continued to warn against the growing level of debt owed by the U.S. government. Throughout the summer of 2011, markets also labored under worries that a default on Greece’s sovereign debt could destabilize some European banks, and that high debt levels in Portugal, Italy, or Spain might further destabilize global financial markets.

Although equity markets rose steadily over the first six months of the reporting period, the concerns about Europe and a possible worldwide recession sparked a global sell-off in August and September. In this environment, investors favored securities viewed as safer or more defensive, which helped

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.



		8.09%		S&P 500^{^®} Index: measures U.S. large-cap stocks

		6.71%		Russell 2000^{^®} Index: measures U.S. small-cap stocks

		−3.64%		MSCI EAFE^{^®} Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		5.00%		Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market

		0.09%		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: Index provider websites and Charles Schwab Investment Management, 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.

Schwab Equity Index Funds 3

From the President continued

Stock markets got a further lift in the last month of the period as European leaders appeared closer to a resolution concerning the region’s debt problems, and as the United States managed a faster pace of economic growth in the third quarter.

stock markets in the United States outperform international markets. Stock markets got a further lift in the last month of the period as European leaders appeared closer to a resolution concerning the region’s debt problems, and as the United States managed a faster pace of economic growth in the third quarter. The broad U.S. stock market posted a return of 8.09%, as measured by the S&P 500 Index, while stocks in Europe and much of the rest of the world trailed this result. Stock markets in the developed world outside of the United States returned –3.64%, as measured by the MSCI EAFE Index.

During the market fluctuations of the late summer, investors sought the safety of U.S. Treasury securities. This influx of demand pushed yields on 10-year Treasury notes down from 3.47% at the end of March to 2.17% at the end of October. As investors moved toward safer assets, corporate bonds and other non-Treasury debt securities traded at higher spreads to Treasury bonds over the last months of the period. The Barclays Capital U.S. Aggregate Bond Index ended the 12-month period with an investment return of 5.00%.

Thank you for investing in the Schwab Equity Index Funds. We encourage you to review your investment portfolio regularly to make sure it meets your current financial plan. For answers to questions you may have or to consult our website for more information, please visit www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

Indices are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. Index return figures assume dividends and distributions were reinvested.

4 Schwab Equity Index Funds

Schwab S&P 500 Index Fund

The Schwab S&P 500 Index Fund (the fund) seeks to track the total return of the S&P 500 Index (the index). To pursue its goal, the fund generally invests in stocks that are included in the index. Generally, the fund gives the same weight to a given stock as the index does. The index includes the stocks of 500 leading U.S. publicly traded companies from a broad range of industries. (For more information concerning the fund’s objective, strategy, and risks, please see the fund’s prospectus.)

The fund returned 7.97% for the 12 months ended October 31, 2011, while the index returned 8.09%. Because the return of the index does not include operational and transactional costs, the return of the fund tends to differ from that of the index.

Energy and Information Technology stocks added the most to the fund’s absolute performance (total return), reflecting the respectable returns generated by investments in these sectors combined with their average weights within the fund. Financials was the only sector that subtracted from the fund’s total return, reflecting the negative returns generated by these investments. New legislation expected to trim the financial industry’s profits and Europe’s ongoing and largely unresolved sovereign debt crisis were primary catalysts behind the poor performance of this sector.

The fund used a replication investment approach and maintained a tight allocation across all sectors, market capitalizations, and valuation measures compared with the index.

As of 10/31/11:

Statistics


Number of Holdings		502
Weighted Average Market Cap ($ x 1,000,000)		$90,171
Price/Earnings Ratio (P/E)		14.2
Price/Book Ratio (P/B)		2.2
Portfolio Turnover Rate		3%

Sector Weightings % of Investments


Information Technology		19.3%
Financials		13.8%
Energy		12.1%
Health Care		11.3%
Consumer Staples		10.8%
Consumer Discretionary		10.5%
Industrials		10.4%
Utilities		3.6%
Materials		3.5%
Telecommunication Services		3.0%
Other		1.7%
Total		100.0%

Top Equity Holdings % of Net Assets¹


Exxon Mobil Corp.		3.3%
Apple, Inc.		3.2%
International Business Machines Corp.		1.9%
Chevron Corp.		1.8%
Microsoft Corp.		1.7%
General Electric Co.		1.5%
Johnson & Johnson		1.5%
The Procter & Gamble Co.		1.5%
AT&T, Inc.		1.5%
The Coca-Cola Co.		1.3%
Total		19.2%

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

Source of Sector Classification: S&P and MSCI.

Standard & Poor’s^®, S&P^®, S&P 500^®, Standard & Poor’s 500^® and 500^® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the fund. The fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the fund.


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

6 Schwab Equity Index Funds

Schwab S&P 500 Index Fund

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment^1,2,4

Pre-Tax Average Annual Total Returns^1,2,3,4


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab S&P 500 Index Fund (5/19/97)		7.97	%		0.27	%		3.64	%
S&P 500^® Index		8.09	%		0.25	%		3.69	%
Fund Category: Morningstar Large-Cap Blend		5.33	%		-0.31	%		3.46	%

Fund Expense Ratios⁵: Net 0.09%; Gross 0.10%

Average Annual Total Returns After Tax^1,2,3,4


	1 Year		5 Years		10 Years


Fund: Schwab S&P 500 Index Fund (5/19/97)
Pre-Liquidation (still own shares)		7.65%		-0.02%		3.24%
Post-Liquidation (shares were sold)		5.54%		0.20%		2.99%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		3.66%		-1.27%		2.77%
Post-Liquidation (shares were sold)		2.68%		-0.69%		2.70%

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.


¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower.
²		The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/11 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor’s situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect both the effects of taxable distributions and the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund.
³		The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴		On September 9, 2009, the Investor Share class, Select Share class and e.Shares class were combined into a single class of shares of the fund. The performance and financial history of the fund are that of the fund’s former Select Shares. Accordingly, the past performance shown is that of the fund’s former Select Shares. On September 9, 2009, the Schwab Institutional Select S&P 500 Fund merged into the fund.
⁵		As stated in the prospectus. 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 Equity Index Funds 7

Schwab 1000 Index^® Fund

The Schwab 1000 Index Fund (the fund) seeks to match the total return of the Schwab 1000 Index (the index). To pursue its goal, the fund generally invests in stocks that are included in the index. Generally, the fund gives the same weight to a given stock as the index does. The index includes the stocks of the largest 1,000 publicly traded companies in the United States, with size being determined by market capitalization (total market value of all shares outstanding). The index is designed to be a measure of the performance of large- and mid-cap U.S. stocks. (For more information concerning the fund’s objective, strategy, and risks, please see the fund’s prospectus.)

The fund returned 7.60% for the 12 months ended October 31, 2011, while the index returned 7.88%. Because the return of the index does not include operational and transactional costs, the return of the fund tends to differ from that of the index. The fund experienced taxable gains that were generated by selling securities to meet redemptions.

Energy and Information Technology stocks added the most to the fund’s absolute performance (total return), reflecting the respectable returns generated by investments in these sectors combined with their average weights within the fund. Financials was the only sector that subtracted from the fund’s total return, reflecting the negative returns generated by these investments. Europe’s ongoing and largely unresolved sovereign debt crisis and new legislation expected to trim the financial industry’s profits were primary catalysts behind this sector’s poor performance.

A replication investment approach was used by the fund, which maintained a tight allocation across all sectors, market capitalizations, and valuation measures compared with the index.

As of 10/31/11:

Statistics


Number of Holdings		972
Weighted Average Market Cap ($ x 1,000,000)		$80,438
Price/Earnings Ratio (P/E)		14.7
Price/Book Ratio (P/B)		2.2
Portfolio Turnover Rate		5%

Sector Weightings % of Investments


Information Technology		19.1%
Financials		14.4%
Energy		11.9%
Consumer Discretionary		11.4%
Health Care		11.4%
Industrials		11.0%
Consumer Staples		10.2%
Materials		4.0%
Utilities		3.8%
Telecommunication Services		2.8%
Total		100.0%

Top Equity Holdings % of Net Assets¹


Exxon Mobil Corp.		3.0%
Apple, Inc.		2.9%
International Business Machines Corp.		1.7%
Chevron Corp.		1.6%
Microsoft Corp.		1.5%
General Electric Co.		1.4%
Johnson & Johnson		1.4%
The Procter & Gamble Co.		1.4%
AT&T, Inc.		1.3%
The Coca-Cola Co.		1.2%
Total		17.4%

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

Source of Sector Classification: S&P and MSCI.


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

8 Schwab Equity Index Funds

Schwab 1000 Index^® Fund

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment^1,2,4

Pre-Tax Average Annual Total Returns^1,2,3,4


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab 1000 Index^® Fund (4/2/91)		7.60	%		0.43	%		4.00	%
Schwab 1000 Index^®		7.88	%		0.69	%		4.31	%
S&P 500^® Index		8.09	%		0.25	%		3.69	%
Fund Category: Morningstar Large-Cap Blend		5.33	%		-0.31	%		3.46	%

Fund Expense Ratios⁵: Net 0.29%; Gross 0.35%

Average Annual Total Returns After Tax^1,2,3,4


	1 Year		5 Years		10 Years


Fund: Schwab 1000 Index^® Fund (4/2/91)
Pre-Liquidation (still own shares)		7.14%		0.14%		3.65%
Post-Liquidation (shares were sold)		5.50%		0.34%		3.34%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		3.66%		-1.27%		2.77%
Post-Liquidation (shares were sold)		2.68%		-0.69%		2.70%


¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower.
²		The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/11 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor’s situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect both the effects of taxable distributions and the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund.
³		The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴		On September 18, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance and financial history of the fund are that of the fund’s former Investor Shares. Accordingly, the past performance shown is that of the fund’s former Investor Shares.
⁵		As stated in the prospectus. 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 Equity Index Funds 9

Schwab Small-Cap Index Fund^®

The Schwab Small-Cap Index Fund (the fund) seeks to track the total return of the performance of a benchmark index that measures the total return of small capitalization U.S. stocks. To pursue its goal, the fund generally invests in stocks that are included in the Schwab Small-Cap Index (the index). Generally, the fund gives the same weight to a given stock as the index does. The index includes the stocks of the second-largest 1,000 publicly traded companies in the United States, with size being determined by market capitalization (total market value of all shares outstanding). The index is designed to be a measure of the performance of small-cap U.S. stocks. (For more information concerning the fund’s objective, strategy, and risks, please see the fund’s prospectus.)

The fund returned 8.45% for the 12 months ended October 31, 2011, while the index returned 8.59%. Because the return of the index does not include operational and transactional costs, the return of the fund tends to differ from that of the index.

Health Care and Information Technology stocks added the most to the fund’s absolute performance (total return), reflecting the double-digit returns generated by investments in these sectors combined with their average weights within the fund. Telecommunication Services and Materials stocks added the least to the fund’s total return, reflecting the relatively small size of these investment allocations within the fund, combined with the limited returns generated by these stocks.

The fund used a replication investment approach and maintained a tight allocation across all sectors, market capitalizations, and valuation measures compared with the index.

As of 10/31/11:

Statistics


Number of Holdings		960
Weighted Average Market Cap ($ x 1,000,000)		$1,335
Price/Earnings Ratio (P/E)		80.7
Price/Book Ratio (P/B)		1.8
Portfolio Turnover Rate		26%

Sector Weightings % of Investments


Financials		18.5%
Industrials		16.5%
Information Technology		16.4%
Consumer Discretionary		15.1%
Health Care		12.9%
Energy		5.5%
Materials		5.2%
Consumer Staples		4.5%
Utilities		3.9%
Telecommunication Services		1.3%
Other		0.2%
Total		100.0%

Top Equity Holdings % of Net Assets¹


Pharmasset, Inc.		0.6%
Level 3 Communications, Inc.		0.5%
Healthspring, Inc.		0.4%
Catalyst Health Solutions, Inc.		0.3%
Nu Skin Enterprises, Inc., Class A		0.3%
Equity Lifestyle Properties, Inc.		0.3%
Home Properties, Inc.		0.3%
Signature Bank		0.3%
Hancock Holding Co.		0.3%
Hexcel Corp.		0.3%
Total		3.6%

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.


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

10 Schwab Equity Index Funds

Schwab Small-Cap Index Fund^®

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment^1,2,4

Pre-Tax Average Annual Total Returns^1,2,3,4


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab Small-Cap Index Fund^® (5/19/97)		8.45	%		2.53	%		7.13	%
Schwab Small-Cap Index^®		8.59	%		2.69	%		7.24	%
Russell 2000^® Index*		6.71	%		0.68	%		7.02	%
Fund Category: Morningstar Small-Cap Blend		6.60	%		0.77	%		7.19	%

Fund Expense Ratios⁵: Net 0.17%; Gross 0.20%

Average Annual Total Returns After Tax^1,2,3,4


	1 Year		5 Years		10 Years


Fund: Schwab Small-Cap Index Fund^® (5/19/97)
Pre-Liquidation (still own shares)		8.22%		1.23%		6.23%
Post-Liquidation (shares were sold)		5.72%		1.81%		5.97%

Fund Category: Morningstar Small-Cap Blend
Pre-Liquidation (still own shares)		5.15%		-0.35%		6.10%
Post-Liquidation (shares were sold)		3.66%		0.25%		5.93%


*		Effective December 14, 2011, the fund’s benchmark index will change to the Russell 2000^® Index.
¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower.
²		The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/11 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor’s situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect both the effects of taxable distributions and the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund.
³		The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴		On August 21, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance and financial history of the fund are that of the fund’s former Select Shares. Accordingly, the past performance shown is that of the fund’s former Select Shares.
⁵		As stated in the prospectus. 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 Equity Index Funds 11

Schwab Total Stock Market Index Fund^®

The Schwab Total Stock Market Index Fund (the fund) seeks to track the total return of the entire U.S. stock market, as measured by the Dow Jones U.S. Total Stock Market Index (the index). To pursue its goal, the fund generally invests in stocks that are included in the index. The fund generally gives the same weight to a given stock as the index does. The index includes all publicly traded stocks of companies headquartered in the United States for which pricing information is readily available—approximately 3,800 stocks. (For more information concerning the fund’s objective, strategy, and risks, please see the fund’s prospectus.)

The fund returned 8.14% for the 12 months ended October 31, 2011, while the index returned 8.05%. Because the return of the index does not include operational and transactional costs, the return of the fund tends to differ from that of the index.

Stocks of Energy and Information Technology companies added the most to the fund’s absolute performance (total return), reflecting the respectable returns generated by investments in these sectors combined with their average weights within the fund. Financials was the only sector that subtracted from the fund’s total return, reflecting the negative returns generated by these investments. New legislation expected to trim the financial industry’s profits and Europe’s ongoing and largely unresolved sovereign debt crisis were primary catalysts behind this sector’s poor performance.

A sampling investment approach was used by the fund, which maintained a tight allocation across all sectors, market capitalizations, and valuation measures compared with the index.

As of 10/31/11:

Statistics


Number of Holdings		2,271
Weighted Average Market Cap ($ x 1,000,000)		$74,202
Price/Earnings Ratio (P/E)		15.6
Price/Book Ratio (P/B)		2.2
Portfolio Turnover Rate		1%

Sector Weightings % of Investments


Information Technology		18.9%
Financials		15.0%
Consumer Discretionary		11.6%
Health Care		11.5%
Energy		11.2%
Industrials		10.8%
Consumer Staples		9.6%
Materials		4.1%
Utilities		3.8%
Telecommunication Services		2.7%
Other		0.8%
Total		100.0%

Top Equity Holdings % of Net Assets¹


Exxon Mobil Corp.		2.7%
Apple, Inc.		2.7%
International Business Machines Corp.		1.6%
Chevron Corp.		1.5%
Microsoft Corp.		1.4%
General Electric Co.		1.3%
The Procter & Gamble Co.		1.3%
Johnson & Johnson		1.2%
AT&T, Inc.		1.2%
Pfizer, Inc.		1.1%
Total		16.0%

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

Source of Sector Classification: S&P and MSCI.

“Dow Jones” and “The Dow Jones U.S. Total Stock Market Index^SM” are service marks of Dow Jones & Company, Inc. and have been licensed for certain purposes by CSIM. The Schwab Total Stock Market Index Fund, based on The Dow Jones U.S. Total Stock Market Index^SM, is not sponsored, endorsed, sold or promoted by Dow Jones and Dow Jones makes no representation regarding the advisability of investing in such a product.


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

12 Schwab Equity Index Funds

Schwab Total Stock Market Index Fund^®

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment^1,2,4

Pre-Tax Average Annual Total Returns^1,2,3,4


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab Total Stock Market Index Fund^® (6/1/99)		8.14	%		0.92	%		4.79	%
Dow Jones U.S. Total Stock Market Index^SM		8.05	%		0.82	%		4.76	%
Fund Category: Morningstar Large-Cap Blend		5.33	%		-0.31	%		3.46	%

Fund Expense Ratios⁵: Net 0.09%; Gross 0.11%

Average Annual Total Returns After Tax^1,2,3,4


	1 Year		5 Years		10 Years


Fund: Schwab Total Stock Market Index Fund^® (6/1/99)
Pre-Liquidation (still own shares)		7.83%		0.65%		4.42%
Post-Liquidation (shares were sold)		5.62%		0.75%		4.01%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		3.66%		-1.27%		2.77%
Post-Liquidation (shares were sold)		2.68%		-0.69%		2.70%


¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower.
²		The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/11 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor’s situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect both the effects of taxable distributions and the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund.
³		The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴		On September 18, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance and financial history of the fund are that of the fund’s former Select Shares. Accordingly, the past performance shown is that of the fund’s former Select Shares.
⁵		As stated in the prospectus. 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 Equity Index Funds 13

Schwab International Index Fund^®

The Schwab International Index Fund (the fund) seeks to track the performance of a benchmark index that measures the total return of large, publicly traded non-U.S. companies from countries with developed equity markets outside of the United States. To pursue its goal, the fund generally invests in stocks that are included in the Schwab International Index (the index). The index includes stocks of 350 of the largest publicly traded companies from selected countries outside the United States. (The fund generally gives the same weight to a given stock as the index does. For more information concerning the fund’s objective, strategy, and risks, please see the fund’s prospectus.)

The fund returned -4.83% for the 12 months ended October 31, 2011, while the index returned -3.82%. Because the return of the index does not include operational and transactional costs, the return of the fund tends to differ from that of the index. Timing differences in foreign exchange calculations represented part of why the fund underperformed the index.* Fair valuation of the fund’s holdings on the last trading day of the current period explains a majority of the fund’s underperformance compared with the index during the period (please see financial note 2 for more information).

Energy and Consumer Staples stocks added the most to the fund’s absolute performance (total return), reflecting the relatively solid returns generated by investments in these sectors combined with their average weights within the fund. Financial stocks detracted the most from the fund’s return. This sector represented roughly one-quarter of the fund and posted double-digit losses. Europe’s ongoing and largely unresolved sovereign debt crisis was a primary catalyst behind the poor performance of international financial stocks.

U.K. stocks helped the fund’s total return the most from a country allocation standpoint. The positive effect on the fund’s performance reflected the large average weight of this investment position compared with other country allocations, combined with the modestly positive return that these stocks generated. Stocks from France posted losses, and when combined with their relatively large weight in the fund, subtracted the most from the fund’s total return.

The fund used a replication investment approach and maintained a tight allocation across all countries, regions, sectors, market capitalizations, and valuation measures compared with the index.

As of 10/31/11:

Country Weightings % of Equity Investments


United Kingdom			21.4%
Japan			13.9%
Canada			9.5%
France			9.4%
Switzerland			8.6%
Germany			7.9%
Australia			7.4%
United States**			4.1%
Spain			3.3%
Italy			2.5%
Other			12.0%
Total			100.0%

Statistics


Number of Holdings		353
Weighted Average Market Cap ($ x 1,000,000)		$58,501
Price/Earnings Ratio (P/E)		12.5
Price/Book Ratio (P/B)		1.4
Portfolio Turnover Rate		10%

Sector Weightings % of Investments


Financials		23.3%
Energy		11.6%
Consumer Staples		11.1%
Materials		10.2%
Health Care		9.1%
Industrials		8.8%
Consumer Discretionary		7.6%
Telecommunication Services		6.4%
Utilities		4.2%
Information Technology		3.6%
Other		4.1%
Total		100.0%

Top Equity Holdings % of Net Assets¹


iShares MSCI EAFE Index Fund**		4.1%
Nestle S.A. - Reg’d		2.2%
HSBC Holdings plc		1.7%
Novartis AG - Reg’d		1.7%
Vodafone Group plc		1.6%
BP plc		1.5%
Royal Dutch Shell plc, A Shares		1.4%
BHP Billiton Ltd.		1.4%
Total S.A.		1.4%
Roche Holding AG		1.3%
Total		18.3%

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

The fund’s performance relative to the index may be affected by fair-value pricing, see financial note 2 for more information.

Source of Sector Classification: S&P and MSCI.

Foreign securities can involve risks such as political and economic instability and currency risk.


*		Typically, the securities in the index are valued using foreign exchange rates obtained at the close of the London foreign currency exchange (11:00 AM EST), using exchange rates in place at that time. Securities in the fund, however, are valued using foreign exchange rates obtained at the close of the New York foreign currency exchange (4:00 PM EST). This difference in closing times can result in different foreign currency exchange rates between the two exchanges, and thus different foreign currency exchange rates used in the valuation of the index’s and fund’s securities.
**		Effective December 20, 2011, the fund’s investment strategy will change to require that the fund invest 80% of its net assets in stocks that are included in the MSCI EAFE Index. As a result of portfolio rebalancing, the fund held a large position in the iShares MSCI EAFE Index Fund at end of the period.
¹		This list is not a recommendation of any security by the investment adviser.

14 Schwab Equity Index Funds

Schwab International Index Fund^®

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment^1,2,4

Pre-Tax Average Annual Total Returns^1,2,3,4


Fund and Inception Date	1 Year			5 Years			10 Years

Fund: Schwab International Index Fund^® (5/19/97)		-4.83	%		-2.38	%		5.36	%
Schwab International Index^®		-3.82	%		-2.02	%		5.79	%
MSCI EAFE Index^®*		-3.64	%		-1.95	%		6.19	%
Fund Category: Morningstar Foreign Large-Cap Blend		-6.43	%		-2.49	%		5.14	%

Fund Expense Ratios⁵: Net 0.19%; Gross 0.21%

Average Annual Total Returns After Tax^1,2,3,4


	1 Year		5 Years		10 Years


Fund: Schwab International Index Fund^® (5/19/97)
Pre-Liquidation (still own shares)		-5.26%		-2.74%		4.84%
Post-Liquidation (shares were sold)		-2.61%		-1.91%		4.53%

Fund Category: Morningstar Foreign Large-Cap Blend
Pre-Liquidation (still own shares)		-8.15%		-3.84%		4.22%
Post-Liquidation (shares were sold)		-4.88%		-2.60%		4.13%


*		Effective December 20, 2011, the fund’s benchmark index will change to the MSCI EAFE^® Index. The Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE Index^®) is a free float-adjusted market capitalization index that is designed to measure market equity performance in 22 developed market countries, excluding the U.S. and Canada. Investors cannot invest directly in any index and index figures do not include trading and management costs.
¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower.
²		The pre-tax total return and the graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. After-tax returns are calculated using the highest historical individual federal marginal income tax rates in effect as of 10/31/11 and do not reflect the impact of state and local taxes or the alternative minimum tax. Actual returns depend on an investor’s situation and may differ from those shown. After-tax returns may not be relevant to investors who hold their fund shares through tax-deferred arrangements. Pre-liquidation after-tax returns reflect both the effects of taxable distributions and the tax effects of purchases and sales of securities within the fund portfolios and assume investors continue to hold fund shares at the end of the measurement periods. Post-liquidation figures assume investors sold fund shares at the end of the measurement periods and reflect both the effects of taxable distributions and any taxable gains or losses realized upon the sale of shares. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund.
³		The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴		On August 21, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance and financial history of the fund are that of the fund’s former Select Shares. Accordingly, the past performance shown is that of the fund’s former Select Shares.
⁵		As stated in the prospectus. 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 Equity Index Funds 15

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, 2011 and held through October 31, 2011.

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 5/1/11		at 10/31/11		5/1/11–10/31/11

Schwab S&P 500 Index Fund
Actual Return		0.09%	$	1,000	$	929.20	$	0.44
Hypothetical 5% Return		0.09%	$	1,000	$	1,024.75	$	0.46


Schwab 1000 Index^® Fund
Actual Return		0.29%	$	1,000	$	921.30	$	1.40
Hypothetical 5% Return		0.29%	$	1,000	$	1,023.74	$	1.48


Schwab Small-Cap Index Fund^®
Actual Return		0.19%	$	1,000	$	876.70	$	0.90
Hypothetical 5% Return		0.19%	$	1,000	$	1,024.25	$	0.97


Schwab Total Stock Market Index Fund^®
Actual Return		0.09%	$	1,000	$	920.10	$	0.44
Hypothetical 5% Return		0.09%	$	1,000	$	1,024.75	$	0.46


Schwab International Index Fund^®
Actual Return		0.19%	$	1,000	$	838.70	$	0.88
Hypothetical 5% Return		0.19%	$	1,000	$	1,024.25	$	0.97


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights.
²		Expenses for each fund 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.

16 Schwab Equity Index Funds

Schwab S&P 500 Index Fund

Financial Statements

Financial Highlights


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
	10/31/11			10/31/10			10/31/09¹			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		18.70			16.28			15.28			24.28			21.56

Income (loss) from investment operations:
Net investment income (loss)		0.39			0.35			0.20			0.44			0.41
Net realized and unrealized gains (losses)		1.09			2.31			1.22			(9.02	)		2.68

Total from investment operations		1.48			2.66			1.42			(8.58	)		3.09
Less distributions:
Distributions from net investment income		(0.36	)		(0.24	)		(0.42	)		(0.42	)		(0.37	)

Net asset value at end of period		19.82			18.70			16.28			15.28			24.28

Total return (%)		7.97			16.50			9.81			(35.92	)		14.50

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.09			0.09			0.13	²		0.19			0.19
Gross operating expenses		0.10			0.10			0.16			0.21			0.20
Net investment income (loss)		1.96			1.97			2.09			2.06			1.78
Portfolio turnover rate		3			2			3	³		3			2
Net assets, end of period ($ x 1,000,000)		10,909			10,007			8,718			2,598			4,345

¹ Effective September 9, 2009, the Investor Share class, the e.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 Select Shares.

² Effective May 5, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

³ Portfolio turnover excludes the impact of investment activity resulting from a merger with another fund.

See financial notes 17

Schwab S&P 500 Index Fund

Portfolio Holdings as of October 31, 2011

This section shows the fund’s 50 largest portfolio holdings in unaffiliated issuers and any holdings exceeding 1% of the fund’s total net assets as of the report date and any affiliated issuers. The remaining securities held by the fund are grouped as “Other Securities” in each category. You can request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds^® at 1-800-435-4000. This complete schedule, filed on the fund’s Form N-CSR, is also available on the SEC’s website at http://www.sec.gov.

In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. A copy of the fund’s most recently filed quarterly schedule of portfolio holdings, included on the fund’s Form N-CSR (with respect to the fund’s second and fourth fiscal quarters) or Form N-Q (with respect to the fund’s first and third fiscal quarters), is available by visiting the fund’s website at www.schwabfunds.com/prospectus.


				Cost		Value
Holdings by Category				($)		($)

	98	.1%	Common Stock		8,824,947,361		10,701,120,014
	1	.7%	Short-Term Investments		182,670,166		182,670,166


	99	.8%	Total Investments		9,007,617,527		10,883,790,180
	0	.1%	Collateral Invested for Securities on Loan		10,781,362		10,781,362
	0	.1%	Other Assets and Liabilities, Net				14,018,050


	100	.0%	Net Assets				10,908,589,592


	Number		% of Net		Value
Security	of Shares		Assets		($)

Common Stock 98.1% of net assets

Automobiles & Components 0.7%
Other Securities				0.7		73,827,731

Banks 2.5%
U.S. Bancorp		1,800,028		0.4		46,062,717
Wells Fargo & Co.		4,954,909		1.2		128,381,692
Other Securities				0.9		102,156,227

				2.5		276,600,636

Capital Goods 7.9%
3M Co.		667,919		0.5		52,778,959
Caterpillar, Inc.		605,362		0.5		57,182,494
General Electric Co.		9,963,752		1.5		166,494,296
United Technologies Corp.		851,535		0.6		66,402,699
Other Securities				4.8		515,720,451

				7.9		858,578,899

Commercial & Professional Supplies 0.6%
Other Securities				0.6		59,551,322

Consumer Durables & Apparel 1.0%
Other Securities				1.0		106,891,771

Consumer Services 2.1%
McDonald’s Corp.		966,738		0.8		89,761,623
Other Securities				1.3		133,913,497

				2.1		223,675,120

Diversified Financials 5.7%
American Express Co.		975,741		0.5		49,392,009
Bank of America Corp.		9,478,911		0.6		64,740,962
Citigroup, Inc.		2,734,147		0.8		86,371,704
JPMorgan Chase & Co.		3,653,531		1.2		126,996,738
The Charles Schwab Corp. (b)		1,009,981		0.1		12,402,567
The Goldman Sachs Group, Inc.		473,969		0.5		51,923,304
Other Securities				2.0		234,151,638

				5.7		625,978,922

Energy 12.0%
Chevron Corp.		1,881,534		1.8		197,655,147
ConocoPhillips		1,286,590		0.8		89,610,993
Exxon Mobil Corp.		4,555,941		3.3		355,773,433
Occidental Petroleum Corp.		759,350		0.6		70,573,989
Schlumberger Ltd.		1,263,215		0.9		92,808,406
Other Securities				4.6		507,031,001

				12.0		1,313,452,969

Food & Staples Retailing 2.3%
Wal-Mart Stores, Inc.		1,647,102		0.9		93,423,625
Other Securities				1.4		154,858,255

				2.3		248,281,880

Food, Beverage & Tobacco 6.2%
Altria Group, Inc.		1,955,891		0.5		53,884,797
Kraft Foods, Inc., Class A		1,654,854		0.5		58,217,764
PepsiCo, Inc.		1,480,863		0.9		93,220,326
Philip Morris International, Inc.		1,645,846		1.1		114,995,260
The Coca-Cola Co.		2,148,728		1.3		146,801,097
Other Securities				1.9		208,166,095

				6.2		675,285,339

Health Care Equipment & Services 3.9%
UnitedHealth Group, Inc.		1,005,610		0.4		48,259,224
Other Securities				3.5		380,384,718

				3.9		428,643,942

Household & Personal Products 2.4%
The Procter & Gamble Co.		2,574,690		1.5		164,754,413
Other Securities				0.9		93,053,852

				2.4		257,808,265

Insurance 3.6%
Berkshire Hathaway, Inc., Class B *		1,647,830		1.2		128,300,044
Other Securities				2.4		268,437,870

				3.6		396,737,914

18 See financial notes

Schwab S&P 500 Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)

Materials 3.5%
Other Securities				3.5		381,359,596

Media 3.1%
Comcast Corp., Class A		2,583,964		0.6		60,593,956
The Walt Disney Co.		1,735,183		0.6		60,523,183
Other Securities				1.9		212,793,537

				3.1		333,910,676

Pharmaceuticals, Biotechnology & Life Sciences 7.4%
Abbott Laboratories		1,453,886		0.7		78,320,839
Amgen, Inc.		865,859		0.5		49,587,745
Bristol-Myers Squibb Co.		1,592,364		0.5		50,302,779
Johnson & Johnson		2,567,825		1.5		165,342,252
Merck & Co., Inc.		2,900,114		0.9		100,053,933
Pfizer, Inc.		7,310,833		1.3		140,806,643
Other Securities				2.0		219,105,723

				7.4		803,519,914

Real Estate 1.8%
Other Securities				1.8		198,635,117

Retailing 3.7%
Amazon.com, Inc. *		340,290		0.7		72,655,318
The Home Depot, Inc.		1,465,750		0.5		52,473,850
Other Securities				2.5		278,620,068

				3.7		403,749,236

Semiconductors & Semiconductor Equipment 2.4%
Intel Corp.		4,920,305		1.1		120,744,285
Other Securities				1.3		144,881,026

				2.4		265,625,311

Software & Services 9.5%
Google, Inc., Class A *		235,862		1.3		139,781,256
International Business Machines Corp.		1,119,090		1.9		206,617,587
Microsoft Corp.		6,995,831		1.7		186,298,980
Oracle Corp.		3,692,686		1.1		121,009,320
Other Securities				3.5		387,078,169

				9.5		1,040,785,312

Technology Hardware & Equipment 7.3%
Apple, Inc. *		868,740		3.2		351,648,577
Cisco Systems, Inc.		5,153,828		0.9		95,500,433
EMC Corp. *		1,949,545		0.4		47,783,348
Hewlett-Packard Co.		1,959,508		0.5		52,142,508
QUALCOMM, Inc.		1,569,565		0.7		80,989,554
Other Securities				1.6		171,498,896

				7.3		799,563,316

Telecommunication Services 3.0%
AT&T, Inc.		5,552,836		1.5		162,753,623
Verizon Communications, Inc.		2,648,178		0.9		97,929,622
Other Securities				0.6		61,767,793

				3.0		322,451,038

Transportation 1.9%
United Parcel Service, Inc., Class B		923,318		0.6		64,853,856
Other Securities				1.3		145,549,501

				1.9		210,403,357

Utilities 3.6%
Other Securities				3.6		395,802,431

Total Common Stock
(Cost $8,824,947,361)						10,701,120,014



	Face
Security	Amount		% of Net		Value
Rate, Maturity Date	($)		Assets		($)

Short-Term Investments 1.7% of net assets

Time Deposit 1.6%
Bank of America
0.03%, 11/01/11		170,540,163		1.6		170,540,163

U.S. Treasury Obligations 0.1%
Other Securities				0.1		12,130,003

Total Short-Term Investments
(Cost $182,670,166)						182,670,166



End of Investments.


	Number		% of Net		Value
Security	of Shares		Assets		($)

Collateral Invested for Securities on Loan 0.1% of net assets


Invesco Short Term Investment Trust Government & Agency Portfolio		10,781,362		0.1		10,781,362

Total Collateral Invested for Securities on Loan
(Cost $10,781,362)						10,781,362



End of Collateral Invested for Securities on Loan.

At 10/31/11, tax basis cost of the fund’s investments was $9,051,852,174 and the unrealized appreciation and depreciation were $3,227,324,321 and ($1,395,386,315), respectively, with a net unrealized appreciation of $1,831,938,006.

For the following notes, please refer to complete schedule of holdings.


*		Non-income producing security.
(a)		All or a portion of this security is on loan.
(b)		Issuer is affiliated with the fund’s adviser.
(c)		All or a portion of this security is held as collateral for open futures contracts.
(d)		The rate shown is the purchase yield.


REIT —		Real Estate Investment Trust.

See financial notes 19

Schwab S&P 500 Index Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments in affiliated issuers, at value (cost $11,500,984)		$12,402,567
Investments in unaffiliated issuers, at value (cost $8,996,116,543) including securities on loan of $9,899,324	+	10,871,387,613

Total investments, at value (cost $9,007,617,527)		10,883,790,180
Cash		7,329
Collateral invested for securities on loan		10,781,362
Receivables:
Investments sold		7,735,472
Fund shares sold		18,431,029
Dividends		12,264,207
Income from securities on loan		62,505
Foreign tax reclaims		22,725
Interest		142
Prepaid expenses	+	261,382

Total assets		10,933,356,333

Liabilities

Collateral held for securities on loan		10,781,362
Payables:
Investments bought		4,649,150
Investment adviser and administrator fees		51,971
Shareholder service fees		19,025
Fund shares redeemed		4,580,223
Due to brokers for futures		4,422,675
Accrued expenses	+	262,335

Total liabilities		24,766,741

Net Assets

Total assets		10,933,356,333
Total liabilities	−	24,766,741

Net assets		$10,908,589,592

Net Assets by Source
Capital received from investors		9,341,400,923
Net investment income not yet distributed		171,894,015
Net realized capital losses		(488,995,862	)
Net unrealized capital gains		1,884,290,516

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$10,908,589,592

550,398,011

$19.82

See financial notes 21

Schwab S&P 500 Index Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends received from affiliated issuer		$219,259
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $2,081)		221,157,471
Interest		51,126
Securities on loan	+	936,991

Total investment income		222,364,847

Expenses

Investment adviser and administrator fees		6,520,782
Shareholder service fees		2,120,498
Transfer agent fees		449,335
Shareholder reports		293,263
Portfolio accounting fees		276,858
Custodian fees		215,160
Registration fees		108,470
Professional fees		101,400
Trustees’ fees		83,966
Interest expense		2,597
Other expenses	+	334,537

Total expenses		10,506,866
Expense reduction by CSIM and its affiliates	−	723,096
Payment for state filing fees (see financial note 11)	−	27,879

Net expenses	−	9,755,891

Net investment income		212,608,956

Realized and Unrealized Gains (Losses)

Net realized gains on investments		137,401,176
Net realized gains on futures contracts	+	174,072

Net realized gains		137,575,248
Net unrealized losses on affiliated issuer		(3,054,682	)
Net unrealized gains on unaffiliated investments		445,509,569
Net unrealized gains on futures contracts	+	7,989,980

Net unrealized gains	+	450,444,867

Net realized and unrealized gains		588,020,115

Increase in net assets resulting from operations		$800,629,071

22 See financial notes

Schwab S&P 500 Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$212,608,956			$186,921,830
Net realized gains		137,575,248			41,883,358
Net unrealized gains	+	450,444,867			1,199,925,752

Increase in net assets from operations		800,629,071			1,428,730,940

Distributions to Shareholders

Distributions from net investment income		($191,615,698	)		($130,372,304	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares sold			93,309,499		$1,842,476,643			77,474,237		$1,356,717,395
Shares reinvested			9,010,183		172,725,206			6,889,298		118,013,668
Shares redeemed	+		(87,190,945	)	(1,722,551,980	)		(84,582,907	)	(1,483,749,859	)

Net transactions in fund shares			15,128,737		$292,649,869			(219,372	)	($9,018,796	)

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			535,269,274		$10,006,926,350			535,488,646		$8,717,586,510
Total increase or decrease	+		15,128,737		901,663,242			(219,372	)	1,289,339,840

End of period			550,398,011		$10,908,589,592			535,269,274		$10,006,926,350


Net investment income not yet distributed					$171,894,015					$151,724,654

See financial notes 23

Schwab 1000 Index^® Fund

Financial Statements

Financial Highlights


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
	10/31/11			10/31/10			10/31/09¹			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		35.79			31.00			28.69			45.81			40.40

Income (loss) from investment operations:
Net investment income (loss)		0.62	²		0.57	²		0.54	²		0.66	²		0.60	²
Net realized and unrealized gains (losses)		2.07			4.80			2.41			(17.13	)		5.33

Total from investment operations		2.69			5.37			2.95			(16.47	)		5.93
Less distributions:
Distributions from net investment income		(0.57	)		(0.58	)		(0.64	)		(0.62	)		(0.52	)
Distributions from net realized gains		(0.47	)		—			—			(0.03	)		—

Total distributions		(1.04	)		(0.58	)		(0.64	)		(0.65	)		(0.52	)

Net asset value at end of period		37.44			35.79			31.00			28.69			45.81

Total return (%)		7.60			17.51			10.72			(36.43	)		14.81

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.29			0.29			0.38	³		0.49			0.48
Gross operating expenses		0.34			0.35			0.44			0.49			0.48
Net investment income (loss)		1.64			1.71			1.96			1.68			1.39
Portfolio turnover rate		5			5			4			4			6
Net assets, end of period ($ x 1,000,000)		4,552			4,575			4,279			2,260			3,974

¹ Effective September 18, 2009, the Select Share class and the Investor 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 Effective May 5, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

24 See financial notes

Schwab 1000 Index Fund

Portfolio Holdings as of October 31, 2011

Cost

Value

Holdings by Category

($)

100

.0%

Common Stock

2,061,921,510

4,553,381,300

100

.0%

Total Investments

2,061,921,510

4,553,381,300

.2%

Collateral Invested for Securities on Loan

6,910,178

.2)%

Other Assets and Liabilities, Net

(8,737,014

)

100

.0%

Net Assets

4,551,554,464


	Number		% of Net		Value
Security	of Shares		Assets		($)

Common Stock 100.0% of net assets

Automobiles & Components 0.9%
Other Securities				0.9		38,984,627

Banks 2.6%
U.S. Bancorp		680,905		0.4		17,424,359
Wells Fargo & Co.		1,863,096		1.1		48,272,817
Other Securities				1.1		53,795,057

				2.6		119,492,233

Capital Goods 8.2%
3M Co.		249,454		0.4		19,711,855
Caterpillar, Inc.		225,296		0.5		21,281,460
General Electric Co.		3,729,302		1.4		62,316,636
United Technologies Corp.		320,903		0.5		25,024,016
Other Securities				5.4		245,708,995

				8.2		374,042,962

Commercial & Professional Supplies 0.7%
Other Securities				0.7		33,211,223

Consumer Durables & Apparel 1.3%
Other Securities				1.3		58,857,714

Consumer Services 2.2%
McDonald’s Corp.		367,036		0.7		34,079,293
Other Securities				1.5		65,416,614

				2.2		99,495,907

Diversified Financials 5.4%
American Express Co.		371,777		0.4		18,819,352
Bank of America Corp.		3,490,241		0.5		23,838,346
Citigroup, Inc.		1,009,956		0.7		31,904,510
JPMorgan Chase & Co.		1,373,478		1.0		47,742,095
The Charles Schwab Corp. (a)		351,965		0.1		4,322,130
The Goldman Sachs Group, Inc.		175,132		0.4		19,185,711
Other Securities				2.3		100,180,548

				5.4		245,992,692

Energy 11.9%
Chevron Corp.		714,337		1.6		75,041,102
ConocoPhillips		495,066		0.8		34,481,347
Exxon Mobil Corp.		1,722,663		3.0		134,522,754
Occidental Petroleum Corp.		288,416		0.6		26,805,383
Schlumberger Ltd.		484,247		0.8		35,577,627
Other Securities				5.1		236,256,185

				11.9		542,684,398

Food & Staples Retailing 2.1%
CVS Caremark Corp.		478,311		0.4		17,362,689
Wal-Mart Stores, Inc.		635,627		0.8		36,052,763
Other Securities				0.9		40,617,983

				2.1		94,033,435

Food, Beverage & Tobacco 5.9%
Altria Group, Inc.		741,105		0.4		20,417,443
Kraft Foods, Inc., Class A		618,964		0.5		21,775,154
PepsiCo, Inc.		554,285		0.8		34,892,241
Philip Morris International, Inc.		625,065		1.0		43,673,292
The Coca-Cola Co.		805,074		1.2		55,002,656
Other Securities				2.0		92,076,539

				5.9		267,837,325

Health Care Equipment & Services 4.1%
UnitedHealth Group, Inc.		378,892		0.4		18,183,027
Other Securities				3.7		169,288,662

				4.1		187,471,689

Household & Personal Products 2.3%
The Procter & Gamble Co.		974,719		1.4		62,372,269
Other Securities				0.9		41,980,075

				2.3		104,352,344

Insurance 3.9%
Berkshire Hathaway, Inc., Class B *		611,212		1.0		47,588,966
Other Securities				2.9		129,077,502

				3.9		176,666,468

Materials 4.0%
Other Securities				4.0		180,925,574

See financial notes 25

Schwab 1000 Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)

Media 3.1%
Comcast Corp., Class A		975,923		0.5		22,885,394
The Walt Disney Co.		663,160		0.5		23,131,021
Other Securities				2.1		96,714,665

				3.1		142,731,080

Pharmaceuticals, Biotechnology & Life Sciences 7.3%
Abbott Laboratories		548,746		0.6		29,560,947
Amgen, Inc.		328,460		0.4		18,810,904
Bristol-Myers Squibb Co.		602,539		0.4		19,034,207
Johnson & Johnson		963,987		1.4		62,071,123
Merck & Co., Inc.		1,083,718		0.8		37,388,271
Pfizer, Inc.		2,777,751		1.2		53,499,484
Other Securities				2.5		110,151,460

				7.3		330,516,396

Real Estate 2.5%
Other Securities				2.5		112,996,963

Retailing 3.9%
Amazon.com, Inc. *		124,841		0.6		26,654,802
The Home Depot, Inc.		558,735		0.4		20,002,713
Other Securities				2.9		131,765,785

				3.9		178,423,300

Semiconductors & Semiconductor Equipment 2.6%
Intel Corp.		1,879,980		1.0		46,134,709
Other Securities				1.6		72,372,331

				2.6		118,507,040

Software & Services 9.5%
Google, Inc., Class A *		88,511		1.2		52,455,159
International Business Machines Corp.		426,340		1.7		78,715,154
Microsoft Corp.		2,611,538		1.5		69,545,257
Oracle Corp.		1,374,010		1.0		45,026,308
Other Securities				4.1		184,886,968

				9.5		430,628,846

Technology Hardware & Equipment 7.0%
Apple, Inc. *		325,614		2.9		131,802,035
Cisco Systems, Inc.		1,967,415		0.8		36,456,200
EMC Corp. *		731,324		0.4		17,924,751
Hewlett-Packard Co.		738,468		0.4		19,650,633
QUALCOMM, Inc.		574,178		0.7		29,627,585
Other Securities				1.8		84,609,147

				7.0		320,070,351

Telecommunication Services 2.8%
AT&T, Inc.		2,089,577		1.3		61,245,502
Verizon Communications, Inc.		1,003,357		0.8		37,104,142
Other Securities				0.7		30,166,202

				2.8		128,515,846

Transportation 2.0%
United Parcel Service, Inc., Class B		348,635		0.5		24,488,123
Other Securities				1.5		68,061,270

				2.0		92,549,393

Utilities 3.8%
Other Securities				3.8		174,393,494

Total Common Stock
(Cost $2,061,921,510)						4,553,381,300



End of Investments.



Collateral Invested for Securities on Loan 0.2% of net assets


SSIT U.S. Government Money Market Fund		6,910,178		0.2		6,910,178

Total Collateral Invested for Securities on Loan
(Cost $6,910,178)						6,910,178



End of Collateral Invested for Securities on Loan.

At 10/31/11, the tax basis cost of the fund’s investments was $2,038,309,166 and the unrealized appreciation and depreciation were $2,649,757,514 and ($134,685,380), respectively, with a net unrealized appreciation of $2,515,072,134.

For the following notes, please refer to complete schedule of holdings.


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.
(b)		All or a portion of this security is on loan.


REIT —		Real Estate Investment Trust.

26 See financial notes

Schwab 1000 Index Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments in affiliated issuers, at value (cost $1,615,081)		$4,322,130
Investments in unaffiliated issuers, at value (cost $2,060,306,429) including securities on loan of $6,399,393	+	4,549,059,170

Total investments, at value (cost $2,061,921,510)		4,553,381,300
Collateral invested for securities on loan		6,910,178
Receivables:
Dividends		4,796,868
Fund shares sold		3,019,208
Income from securities on loan		33,166
Foreign tax reclaims		8,275
Interest		41
Prepaid expenses	+	133,272

Total assets		4,568,282,308

Liabilities

Collateral held for securities on loan		6,910,178
Payables:
Investment adviser and administrator fees		70,228
Shareholder service fees		42,277
Due to custodian		7,198,015
Fund shares redeemed		2,327,741
Accrued expenses	+	179,405

Total liabilities		16,727,844

Net Assets

Total assets		4,568,282,308
Total liabilities	−	16,727,844

Net assets		$4,551,554,464

Net Assets by Source
Capital received from investors		1,784,471,999
Net investment income not yet distributed		68,967,233
Net realized capital gains		206,655,442
Net unrealized capital gains		2,491,459,790

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$4,551,554,464

121,575,249

$37.44

See financial notes 27

Schwab 1000 Index Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends received from affiliated issuer		$85,762
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $13,125)		91,096,688
Interest		29,928
Securities on loan	+	562,962

Total investment income		91,775,340

Expenses

Investment adviser and administrator fees		10,836,411
Shareholder service fees		4,642,267
Shareholder reports		202,982
Portfolio accounting fees		149,738
Transfer agent fees		104,418
Custodian fees		101,757
Professional fees		67,553
Trustees’ fees		53,719
Registration fees		50,311
Interest expense		6,484
Other expenses	+	119,498

Total expenses		16,335,138
Expense reduction by CSIM and its affiliates	−	2,569,881
Custody credits	−	122

Net expenses	−	13,765,135

Net investment income		78,010,205

Realized and Unrealized Gains (Losses)

Net realized gains on affiliated issuer		281,316
Net realized gains on unaffiliated investments		200,151,747
Net realized gains on futures contracts	+	1,369,053

Net realized gains		201,802,116
Net unrealized losses on affiliated issuer		(1,327,209	)
Net unrealized gains on unaffiliated investments		70,624,301
Net unrealized losses on futures contracts	+	(8,122	)

Net unrealized gains	+	69,288,970

Net realized and unrealized gains		271,091,086

Increase in net assets resulting from operations		$349,101,291

28 See financial notes

Schwab 1000 Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$78,010,205			$76,646,671
Net realized gains		201,802,116			58,671,007
Net unrealized gains	+	69,288,970			583,282,542

Increase in net assets from operations		349,101,291			718,600,220

Distributions to Shareholders

Distributions from net investment income		(72,629,008	)		(78,998,534	)
Distributions from net realized gains	+	(59,077,498	)		—

Total distributions		($131,706,506	)		($78,998,534	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares sold			8,119,509		$304,265,267			7,828,659		$261,539,915
Shares reinvested			3,151,858		114,822,202			2,124,208		69,015,533
Shares redeemed	+		(17,520,002	)	(660,242,679	)		(20,167,504	)	(673,928,250	)

Net transactions in fund shares			(6,248,635	)	($241,155,210	)		(10,214,637	)	($343,372,802	)

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			127,823,884		$4,575,314,889			138,038,521		$4,279,086,005
Total increase or decrease	+		(6,248,635	)	(23,760,425	)		(10,214,637	)	296,228,884

End of period			121,575,249		$4,551,554,464			127,823,884		$4,575,314,889


Net investment income not yet distributed					$68,967,233					$56,870,446

See financial notes 29

Schwab Small-Cap Index Fund^®

Financial Statements

Financial Highlights


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
	10/31/11			10/31/10			10/31/09¹			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		19.18			15.14			13.85			25.35			25.97

Income (loss) from investment operations:
Net investment income (loss)		0.25	²		0.22	²		0.18	²		0.33	²		0.35	²
Net realized and unrealized gains (losses)		1.37			3.97			1.40			(7.89	)		2.36

Total from investment operations		1.62			4.19			1.58			(7.56	)		2.71
Less distributions:
Distributions from net investment income		(0.20	)		(0.15	)		(0.29	)		(0.32	)		(0.28	)
Distributions from net realized gains		(0.05	)		—			—			(3.62	)		(3.05	)

Total distributions		(0.25	)		(0.15	)		(0.29	)		(3.94	)		(3.33	)

Net asset value at end of period		20.55			19.18			15.14			13.85			25.35

Total return (%)		8.45			27.85			11.98			(34.48	)		11.35

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.19			0.19			0.28	³		0.42			0.42
Gross operating expenses		0.19			0.20			0.33			0.42			0.42
Net investment income (loss)		1.18			1.23			1.41			1.78			1.43
Portfolio turnover rate		26			33			26			64			31
Net assets, end of period ($ x 1,000,000)		1,502			1,406			1,142			628			969

¹ Effective August 21, 2009, 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 Select Shares.

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

³ Effective May 5, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

30 See financial notes

Schwab Small-Cap Index Fund

Portfolio Holdings as of October 31, 2011


				Cost		Value
Holdings by Category				($)		($)

	99	.4%	Common Stock		1,332,736,154		1,492,931,898
	0	.0%	Rights		—		—
	0	.0%	Warrants		—		—
	0	.2%	Short-Term Investment		2,705,000		2,705,000


	99	.6%	Total Investments		1,335,441,154		1,495,636,898
	2	.7%	Collateral Invested for Securities on Loan		40,423,756		40,423,756
	(2	.3)%	Other Assets and Liabilities, Net				(34,384,644	)


	100	.0%	Net Assets				1,501,676,010


	Number		% of Net		Value
Security	of Shares		Assets		($)

Common Stock 99.4% of net assets

Automobiles & Components 0.6%
Other Securities				0.6		9,249,878

Banks 6.3%
Hancock Holding Co.		147,149		0.3		4,458,615
Signature Bank *		80,509		0.3		4,488,377
Other Securities				5.7		85,574,903

				6.3		94,521,895

Capital Goods 9.8%
HEICO Corp.		64,356		0.2		3,669,579
Hexcel Corp. *		180,083		0.3		4,449,851
Robbins & Myers, Inc.		83,000		0.2		3,709,270
Teledyne Technologies, Inc. *		67,200		0.2		3,660,384
Other Securities				8.9		131,801,824

				9.8		147,290,908

Commercial & Professional Supplies 4.1%
Other Securities				4.1		61,033,827

Consumer Durables & Apparel 2.4%
Carter’s, Inc. *		94,414		0.2		3,596,229
Other Securities				2.2		31,872,109

				2.4		35,468,338

Consumer Services 5.1%
Six Flags Entertainment Corp.		100,000		0.2		3,590,000
Other Securities				4.9		72,926,700

				5.1		76,516,700

Diversified Financials 2.4%
Other Securities				2.4		36,543,743

Energy 5.4%
Bill Barrett Corp. *		84,200		0.2		3,502,720
CVR Energy, Inc. *		139,600		0.2		3,456,496
Energy XXI (Bermuda) Ltd. *		130,700		0.3		3,838,659
Helix Energy Solutions Group, Inc. *		194,300		0.2		3,509,058
Rosetta Resources, Inc. *		96,500		0.3		4,278,810
Other Securities				4.2		62,818,135

				5.4		81,403,878

Food & Staples Retailing 1.3%
Other Securities				1.3		19,380,083

Food, Beverage & Tobacco 2.4%
TreeHouse Foods, Inc. *		63,600		0.3		3,901,224
Other Securities				2.1		32,029,722

				2.4		35,930,946

Health Care Equipment & Services 7.2%
Catalyst Health Solutions, Inc. *		90,100		0.3		4,952,797
Healthspring, Inc. *		123,844		0.4		6,680,145
HMS Holdings Corp. *		156,000		0.3		3,812,640
LifePoint Hospitals, Inc. *		91,600		0.2		3,541,256
Owens & Minor, Inc.		117,500		0.2		3,515,600
Thoratec Corp. *		101,700		0.2		3,713,067
WellCare Health Plans, Inc. *		74,600		0.2		3,656,146
Other Securities				5.4		78,307,632

				7.2		108,179,283

Household & Personal Products 0.8%
Nu Skin Enterprises, Inc., Class A		93,622		0.3		4,730,720
Other Securities				0.5		6,737,772

				0.8		11,468,492

Insurance 3.2%
ProAssurance Corp.		56,000		0.3		4,286,800
Other Securities				2.9		43,812,570

				3.2		48,099,370

Materials 5.1%
Carpenter Technology Corp.		77,400		0.3		4,390,128
Coeur d’Alene Mines Corp. *		156,650		0.3		4,005,541
NewMarket Corp.		17,700		0.2		3,436,278

See financial notes 31

Schwab Small-Cap Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)
Other Securities				4.3		65,542,675

				5.1		77,374,622

Media 1.7%
Other Securities				1.7		24,883,593

Pharmaceuticals, Biotechnology & Life Sciences 5.7%
Cepheid, Inc. *		108,100		0.3		3,878,628
Cubist Pharmaceuticals, Inc. *		104,932		0.3		3,967,479
Medicis Pharmaceutical Corp., Class A		111,749		0.3		4,278,869
Pharmasset, Inc. *		128,400		0.6		9,039,360
Questcor Pharmaceuticals, Inc. *		108,100		0.3		4,389,941
Seattle Genetics, Inc. *		177,398		0.3		3,902,756
Other Securities				3.6		55,466,929

				5.7		84,923,962

Real Estate 6.5%
Equity Lifestyle Properties, Inc.		69,259		0.3		4,580,098
Extra Space Storage, Inc.		169,558		0.3		3,820,142
Home Properties, Inc.		77,265		0.3		4,550,908
Kilroy Realty Corp.		107,100		0.3		3,929,499
LaSalle Hotel Properties		148,726		0.2		3,556,039
Post Properties, Inc.		87,667		0.2		3,601,360
Tanger Factory Outlet Centers, Inc.		139,100		0.3		3,917,056
Other Securities				4.6		69,926,462

				6.5		97,881,564

Retailing 5.3%
Chico’s FAS, Inc.		311,500		0.3		3,850,140
Rent-A-Center, Inc.		118,505		0.3		4,046,946
Other Securities				4.7		72,062,382

				5.3		79,959,468

Semiconductors & Semiconductor Equipment 3.6%
Other Securities				3.6		53,966,035

Software & Services 7.6%
CommVault Systems, Inc. *		81,200		0.2		3,457,496
NeuStar, Inc., Class A *		135,900		0.3		4,320,261
Other Securities				7.1		106,968,410

				7.6		114,746,167

Technology Hardware & Equipment 5.1%
Diebold, Inc.		115,500		0.2		3,728,340
Other Securities				4.9		73,355,708

				5.1		77,084,048

Telecommunication Services 1.3%
Level 3 Communications, Inc. *		260,298		0.5		6,947,354
Other Securities				0.8		12,761,292

				1.3		19,708,646

Transportation 2.6%
Landstar System, Inc.		85,400		0.3		3,811,402
Other Securities				2.3		34,673,911

				2.6		38,485,313

Utilities 3.9%
Cleco Corp.		106,900		0.3		3,941,403
IDACORP, Inc.		87,700		0.2		3,541,326
New Jersey Resources Corp.		73,800		0.2		3,470,076
WGL Holdings, Inc.		91,300		0.3		3,908,553
Other Securities				2.9		43,969,781

				3.9		58,831,139

Total Common Stock
(Cost $1,332,736,154)						1,492,931,898




Rights 0.0% of net assets

Pharmaceuticals, Biotechnology & Life Sciences 0.0%
Other Securities				0.0		—

Total Rights
(Cost $—)						—




Warrants 0.0% of net assets

Energy 0.0%
Other Securities				0.0		—

Total Warrants
(Cost $—)						—



	Face
Security	Amount		% of Net		Value
Rate, Maturity Date	($)		Assets		($)

Short-Term Investment 0.2% of net assets

U.S. Treasury Obligations 0.2%
Other Securities				0.2		2,705,000

Total Short-Term Investment
(Cost $2,705,000)						2,705,000



End of Investments.


	Number		% of Net		Value
Security	of Shares		Assets		($)

Collateral Invested for Securities on Loan 2.7% of net assets


Invesco Short Term Investments Trust Government & Agency Portfolio		40,423,756		2.7		40,423,756

Total Collateral Invested for Securities on Loan
(Cost $40,423,756)						40,423,756



End of Collateral Invested for Securities on Loan.

At 10/31/11 the tax basis cost of the fund’s investments was $1,342,201,749 and the unrealized appreciation and

32 See financial notes

Schwab Small-Cap Index Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments, at value (cost $1,335,441,154) including securities on loan of $38,047,860		$1,495,636,898
Collateral invested for securities on loan		40,423,756
Receivables:
Investments sold		8,174,047
Fund shares sold		1,663,127
Dividends		603,283
Income from securities on loan		250,679
Receivable from investment adviser		623
Prepaid expenses	+	41,235

Total assets		1,546,793,648

Liabilities

Collateral held for securities on loan		40,423,756
Payables:
Investments bought		1,491,259
Investment adviser and administrator fees		19,854
Shareholder service fees		2,926
Due to custodian		2,410,381
Fund shares redeemed		666,640
Due to brokers for futures		22,191
Accrued expenses	+	80,631

Total liabilities		45,117,638

Net Assets

Total assets		1,546,793,648
Total liabilities	−	45,117,638

Net assets		$1,501,676,010

Net Assets by Source
Capital received from investors		1,242,735,453
Net investment income not yet distributed		21,301,466
Net realized capital gains		77,236,355
Net unrealized capital gains		160,402,736

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$1,501,676,010

73,091,655

$20.55

34 See financial notes

Schwab Small-Cap Index Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends (net of foreign withholding taxes of $1,208)		$18,901,415
Interest		5,805
Securities on loan	+	2,504,628

Total investment income		21,411,848

Expenses

Investment adviser and administrator fees		2,345,717
Shareholder service fees		309,179
Portfolio accounting fees		80,861
Shareholder reports		77,384
Transfer agent fees		52,993
Professional fees		49,002
Custodian fees		42,209
Registration fees		32,275
Trustees’ fees		17,157
Interest expense		1,158
Other expenses	+	37,934

Total expenses		3,045,869
Expense reduction by CSIM and its affiliates	−	84,581
Payment for state filing fees (see financial note 11)	−	15,440

Net expenses	−	2,945,848

Net investment income		18,466,000

Realized and Unrealized Gains (Losses)

Net realized gains on investments		93,195,186
Net realized gains on futures contracts	+	2,180,995

Net realized gains		95,376,181
Net unrealized gains on investments		7,885,245
Net unrealized gains on futures contracts	+	197,344

Net unrealized gains	+	8,082,589

Net realized and unrealized gains		103,458,770

Increase in net assets resulting from operations		$121,924,770

See financial notes 35

Schwab Small-Cap Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$18,466,000			$16,175,241
Net realized gains		95,376,181			83,503,173
Net unrealized gains	+	8,082,589			214,131,549

Increase in net assets from operations		121,924,770			313,809,963

Distributions to Shareholders

Distributions from net investment income		(14,254,530	)		(11,038,239	)
Distributions from net realized gains	+	(4,031,438	)		—

Total distributions		($18,285,968	)		($11,038,239	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares sold			14,936,269		$309,163,569			12,649,438		$222,755,641
Shares reinvested			814,081		16,827,051			641,064		10,224,972
Shares redeemed	+		(15,965,406	)	(333,977,185	)		(15,417,491	)	(271,677,060	)

Net transactions in fund shares			(215,056	)	($7,986,565	)		(2,126,989	)	($38,696,447	)

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			73,306,711		$1,406,023,773			75,433,700		$1,141,948,496
Total increase or decrease	+		(215,056	)	95,652,237			(2,126,989	)	264,075,277

End of period			73,091,655		$1,501,676,010			73,306,711		$1,406,023,773


Net investment income not yet distributed					$21,301,466					$9,010,974

36 See financial notes

Schwab Total Stock Market Index Fund^®

Financial Statements

Financial Highlights


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
	10/31/11			10/31/10			10/31/09¹			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		21.57			18.50			17.08			27.04			23.90

Income (loss) from investment operations:
Net investment income (loss)		0.41			0.37			0.24			0.40			0.37
Net realized and unrealized gains (losses)		1.33			3.02			1.55			(9.93	)		3.09

Total from investment operations		1.74			3.39			1.79			(9.53	)		3.46
Less distributions:
Distributions from net investment income		(0.39	)		(0.32	)		(0.37	)		(0.37	)		(0.32	)
Distributions from net realized gains		—			—			—			(0.06	)		—

Total distributions		(0.39	)		(0.32	)		(0.37	)		(0.43	)		(0.32	)

Net asset value at end of period		22.92			21.57			18.50			17.08			27.04

Total return (%)		8.14			18.53			10.92			(35.76	)		14.62

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.09			0.09			0.21	²		0.38			0.37
Gross operating expenses		0.11			0.11			0.28			0.38			0.37
Net investment income (loss)		1.79			1.85			2.02			1.71			1.49
Portfolio turnover rate		1			3			5			1			0	³
Net assets, end of period ($ x 1,000,000)		1,747			1,470			1,205			585			906

¹ Effective September 18, 2009, 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 Select Shares.

² Effective May 5, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

³ Less than 1%.

See financial notes 37

Schwab Total Stock Market Index Fund

Portfolio Holdings as of October 31, 2011


				Cost		Value
Holdings by Category				($)		($)

	99	.0%	Common Stock		1,418,654,506		1,730,168,207
	0	.0%	Rights		—		29
	0	.0%	Warrants		—		—
	0	.8%	Short-Term Investments		14,293,902		14,293,902


	99	.8%	Total Investments		1,432,948,408		1,744,462,138
	0	.3%	Collateral Invested for Securities on Loan		4,856,627		4,856,627
	(0	.1)%	Other Assets and Liabilities, Net				(2,496,426	)


	100	.0%	Net Assets				1,746,822,339


	Number		% of Net		Value
Security	of Shares		Assets		($)

Common Stock 99.0% of net assets

Automobiles & Components 0.9%
Other Securities				0.9		16,144,090

Banks 3.0%
U.S. Bancorp		237,031		0.3		6,065,623
Wells Fargo & Co.		616,306		0.9		15,968,489
Other Securities				1.8		30,228,076

				3.0		52,262,188

Capital Goods 7.9%
3M Co.		80,000		0.4		6,321,600
Caterpillar, Inc.		71,100		0.4		6,716,106
General Electric Co.		1,319,666		1.3		22,051,619
United Technologies Corp.		100,068		0.4		7,803,303
Other Securities				5.4		95,847,732

				7.9		138,740,360

Commercial & Professional Supplies 1.0%
Other Securities				1.0		16,867,463

Consumer Durables & Apparel 1.4%
Other Securities				1.4		23,957,011

Consumer Services 2.4%
McDonald’s Corp.		127,709		0.7		11,857,781
Other Securities				1.7		30,044,080

				2.4		41,901,861

Diversified Financials 5.1%
American Express Co.		132,650		0.4		6,714,743
Bank of America Corp.		1,244,956		0.5		8,503,049
Citigroup, Inc.		358,528		0.6		11,325,900
JPMorgan Chase & Co.		490,444		1.0		17,047,833
The Charles Schwab Corp. (b)		126,026		0.1		1,547,599
Other Securities				2.5		44,300,739

				5.1		89,439,863

Energy 11.2%
Chevron Corp.		248,739		1.5		26,130,032
ConocoPhillips		163,223		0.7		11,368,482
Exxon Mobil Corp.		605,034		2.7		47,247,105
Occidental Petroleum Corp.		100,820		0.5		9,370,211
Schlumberger Ltd.		170,260		0.7		12,509,002
Other Securities				5.1		89,454,280

				11.2		196,079,112

Food & Staples Retailing 2.0%
CVS Caremark Corp.		168,140		0.3		6,103,482
Wal-Mart Stores, Inc.		218,100		0.7		12,370,632
Other Securities				1.0		15,892,865

				2.0		34,366,979

Food, Beverage & Tobacco 5.4%
Altria Group, Inc.		257,300		0.4		7,088,615
Kraft Foods, Inc., Class A		200,513		0.4		7,054,047
PepsiCo, Inc.		195,858		0.7		12,329,261
Philip Morris International, Inc.		220,300		0.9		15,392,361
The Coca-Cola Co.		262,700		1.0		17,947,664
Other Securities				2.0		34,687,172

				5.4		94,499,120

Health Care Equipment & Services 4.3%
UnitedHealth Group, Inc.		137,080		0.4		6,578,469
Other Securities				3.9		68,944,896

				4.3		75,523,365

Household & Personal Products 2.2%
The Procter & Gamble Co.		343,215		1.3		21,962,328
Other Securities				0.9		15,958,022

				2.2		37,920,350

Insurance 3.8%
Berkshire Hathaway, Inc., Class B *		236,774		1.1		18,435,224
Other Securities				2.7		48,197,655

				3.8		66,632,879

38 See financial notes

Schwab Total Stock Market Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)

Materials 4.1%
Other Securities				4.1		70,755,280

Media 3.0%
Comcast Corp., Class A		277,004		0.4		6,495,744
The Walt Disney Co.		219,693		0.4		7,662,892
Other Securities				2.2		37,979,960

				3.0		52,138,596

Pharmaceuticals, Biotechnology & Life Sciences 7.1%
Abbott Laboratories		193,305		0.6		10,413,340
Amgen, Inc.		115,268		0.4		6,601,398
Bristol-Myers Squibb Co.		212,450		0.4		6,711,295
Johnson & Johnson		338,670		1.2		21,806,961
Merck & Co., Inc.		380,170		0.8		13,115,865
Pfizer, Inc.		996,301		1.1		19,188,757
Other Securities				2.6		46,657,488

				7.1		124,495,104

Real Estate 3.1%
Other Securities				3.1		54,262,647

Retailing 3.9%
Amazon.com, Inc. *		43,200		0.5		9,223,632
The Home Depot, Inc.		201,570		0.4		7,216,206
Other Securities				3.0		52,015,503

				3.9		68,455,341

Semiconductors & Semiconductor Equipment 2.7%
Intel Corp.		661,732		0.9		16,238,903
Other Securities				1.8		30,581,025

				2.7		46,819,928

Software & Services 9.3%
Google, Inc., Class A *		31,450		1.1		18,638,528
International Business Machines Corp.		150,710		1.6		27,825,587
Microsoft Corp.		924,750		1.4		24,626,092
Oracle Corp.		473,249		0.9		15,508,370
Other Securities				4.3		75,360,961

				9.3		161,959,538

Technology Hardware & Equipment 6.9%
Apple, Inc. *		114,900		2.7		46,509,222
Cisco Systems, Inc.		685,009		0.7		12,693,217
EMC Corp. *		253,686		0.4		6,217,844
Hewlett-Packard Co.		268,636		0.4		7,148,404
QUALCOMM, Inc.		207,600		0.6		10,712,160
Other Securities				2.1		37,771,481

				6.9		121,052,328

Telecommunication Services 2.7%
AT&T, Inc.		734,556		1.2		21,529,836
Verizon Communications, Inc.		348,072		0.7		12,871,703
Other Securities				0.8		12,953,173

				2.7		47,354,712

Transportation 1.9%
United Parcel Service, Inc., Class B		87,380		0.4		6,137,571
Other Securities				1.5		26,925,917

				1.9		33,063,488

Utilities 3.7%
Other Securities				3.7		65,476,604

Total Common Stock
(Cost $1,418,654,506)						1,730,168,207




Rights 0.0% of net assets

Banks 0.0%
Other Securities				0.0		29

Pharmaceuticals, Biotechnology & Life Sciences 0.0%
Other Securities				0.0		—

Total Rights
(Cost $—)						29




Warrants 0.0% of net assets

Energy 0.0%
Other Securities				0.0		—

Total Warrants
(Cost $—)						—



	Face
Security	Amount		% of Net		Value
Rate, Maturity Date	($)		Assets		($)

Short-Term Investments 0.8% of net assets

Time Deposit 0.7%
Bank of America
0.03%, 11/01/11		12,648,902		0.7		12,648,902

U.S. Treasury Obligation 0.1%
Other Securities				0.1		1,645,000

Total Short-Term Investments
(Cost $14,293,902)						14,293,902



End of Investments.

See financial notes 39

Schwab Total Stock Market Index Fund

Portfolio Holdings continued

Number

% of Net

Value

Security

of Shares

Assets

($)

Collateral Invested for Securities on Loan 0.3% of net assets

Invesco Short Term Investments Trust Government & Agency Portfolio

4,856,627

0.3

4,856,627

Total Collateral Invested for Securities on Loan

(Cost $4,856,627)

4,856,627

End of Collateral Invested for Securities on Loan.

At 10/31/11 the tax basis cost of the fund’s investments was $1,444,456,294 and the unrealized appreciation and depreciation were $505,574,423 and ($205,568,579), respectively, with a net unrealized appreciation of $300,005,844.

For the following notes, please refer to complete schedule of holdings.


*		Non-income producing security.
(a)		Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(b)		Issuer is affiliated with the fund’s adviser.
(c)		Illiquid security. At the period end, the value of these amounted to $8,396 or 0.0% of net assets.
(d)		All or a portion of this security is on loan.
(e)		All or a portion of this security is held as collateral for open futures contracts.
(f)		The rate shown is the purchase yield.


REIT —		Real Estate Investment Trust.

In addition to the above, the fund held the following at 10/31/11.


			Contract		Unrealized
	Number of		Value		Gains
	Contracts		($)		($)

Futures Contracts


Russell 2000 Index, mini, Long, expires 12/16/11		70		5,175,100		396,770
S&P 500 Index, e-mini, Long, expires 12/16/11		135		8,432,775		643,476

Net unrealized gains						1,040,246

40 See financial notes

Schwab Total Stock Market Index Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments in affiliated issuers, at value (cost $2,486,364)		$1,547,599
Investments in unaffiliated issuers, at value (cost $1,430,462,044) including securities on loan of $4,539,646	+	1,742,914,539

Total investments, at value (cost $1,432,948,408)		1,744,462,138
Collateral invested for securities on loan		4,856,627
Receivables:
Fund shares sold		2,073,523
Dividends		1,725,930
Income from securities on loan		29,657
Foreign tax reclaims		2,887
Interest		10
Prepaid expenses	+	43,828

Total assets		1,753,194,600

Liabilities

Collateral held for securities on loan		4,856,627
Payables:
Investment adviser and administrator fees		6,585
Shareholder service fees		3,189
Fund shares redeemed		1,063,761
Due to brokers for futures		354,700
Accrued expenses	+	87,399

Total liabilities		6,372,261

Net Assets

Total assets		1,753,194,600
Total liabilities	−	6,372,261

Net assets		$1,746,822,339

Net Assets by Source
Capital received from investors		1,441,373,231
Net investment income not yet distributed		25,269,704
Net realized capital losses		(32,374,572	)
Net unrealized capital gains		312,553,976

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$1,746,822,339

76,225,346

$22.92

See financial notes 41

Schwab Total Stock Market Index Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends received from affiliated issuer		$27,599
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $5,354)		31,779,044
Interest		10,674
Securities on loan	+	331,060

Total investment income		32,148,377

Expenses

Investment adviser and administrator fees		1,024,203
Shareholder service fees		334,519
Portfolio accounting fees		99,601
Transfer agent fees		75,755
Shareholder reports		75,068
Registration fees		54,904
Professional fees		49,292
Custodian fees		47,375
Trustees’ fees		17,845
Interest expense		1,146
Other expenses	+	36,562

Total expenses		1,816,270
Expense reduction by CSIM and its affiliates	−	278,819
Payment for state filing fees (see financial note 11)	−	25,662

Net expenses	−	1,511,789

Net investment income		30,636,588

Realized and Unrealized Gains (Losses)

Net realized gains on investments		573,433
Net realized gains on futures contracts	+	2,187,717

Net realized gains		2,761,150
Net unrealized losses on affiliated issuer		(461,362	)
Net unrealized gains on unaffiliated investments		81,726,746
Net unrealized gains on futures contracts	+	83,953

Net unrealized gains	+	81,349,337

Net realized and unrealized gains		84,110,487

Increase in net assets resulting from operations		$114,747,075

42 See financial notes

Schwab Total Stock Market Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$30,636,588			$24,843,447
Net realized gains (losses)		2,761,150			(5,259,869	)
Net unrealized gains	+	81,349,337			205,159,657

Increase in net assets from operations		114,747,075			224,743,235

Distributions to Shareholders

Distributions from net investment income		($26,769,873	)		($20,970,578	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares sold			22,264,739		$513,941,756			15,037,117		$303,313,169
Shares reinvested			1,030,256		22,943,799			918,372		17,825,608
Shares redeemed	+		(15,226,159	)	(348,432,230	)		(12,936,100	)	(259,233,074	)

Net transactions in fund shares			8,068,836		$188,453,325			3,019,389		$61,905,703

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			68,156,510		$1,470,391,812			65,137,121		$1,204,713,452
Total increase	+		8,068,836		276,430,527			3,019,389		265,678,360

End of period			76,225,346		$1,746,822,339			68,156,510		$1,470,391,812


Net investment income not yet distributed					$25,269,704					$21,644,849

See financial notes 43

Schwab International Index Fund^®

Financial Statements

Financial Highlights


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
	10/31/11			10/31/10			10/31/09¹			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		17.31			16.26			13.95			25.95			21.14

Income (loss) from investment operations:
Net investment income (loss)		0.57			0.48			0.37			0.68			0.54
Net realized and unrealized gains (losses)		(1.38	)		1.01			2.58			(12.13	)		4.93

Total from investment operations		(0.81	)		1.49			2.95			(11.45	)		5.47
Less distributions:
Distributions from net investment income		(0.48	)		(0.44	)		(0.64	)		(0.55	)		(0.66	)

Net asset value at end of period		16.02			17.31			16.26			13.95			25.95

Total return (%)		(4.83	)		9.31			22.55			(45.02	)		26.50

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.19			0.19			0.32	²		0.50			0.50
Gross operating expenses		0.21			0.22			0.41			0.54			0.54
Net investment income (loss)		3.26			2.88			2.92			3.15			2.34
Portfolio turnover rate		10			13			21			10			5
Net assets, end of period ($ x 1,000,000)		1,375			1,471			1,369			711			1,264

² Effective May 5, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

44 See financial notes

Schwab International Index Fund

Portfolio Holdings as of October 31, 2011


				Cost		Value
Holdings by Category				($)		($)

	95	.1%	Common Stock		1,064,505,397		1,308,416,799
	0	.3%	Preferred Stock		2,869,550		3,798,553
	4	.1%	Other Investment Company		59,206,235		56,297,750


	99	.5%	Total Investments		1,126,581,182		1,368,513,102
	0	.4%	Collateral Invested for Securities on Loan		5,801,760		5,801,760
	0	.1%	Other Assets and Liabilities, Net				823,975


	100	.0%	Net Assets				1,375,138,837


	Number		% of Net		Value
Security	of Shares		Assets		($)

Common Stock 95.1% of net assets

Australia 7.4%
Australia & New Zealand Banking Group Ltd.		397,907		0.7		8,991,269
BHP Billiton Ltd.		486,822		1.4		19,056,448
Commonwealth Bank of Australia		239,050		0.9		12,280,005
National Australia Bank Ltd.		333,721		0.6		8,913,492
Westpac Banking Corp.		459,492		0.8		10,663,077
Other Securities				3.0		41,739,096

				7.4		101,643,387

Austria 0.1%
Other Securities				0.1		1,959,703

Belgium 0.6%
Other Securities				0.6		9,094,496

Canada 9.5%
Bank of Nova Scotia		164,704		0.6		8,680,112
Barrick Gold Corp.		153,921		0.6		7,599,150
Royal Bank of Canada		217,968		0.8		10,632,159
Suncor Energy, Inc.		238,799		0.6		7,606,590
The Toronto-Dominion Bank		136,432		0.7		10,297,245
Other Securities				6.2		85,356,241

				9.5		130,171,497

China 0.2%
Other Securities				0.2		2,298,995

Denmark 0.8%
Novo Nordisk A/S, Class B		64,228		0.5		6,818,855
Other Securities				0.3		4,481,597

				0.8		11,300,452

Finland 0.7%
Other Securities				0.7		9,117,651

France 9.3%
BNP Paribas S.A.		162,308		0.5		7,247,842
DANONE S.A.		98,288		0.5		6,813,609
Sanofi		175,865		0.9		12,581,207
Total S.A.		356,248		1.4		18,588,030
Other Securities				6.0		82,828,386

				9.3		128,059,074

Germany 7.6%
Allianz SE - Reg’d		68,946		0.6		7,671,076
BASF SE		139,330		0.7		10,170,503
Bayer AG - Reg’d		125,445		0.6		7,992,347
Daimler AG - Reg’d		135,920		0.5		6,903,250
E.ON AG		303,545		0.5		7,319,981
SAP AG		136,681		0.6		8,264,816
Siemens AG - Reg’d		124,799		1.0		13,081,531
Other Securities				3.1		42,595,904

				7.6		103,999,408

Hong Kong 2.3%
Other Securities				2.3		32,474,754

Ireland 0.1%
Other Securities				0.1		1,965,467

Israel 0.5%
Other Securities				0.5		6,564,036

Italy 2.5%
Eni S.p.A.		447,375		0.7		9,888,733
Other Securities				1.8		24,413,462

				2.5		34,302,195

Japan 13.9%
Canon, Inc.		182,895		0.6		8,303,031
Honda Motor Co., Ltd.		237,139		0.5		7,091,342
Mitsubishi UFJ Financial Group, Inc.		2,147,209		0.7		9,331,634
Toyota Motor Corp.		403,303		1.0		13,389,969
Other Securities				11.1		152,827,300

				13.9		190,943,276

See financial notes 45

Schwab International Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)

Netherlands 2.2%
Unilever N.V. CVA		260,118		0.7		8,980,225
Other Securities				1.5		20,975,807

				2.2		29,956,032

Norway 0.8%
Other Securities				0.8		10,743,507

Portugal 0.2%
Other Securities				0.2		3,120,150

Singapore 1.2%
Other Securities				1.2		16,693,129

Spain 3.3%
Banco Santander S.A.		1,306,490		0.8		11,057,944
Telefonica S.A.		613,907		0.9		13,046,504
Other Securities				1.6		20,833,956

				3.3		44,938,404

Sweden 2.0%
Other Securities				2.0		28,318,757

Switzerland 8.6%
Nestle S.A. - Reg’d		525,628		2.2		30,401,094
Novartis AG - Reg’d		416,501		1.7		23,463,696
Roche Holding AG		106,576		1.3		17,485,852
UBS AG - Reg’d *		581,118		0.5		7,344,290
Other Securities				2.9		39,327,609

				8.6		118,022,541

United Kingdom 21.3%
Anglo American plc		200,720		0.5		7,358,490
AstraZeneca plc		204,392		0.7		9,812,691
BG Group plc		514,209		0.8		11,150,114
BHP Billiton plc		320,394		0.7		10,089,040
BP plc		2,873,603		1.5		21,146,375
British American Tobacco plc		300,013		1.0		13,755,690
Diageo plc		379,847		0.6		7,861,224
GlaxoSmithKline plc		770,586		1.3		17,293,765
HSBC Holdings plc		2,706,394		1.7		23,614,121
Rio Tinto plc		223,527		0.9		12,092,567
Royal Dutch Shell plc, A Shares		548,991		1.4		19,447,845
Royal Dutch Shell plc, B Shares		408,945		1.1		14,672,192
Standard Chartered plc		294,899		0.5		6,881,269
Tesco plc		1,215,869		0.6		7,839,211
Vodafone Group plc		7,714,407		1.6		21,420,479
Other Securities				6.4		88,294,815

				21.3		292,729,888

Total Common Stock
(Cost $1,064,505,397)						1,308,416,799




Preferred Stock 0.3% of net assets

Germany 0.3%
Other Securities				0.3		3,798,553

Total Preferred Stock
(Cost $2,869,550)						3,798,553




Other Investment Company 4.1% of net assets

United States 4.1%
iShares MSCI EAFE Index Fund (cost $59,206,235)		1,075,000		4.1		56,297,750

Total Other Investment Company
(Cost $59,206,235)						56,297,750



End of Investments.



Collateral Invested for Securities on Loan 0.4% of net assets


Invesco Short Term Investments Trust Government & Agency Portfolio		5,801,760		0.4		5,801,760

Total Collateral Invested for Securities on Loan
(Cost $5,801,760)						5,801,760



End of Collateral Invested for Securities on Loan.

At 10/31/11, the tax basis cost of the fund’s investments was $1,145,372,793 and the unrealized appreciation and depreciation were $412,847,229 and ($189,706,920), respectively, with a net unrealized appreciation of $223,140,309.

At 10/31/11, the values of certain foreign securities held by the fund aggregating $1,178,330,751 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund’s Board of Trustees. (See financial note 2)

For the following notes, please refer to complete schedule of holdings.


*		Non-income producing security.
(a)		Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(b)		Illiquid security. At the period end, the value of these amounted to $32,986 or 0.0% of net assets.
(c)		All or a portion of this security is on loan.


CVA —		Dutch Certificate
Reg’d —		Registered

46 See financial notes

Schwab International Index Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments, at value (cost $1,126,581,182) including securities on loan of $5,423,729		$1,368,513,102
Foreign currency, at value (cost $557,606)		551,564
Collateral invested for securities on loan		5,801,760
Receivables:
Investments sold		81,117,009
Dividends		2,795,765
Foreign tax reclaims		996,308
Fund shares sold		815,449
Income from securities on loan		36,291
Prepaid expenses	+	41,277

Total assets		1,460,668,525

Liabilities

Collateral held for securities on loan		5,801,760
Payables:
Investments bought		77,728,063
Investment adviser and administrator fees		15,410
Shareholder service fees		2,466
Due to custodian		1,314,401
Fund shares redeemed		542,228
Accrued expenses	+	125,360

Total liabilities		85,529,688

Net Assets

Total assets		1,460,668,525
Total liabilities	−	85,529,688

Net assets		$1,375,138,837

Net Assets by Source
Capital received from investors		1,185,706,443
Net investment income not yet distributed		34,013,997
Net realized capital losses		(86,449,191	)
Net unrealized capital gains		241,867,588

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$1,375,138,837

85,846,006

$16.02

See financial notes 47

Schwab International Index Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends (net of foreign withholding taxes of $4,725,127)		$50,145,676
Interest		518
Securities on loan	+	1,409,338

Total investment income		51,555,532

Expenses

Investment adviser and administrator fees		2,243,729
Shareholder service fees		292,792
Custodian fees		254,635
Portfolio accounting fees		98,194
Shareholder reports		82,501
Transfer agent fees		69,534
Professional fees		51,599
Registration fees		37,195
Trustees’ fees		16,846
Interest expense		3,527
Other expenses	+	47,621

Total expenses		3,198,173
Expense reduction by CSIM and its affiliates	−	352,589

Net expenses	−	2,845,584

Net investment income		48,709,948

Realized and Unrealized Gains (Losses)

Net realized gains on investments		35,570,118
Net realized losses on foreign currency transactions	+	(105,885	)

Net realized gains		35,464,233
Net unrealized losses on investments		(150,971,210	)
Net unrealized losses on foreign currency translations	+	(227,231	)

Net unrealized losses	+	(151,198,441	)

Net realized and unrealized losses		(115,734,208	)

Decrease in net assets resulting from operations		($67,024,260	)

48 See financial notes

Schwab International Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$48,709,948			$40,359,546
Net realized gains		35,464,233			9,404,241
Net unrealized gains (losses)	+	(151,198,441	)		76,594,270

Increase (Decrease) in net assets from operations		(67,024,260	)		126,358,057

Distributions to Shareholders

Distributions from net investment income		($40,811,469	)		($37,166,734	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares sold			15,538,810		$265,131,011			15,761,167		$253,347,349
Shares reinvested			2,149,594		36,392,628			2,026,607		33,378,223
Shares redeemed	+		(16,818,082	)	(289,204,022	)		(17,048,579	)	(274,591,340	)

Net transactions in fund shares			870,322		$12,319,617			739,195		$12,134,232

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			84,975,684		$1,470,654,949			84,236,489		$1,369,329,394
Total increase or decrease	+		870,322		(95,516,112	)		739,195		101,325,555

End of period			85,846,006		$1,375,138,837			84,975,684		$1,470,654,949


Net investment income not yet distributed					$34,013,997					$26,168,756

See financial notes 49

Schwab Equity Index Funds

Financial Notes

1. Business Structure of the Funds:

Each of the funds discussed in this report is a series of Schwab Capital Trust, except Schwab 1000 Index Fund which is a series of Schwab Investments. Both Schwab Capital Trust and Schwab Investments (the “trusts”), are no-load, open-end management investment companies. Each 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 trusts as of the end of the period, including the funds discussed in this report, which are highlighted:



Schwab Capital Trust (organized May 7, 1993)		Schwab Target 2030 Fund
Schwab S&P 500 Index Fund		Schwab Target 2035 Fund
Schwab Small-Cap Index Fund		Schwab Target 2040 Fund
Schwab Total Stock Market Index Fund		Schwab Fundamental US Large Company Index Fund
Schwab International Index Fund		Schwab Fundamental US Small-Mid Company Index Fund
Schwab MarketTrack All Equity Portfolio		Schwab Fundamental International Large Company Index Fund
Schwab MarketTrack Growth Portfolio		Schwab Fundamental International Small-Mid Company Index Fund
Schwab MarketTrack Balanced Portfolio		Schwab Fundamental Emerging Markets Index Fund
Schwab MarketTrack Conservative Portfolio		Schwab Monthly Income Fund – Moderate Payout
Laudus Small-Cap MarketMasters Fund		Schwab Monthly Income Fund – Enhanced Payout
Laudus International MarketMasters Fund		Schwab Monthly Income Fund – Maximum Payout
Schwab Balanced Fund
Schwab Premier Equity Fund		Schwab Investments (organized October 26, 1990)
Schwab Core Equity Fund		Schwab 1000 Index Fund
Schwab Dividend Equity Fund		Schwab Short-Term Bond Market Fund
Schwab Large-Cap Growth Fund		Schwab Premier Income Fund
Schwab Small-Cap Equity Fund		Schwab Total Bond Market Fund
Schwab Hedged Equity Fund		Schwab GNMA Fund
Schwab Financial Services Fund		Schwab Treasury Inflation Protected Securities Fund
Schwab Health Care Fund		(formerly Schwab Inflation Protected Fund)
Schwab International Core Equity Fund		Schwab Tax-Free Bond Fund
Schwab Target 2010 Fund		Schwab California Tax-Free Bond Fund
Schwab Target 2015 Fund		Schwab Global Real Estate Fund
Schwab Target 2020 Fund
Schwab Target 2025 Fund

Each fund in this report offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 9) at closing net asset value (“NAV”), which is the price for all outstanding shares of the funds. Each share has a par value of 1/1,000 of a cent, and the Board of 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:

(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 ask 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, unless these securities are fair valued as discussed below.

	•	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, a 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

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		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.


	•	International fair valuation: The Board of Trustees has adopted procedures to fair value foreign equity securities that trade in markets that close prior to when the funds value their holdings. By fair valuing securities whose prices may have been affected by events occurring after the close of trading, each fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to deter “arbitrage” market timers, who seek to exploit delays between the change in the value of a fund’s portfolio holdings and the net asset value of the fund’s shares, and seeks to help ensure that the prices at which the fund’s shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between the return of a fund and that of its comparative index or benchmark. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board of Trustees regularly reviews fair value determinations made by the funds pursuant to the procedures.

	•	Futures and forward 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.

	•	Underlying funds: valued at their respective net asset values.

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 measurements) 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 and futures contracts. The funds do not adjust the quoted prices for such investments, even in situations where the funds hold a large position and a sale could reasonably impact the quoted price. Investments in underlying funds are valued at their NAV daily and are classified as Level 1 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 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 calculates 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

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the funds’ investments as of October 31, 2011:

Schwab S&P 500 Index Fund


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

Common Stock(a)		$10,701,120,014		$—		$—		$10,701,120,014
Short-Term Investments(a)		—		182,670,166		—		182,670,166

Total		$10,701,120,014		$182,670,166		$—		$10,883,790,180

Other Financial Instruments
Collateral Invested for Securities on Loan		$10,781,362		$—		$—		$10,781,362
Futures Contract*		8,117,863		—		—		8,117,863

Schwab 1000 Index Fund

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total

Common Stock(a)

$4,553,381,300

$—

$4,553,381,300

Total

$4,553,381,300

$—

$4,553,381,300

Other Financial Instruments

Collateral Invested for Securities on Loan

$6,910,178

$—

$6,910,178

Schwab Small-Cap Index Fund


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

Common Stock(a)		$1,361,866,260		$—		$—		$1,361,866,260
Banks		94,462,584		—		59,311		94,521,895
Diversified Financials		36,475,679		—		68,064		36,543,743
Rights(a)		—		—		—		—
Short-Term Investment(a)		—		2,705,000		—		2,705,000
Warrants		—		—		—		—

Total		$1,492,804,523		$2,705,000		$127,375		$1,495,636,898

Other Financial Instruments
Collateral Invested for Securities on Loan		$40,423,756		$—		$—		$40,423,756
Futures Contract*		206,992		—		—		206,992

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

The following is a reconciliation of Level 3 Investments for which significant unobservable inputs were used to determine fair value:

Balance

Change in

Balance

as of

Realized

Unrealized

Gross

as of

October 31,

Gains

Gross

Transfers

October 31,

Investments in Securities

2010

(Losses)

Purchases

Sales

in**

out**

2011

Common Stock

$—

($3,046,446

)

$1,438,693

$—

$1,735,128

$—

$127,375

Total

$—

($3,046,446

)

$1,438,693

$—

$1,735,128

$—

$127,375

Schwab Total Stock Market Index Fund


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

Common Stock(a)		$1,555,402,668		$—		$—		$1,555,402,668
Banks		52,258,974		—		3,214		52,262,188
Diversified Financials		89,436,503		—		3,360		89,439,863
Transportation		33,061,695		—		1,793		33,063,488
Rights(a)		—		—		29		29
Short-Term Investments(a)		—		14,293,902		—		14,293,902
Warrants		—		—		—		—

Total		$1,730,159,840		$14,293,902		$8,396		$1,744,462,138

Other Financial Instruments
Collateral Invested for Securities on Loan		$4,856,627		$—		$—		$4,856,627
Futures Contracts*		1,040,246		—		—		1,040,246

The following is a reconciliation of Level 3 Investments for which significant unobservable inputs were used to determine fair value:

Balance

Change in

Balance

as of

Realized

Unrealized

Gross

as of

October 31,

Gains

Gross

Transfers

October 31,

Investments in Securities

2010

(Losses)

Purchases

Sales

in**

out**

2011

Common Stock

$3,300

($19,049

)

($153,377

)

$40,738

$—

$136,755

$—

$8,367

Rights

46,179

—

(46,150

)

—

Total

$49,479

($19,049

)

($199,527

)

$40,738

$—

$136,755

$—

$8,396

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

Schwab International Index Fund


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

Common Stock(a)		$—		$753,915,995		$—		$753,915,995
Australia		1,588,675		100,054,712		—		101,643,387
Canada		130,171,497		—		—		130,171,497
Netherlands		2,091,443		27,864,589		—		29,956,032
United Kingdom		—		292,696,902		32,986		292,729,888
Preferred Stock(a)		—		3,798,553		—		3,798,553
Other Investment Company(a)		56,297,750		—		—		56,297,750

Total		$190,149,365		$1,178,330,751		$32,986		$1,368,513,102

Other Financial Instruments
Collateral Invested for Securities on Loan		$5,801,760		$—		$—		$5,801,760

The following is a reconciliation of Level 3 Investments for which significant unobservable inputs were used to determine fair value:

Balance

Change in

Balance

as of

Realized

Unrealized

Gross

as of

October 31,

Gains

Gross

Transfers

October 31,

Investments in Securities

2010

(Losses)

Purchases

Sales

in**

out**

2011

Common Stock

United Kingdom

$71,780

$1,063

($2,034

)

$32,812

($70,635

)

$—

$32,986

Total

$71,780

$1,063

($2,034

)

$32,812

($70,635

)

$—

$32,986


*		Futures Contracts are not included in Investments and are valued at unrealized appreciation or depreciation.
**		All security transfers in and out of Level 3 from Level 1 or Level 2 were the result of fair valued securities for which no quoted value was available.
(a)		As categorized in complete schedule of holdings.

All net realized and change in unrealized gains (losses) in the tables above are reflected on the accompanying statements of operations. Changes in net unrealized gains (losses) for Level 3 investments held by the funds at October 31, 2011 are as follows:


Schwab S&P 500 Index Fund	$—
Schwab 1000 Index Fund	—
Schwab Small-Cap Index Fund	(2,982,566	)
Schwab Total Stock Market Index Fund	(173,757	)
Schwab International Index Fund	174

The funds’ policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no significant transfers between Level 1 and Level 2 for the period ended October 31, 2011.

Certain funds entered into equity index futures contracts (“futures”) from November 1, 2010 through October 31, 2011. The funds invested in futures to gain market exposure while still keeping a small portion of assets in cash for business operations. The fair value and due to brokers for futures contracts held at October 31, 2011 and the realized/unrealized gains (losses) on futures contracts held during the period ended October 31, 2011 are presented on the face of the Portfolio Holdings, Statement of Assets and Liabilities and Statement of Operations, respectively. Refer to financial note 2(b) for the funds’ accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

the period, the monthly average contract value of futures contracts held by the funds and the monthly average number of contracts were as follows:


	Contract Values		Number of Contracts

Schwab S&P 500 Index Fund		$65,618,340		1,030
Schwab 1000 Index Fund		7,317,646		110
Schwab Small-Cap Index Fund		15,122,008		191
Schwab Total Stock Market Index Fund		19,891,040		282
Schwab International Index Fund		—		—

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

Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A fund must give the broker a deposit of cash and/or securities (the “initial margin”) whenever it enters into the futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (“variation margin”) are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized gains or losses until the contract is closed, at which time the gains or losses are realized. Futures are traded publicly on exchanges, and their market value changes daily.

Forward Foreign Currency Contracts: “Forwards”, as they are known, are contracts to buy and sell a currency at a set price on a future date. The value of the forward foreign currency contracts are accounted for as unrealized gains or losses until the contracts settle, at which time the gains or losses are realized.

Securities Lending: Under the Securities Lending Program, a fund (the “lender”) may make short-term loans of its securities to another party (the “borrower”) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. The initial collateral received by a fund is required to have a value of at least 102% of the current market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan and is marked to market daily. The cash collateral of securities loaned is invested in money market portfolios registered under Rule 2a-7 of the 1940 Act. Securities lending income, as disclosed in a fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent which are subject to adjustments pursuant to the securities lending agreement.

If applicable, the value of the securities on loan as of October 31, 2011 and the value of the related collateral are disclosed in the complete Portfolio Holdings and the Statement of Assets and Liabilities.

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. Repurchase agreements subject a fund to counterparty risk, meaning that the fund could lose money if the other party fails to perform under the terms of the agreement. The funds mitigate this risk by ensuring that the funds’ repurchase agreements are collateralized by cash, U.S. government securities, fixed income securities, equity securities or other types of securities. All collateral is held by the funds’ custodian (or, with multi-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. Investments in repurchase agreements are also based on a review of the credit quality of the repurchase agreement counterparty.

(c) Security Transactions:

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains or losses from security transactions are based on the identified costs of the securities involved.

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations in the Statement of Operations. The funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Gains realized by the funds on the sale of securities in certain foreign countries are subject to non-U.S. taxes. The funds record a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities.

When a fund closes out a futures or forwards position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly. A fund records the daily change in market value of futures, and also the change in the amount of margin deposit required (“due to/from broker”).

(d) Investment Income:

Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.

(e) Expenses:

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.

(f) Distributions to Shareholders:

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

(g) Custody Credit:

Certain funds have an arrangement with their custodian bank, under which the funds receive a credit for their uninvested cash balance to offset their custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the funds’ 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 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. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(j) Foreign Taxes:

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

applicable foreign tax regulations and rates that exist in foreign markets in which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of October 31, 2011, if any, are reflected in the funds’ Statement of Assets and Liabilities.

(k) Indemnification:

Under the funds’ organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote.

(l) New Accounting Pronouncements:

In April 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Updates (“ASU”) related to accounting for repurchase agreements and similar agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The ASU modifies the criteria for determining effective control of transferred assets and as a result certain agreements may now be accounted for as secured borrowings. The ASU is effective prospectively for new and existing transfers that are modified in the first interim or annual period beginning on or after December 15, 2011.

In May 2011, the FASB issued an update to requirements relating to “Fair Value Measurement which represents amendments to achieve common fair value measurement and disclosure requirements in US GAAP and IFRS.” The amendments include (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements relate to (i) measuring the fair value of the financial instruments that are managed within a portfolio; (ii) application of premium and discount in a fair value measurement; and (iii) additional disclosures about fair value measurements. The update is effective for annual periods beginning after December 15, 2011 with early adoption prohibited.

At this time, management is evaluating the implications of these changes and their impact on the financial statements.

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.

Stock markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of your investment in a fund will fluctuate, which means that you could lose money.

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.

As an index fund, each fund seeks to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of 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.

In addition, because of its indexing strategy, a fund does not take steps to reduce market exposure or to lessen the effects of a declining market. Further, because of a fund’s expenses, the fund’s performance may be below that of its benchmark index.

Certain funds do not fully replicate their benchmark index and may hold securities not included in the index. As a result, such funds are subject to the risk that the investment adviser’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. A fund utilizing a sampling approach, may not track the return of the index as well as it would if the fund purchases all of the securities in the benchmark index.

Schwab Equity Index Funds

Financial Notes (continued)

3. Risk Factors (continued):

A significant percentage of an index may be composed of securities in a single industry or sector of the economy. If a fund is focused in an industry or sector, it may present more risks than if it were broadly diversified over numerous industries and sectors of the economy.

Historically, small-cap stocks have been riskier than large- and mid-cap stocks. Stock prices of smaller companies may be based in substantial part on future expectations rather than current achievements and may move sharply, especially during market upturns and downturns. Small-cap companies themselves 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 — a fund’s small-cap holdings could reduce performance.

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 volatile than those of large-cap companies because mid-cap companies tend to be more susceptible 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 — bonds, for instance — a fund’s large- and mid-cap holdings could reduce performance.

A fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); 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.

A fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested. In addition, investments in derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately large impact on a fund.

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

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.

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 CSIM and each trust.

For its advisory and administrative services to the Schwab 1000 Index Fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:


	Schwab
	1000
% of Average Daily Net Assets	Index Fund

First $500 million		0.30%
$500 million to $5 billion		0.22%
$5 billion to $10 billion		0.20%
Over $10 billion		0.18%

Schwab Equity Index Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

For its advisory and administrative services to the following funds, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:

Schwab

Total Stock

Schwab

S&P 500

Small-Cap

Market

International

Index Fund

0.06%

0.15%

0.06%

0.15%

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 the amount set forth in the table below. 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 in the table below 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

Total Stock

Schwab

S&P 500

1000

Small-Cap

Market

International

Index Fund

0.02%

0.10%

0.02%

Although these agreements specify certain fees for these services, CSIM and Schwab have made an additional agreement (“expense limitation”) with the funds, 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, to limit the total annual fund operating expenses, excluding interest, taxes and certain non-routine expenses. The expense limitation as a percentage of average daily net assets is as follows:

Schwab

Total Stock

Schwab

S&P 500

1000

Small-Cap

Market

International

Index Fund

0.09%

0.29%

0.19%

0.09%

0.19%

The funds may engage in certain transactions involving affiliates. For instance, a fund may own shares of The Charles Schwab Corporation if that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corporation shares owned by the Schwab Equity Index Funds during the report period:


	Balance							Balance				Realized		Dividends
	of Shares							of Shares		Market		Gains (Losses)		Received
	Held at		Gross			Gross		Held at		Value at		11/01/10		11/01/10
Fund	10/31/10		Additions			Sales		10/31/11		10/31/11		to 10/31/11		to 10/31/11

Schwab S&P 500 Index Fund		891,781		118,200			—		1,009,981		$12,402,567		$—		$219,259
Schwab 1000 Index Fund		373,465		—			21,500		351,965		4,322,130		281,316		85,762
Schwab Total Stock Market Index Fund		111,120		14,906	*		—		126,026		1,547,599		—		27,599


*		Includes 5,406 shares in connection with a merger between optionsXpress Holdings, Inc. and The Charles Schwab Corporation.

Schwab Equity Index Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Certain Schwab Funds may own shares of other Schwab Funds. The table below reflects the percentages of each fund shares in this report owned by other Schwab Funds as of October 31, 2011.


								Schwab
	Schwab			Schwab		Schwab		Total Stock		Schwab
	S&P 500			1000		Small-Cap		Market		International
	Index Fund			Index Fund		Index Fund		Index Fund		Index Fund

Schwab MarketTrack Portfolios:
Schwab All Equity Portfolio		2.0%			—%		8.0%		—%		10.3%
Schwab Growth Portfolio		2.4%			—%		8.8%		—%		9.4%
Schwab Balanced Portfolio		1.2%			—%		4.3%		—%		4.6%
Schwab Conservative Portfolio		0.4%			—%		1.3%		—%		1.4%
Schwab Annuity Portfolios:
Schwab Growth Portfolio II		0.1%			0.1%		0.4%		—%		0.4%
Schwab Target Funds:
Schwab Target 2010 Fund		0.0%	*		—%		—%		—%		—%
Schwab Target 2015 Fund		0.0%	*		—%		—%		—%		—%
Schwab Target 2020 Fund		0.3%			—%		—%		—%		—%
Schwab Target 2025 Fund		0.1%			—%		—%		—%		—%
Schwab Target 2030 Fund		0.4%			—%		—%		—%		—%
Schwab Target 2035 Fund		0.1%			—%		—%		—%		—%
Schwab Target 2040 Fund		0.4%			—%		—%		—%		—%


*		Less than 0.05%

The funds may also let a related party own shares of the funds. As of October 31, 2011, the shares owned by Schwab Charitable Giving Trust (an affiliate of Schwab) as a percentage of the total shares of the Schwab S&P 500 Index Fund and the Schwab Small Cap Index Fund were 0.8% and 1.7%, respectively.

The funds may engage in direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and/or officers. For the period ended October 31, 2011, each fund’s total aggregate security transactions with other Schwab Funds were as follows:


Schwab S&P 500 Index Fund			$—
Schwab 1000 Index Fund			63,960,202
Schwab Small-Cap Index Fund			63,960,202
Schwab Total Stock Market Index Fund			—
Schwab International Index Fund			—

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. Transfer Agent Services:

Boston Financial Data Services, Inc. (“BFDS”) provides transfer agent services for each fund.

6. Board of Trustees:

Schwab Equity Index Funds

Financial Notes (continued)

6. Board of Trustees (continued):

these limitations throughout the report period. The trusts did not pay any of these interested persons for their services as trustees, but they did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

7. Borrowing from Banks:

The funds have access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), 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 & Co. 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 for the committed line of credit.

There were no borrowings from the lines of credit by the funds during the period. However, the funds may have 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.

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2011, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:


	Purchases of Securities		Sales/Maturities of Securities

Schwab S&P 500 Index Fund		$492,313,501		$342,259,404
Schwab 1000 Index Fund		240,436,302		492,021,116
Schwab Small-Cap Index Fund		443,793,967		399,671,430
Schwab Total Stock Market Index Fund		228,554,296		22,584,214
Schwab International Index Fund		170,189,048		153,492,386

9. 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 in the Statement of Changes in Net Assets. The redemption fees charged during the current and prior periods are:


	Current Period		Prior Period
	(11/1/10-10/31/11)		(11/1/09-10/31/10)

Schwab S&P 500 Index Fund		$176,039		$141,923
Schwab 1000 Index Fund		35,850		21,488
Schwab Small-Cap Index Fund		25,087		23,624
Schwab Total Stock Market Index Fund		108,924		22,830
Schwab International Index Fund		16,287		23,029

Schwab Equity Index Funds

Financial Notes (continued)

10. Federal Income Taxes:

As of October 31, 2011, the components of distributable earnings on a tax-basis were as follows:


										Schwab
	Schwab			Schwab			Schwab			Total Stock			Schwab
	S&P 500			1000			Small-Cap			Market			International
	Index Fund			Index Fund			Index Fund			Index Fund			Index Fund

Undistributed ordinary income		$171,566,674			$68,730,663			$64,773,787			$24,780,237			$44,857,232
Undistributed long-term capital gains		—			183,279,668			40,731,619			—			—
Unrealized appreciation on investments		3,227,324,321			2,649,757,514			331,444,840			505,574,423			412,847,229
Unrealized depreciation on investments		(1,395,386,315	)		(134,685,380	)		(178,009,691	)		(205,568,579	)		(189,706,920	)
Other unrealized appreciation/(depreciation)		1			1			—			—			(1,386,003	)

Net unrealized appreciation/(depreciation)		$1,831,938,007			$2,515,072,135			$153,435,149			$300,005,844			$221,754,306

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, Passive Foreign Investment Companies (PFIC), partnership investments, non taxable dividends and futures mark to market.

Capital loss carryforwards may be used to offset future realized capital gains, for federal income tax purposes. For the year ended October 31, 2011, the following funds had capital loss carryforwards available to offset future net capital gains before the expiration dates:


							Schwab
	Schwab		Schwab		Schwab		Total Stock		Schwab
	S&P 500		1000		Small-Cap		Market		International
Expiration Date	Index Fund		Index Fund		Index Fund		Index Fund		Index Fund

October 31, 2012		$—		$—		$—		$—		$8,278,017
October 31, 2013		139,485,541		—		—		—		—
October 31, 2014		109,256,533		—		—		—		—
October 31, 2015		89,645,092		—		—		—		—
October 31, 2016		77,879,594		—		—		14,465,482		3,212,061
October 31, 2017		20,049,252		—		—		4,871,496		65,689,066

Total		$436,316,012		$—		$—		$19,336,978		$77,179,144

For the year ended October 31, 2011, the funds had capital losses utilized and capital losses expired as follows:

Schwab

Total Stock

Schwab

S&P 500

1000

Small-Cap

Market

International

Index Fund

Capital losses utilized

$140,361,861

$—

$7,425,338

$36,473,979

Capital losses expired

—

2,542,199

Schwab Equity Index Funds

Financial Notes (continued)

10. Federal Income Taxes (continued):

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


							Schwab
	Schwab		Schwab		Schwab		Total Stock		Schwab
	S&P 500		1000		Small-Cap		Market		International
	Index Fund		Index Fund		Index Fund		Index Fund		Index Fund

Current period distributions
Ordinary income		$191,615,698		$72,195,700		$14,248,616		$26,769,873		$40,811,469
Long-term capital gains		—		59,510,806		4,037,352		—		—
Return of capital		—		—		—		—		—

Prior period distributions
Ordinary income		$130,372,304		$78,998,534		$11,038,239		$20,970,578		$37,166,734
Long-term capital gains		—		—		—		—		—
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, 2011, the funds made the following reclassifications:


										Schwab
	Schwab			Schwab			Schwab			Total Stock			Schwab
	S&P 500			1000			Small-Cap			Market			International
	Index Fund			Index Fund			Index Fund			Index Fund			Index Fund

Capital shares		$—			$11,626,432			($1,363	)		$—			($2,542,199	)
Undistributed net investment income		(823,897	)		6,715,590			8,079,022			(241,860	)		(53,238	)
Net realized capital gains/(losses)		823,897			(18,342,022	)		(8,077,659	)		241,860			2,595,437

As of October 31, 2011, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is required in the funds’ financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended October 31, 2011, the funds did not incur any interest or penalties.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (“the Act”) was signed by the President. The Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs.

Certain of the enacted provisions include:

Post-enactment capital losses may now be carried forward indefinitely, but must retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. The Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.

Schwab Equity Index Funds

Financial Notes (continued)

10. Federal Income Taxes (continued):

Finally, the Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.

Except for the simplification provisions related to RIC qualification, the Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.

11. Other:

During the year, Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund and Schwab Total Stock Market Index Fund received a payment related to state filing fees resulting from revised calculation methodologies being applied on sales of the funds’ shares in prior periods in certain states. This payment is presented in the funds’ Statement of Operations as “Payment for state filing fees”.

12. Subsequent Events:

At a meeting held on September 14, 2011, the Board of Trustees approved a change to the Schwab Small-Cap Index Fund’s benchmark index and to its investment strategy to require that the Fund invest 80% of its net assets in stocks that are included in the Russell 2000 Index. This change will be effective on December 14, 2011. At the same meeting, the Board of Trustees approved a reduction in the contractual expense limitation of the investment adviser and its affiliates on the net annual operating expenses of the fund to 0.17%, effective November 1, 2011. For additional information, please refer to the Supplement dated October 14, 2011 to the Summary Prospectus and Statutory Prospectus.

At the same meeting, the Board of Trustees approved a change to the Schwab International Index Fund’s benchmark index and to its investment strategy to require that the Fund invest 80% of its net assets in stocks that are included in the MSCI EAFE Index. This change will be effective on December 20, 2011. For additional information, please refer to the Supplement dated October 14, 2011 to the Summary Prospectus and Statutory Prospectus.

Management has evaluated subsequent events and transactions through the date of the financial statements and determined that no other material events or transactions would require recognition or disclosure in the financial statements as presented.

Report of Independent Registered Public Accounting Firm

To the Boards of Trustees and Shareholders of:

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

In our opinion, the accompanying statements of assets and liabilities, including the summary 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 1000 Index Fund (one of the portfolios constituting Schwab Investments), Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund and Schwab International Index Fund (four of the portfolios constituting Schwab Capital Trust) (hereafter collectively referred to as the “Funds”) at October 31, 2011, 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 at October 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 15, 2011

Other Federal Tax Information (unaudited)

Schwab International Index Fund may elect to pass on the benefits of the foreign tax credit of $3,198,871 to its shareholders for the year ended October 31, 2011. The respective foreign source income on the fund is $54,455,524.

For corporate shareholders, the following percentage of the funds dividend distributions paid during the fiscal year ended October 31, 2011, qualify for the corporate dividends received deduction:


	Percentage

Schwab S&P 500 Index Fund		100.00
Schwab 1000 Index Fund		100.00
Schwab Small-Cap Index Fund		66.80
Schwab Total Stock Market Index Fund		95.80
Schwab International Index Fund		0.03

For the fiscal year ended October 31, 2011, the funds designate the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2012 via IRS form 1099 of the amounts for use in preparing their 2011 income tax return.


Schwab S&P 500 Index Fund			$216,804,351
Schwab 1000 Index Fund			73,512,773
Schwab Small-Cap Index Fund			9,845,277
Schwab Total Stock Market Index Fund			21,436,759
Schwab International Index Fund			33,672,279

Under Section 852 (b)(3)(C) of the Internal Revenue Code, certain funds hereby designate the following amounts as long-term capital gain dividends for the fiscal year ended October 31, 2011:


Schwab S&P 500 Index Fund			$—
Schwab 1000 Index Fund			70,253,473
Schwab Small-Cap Index Fund			4,037,352
Schwab Total Stock Market Index Fund			—
Schwab International Index Fund			—

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 of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreements between Schwab Capital Trust and Schwab Investments (collectively, the “Trusts”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreements”) with respect to the existing funds in the Trusts, including Schwab S&P 500 Index Fund, Schwab 1000 Index Fund, Schwab Small- Cap Index Fund, Schwab Total Stock Market Index Fund and Schwab International Index Fund (the “Funds”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. As part of the renewal process, Independent Trustees’ legal counsel sends an information request letter to CSIM seeking certain relevant information. The responses by CSIM are provided to the Trustees for their review prior to their meeting, and the Trustees are provided with the opportunity to request any additional materials. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Funds that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreements with respect to the Funds at meetings held on April 28, 2011, and June 15, 2011, and approved the renewal of the Agreements with respect to the Funds for an additional one year term at the meeting held on June 15, 2011. The Board’s approval of the Agreements 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 Agreements, 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 Agreements 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 Agreements with respect to the Funds.

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 Agreements with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreements, 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 Agreements 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 Agreements 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 Agreements 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 the existing contractual investment advisory fee schedules relating to Schwab 1000 Index Fund that 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 Agreements with respect to the Funds and concluded that the compensation under the Agreements 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 and Schwab Investments 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 87 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 and Schwab Investments since 2000.)	Chairman of JDN Corporate Advisory LLC.	70	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Capital Trust and Schwab Investments 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).	70	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of Schwab Capital Trust and Schwab Investments since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	70	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Aviat Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Capital Trust and Schwab Investments since 2011.)	Private Investor.	70	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Tercica Inc. (2004 – 2008)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Capital Trust and Schwab Investments since 2011.)	Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – present); Senior Vice President and General Manager of Consumer Group, Intuit, Inc. (June 2007 – Dec. 2008); Senior Vice President and Chief Financial Officer, Intuit, Inc. (Sept. 2005 – Jan. 2008).	70	Director, KLA-Tencor Corporation (2008 – present) Director, BEA Systems, Inc. (2007 – 2008) Director, Eaton Corp. (2003 – 2006)

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

Gerald B. Smith 1950 Trustee (Trustee of Schwab Capital Trust and Schwab Investments since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	70	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)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Capital Trust and Schwab Investments 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).	70	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

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 and Schwab Investments since 1991.)	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.	70	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Capital Trust and Schwab Investments 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.	87	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 and Schwab Investments 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 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer and Chief Investment 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 and Schwab Investments since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Funds (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 Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006- June 2007).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Capital Trust and Schwab Investments since 2011.)		Senior Vice President and Chief Investment Officer – Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer — Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).


Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Capital Trust and Schwab Investments since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (April 2006 – Jan. 2008); Managing Director, Head of Market-Based Strategies State Street Research (August 2003 – Jan. 2005).


David Lekich 1964 Secretary and Chief Legal Officer (Officer of Schwab Capital Trust and Schwab Investments since 2011.)		Senior Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (Oct. 2011 – present); Vice President, Charles Schwab & Co., Inc., (March 2004 – Oct. 2011) and Charles Schwab Investment Management, Inc. (Jan 2011 – Oct. 2011); Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011-present); Secretary (May 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab ETFs.

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Catherine MacGregor 1964 Vice President (Officer of Schwab Capital Trust and Schwab Investments 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 (March 2007 – present), Laudus Funds; Vice President and Assistant Secretary, Schwab Funds (June 2007 – present) and Schwab ETFs (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of Schwab Capital Trust and Schwab Investments since 2006.)		Senior Vice President (March 2011 – present), Vice President (2004 – March 2011), Asset Management Client Services, Charles Schwab & Co., Inc.; 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 twenty years as a trustee, whichever comes first. In addition, the Schwab Funds retirement policy also requires any independent trustee of the Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
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.

Barclays Capital U.S. Aggregate Bond Index A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate and hybrid ARM passthroughs), asset-backed securities, and commercial mortgage-backed securities.

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.

MSCI EAFE (Europe, Australasia, Far East) Index A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.

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.

Russell 1000 Index An index that measures the performance of the large-cap segment of the U.S. equity universe.

Russell 2000 Index An index that measures the performance of the small-cap segment of the U.S. equity universe.

S&P 500 Index A market capitalization index that is designed to measure the performance of 500 leading publicly held companies in leading industries of the U.S. economy.

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 the number 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 the fund’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 Short-Term Bond Market Fund^tm

Schwab^® Premier Income Fund

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab^® Treasury Inflation Protected Securities Fund^tm

Schwab Tax-Free Bond Fund^tm

Schwab California Tax-Free Bond Fund^tm

Schwab Money Funds

Schwab offers an array of money market funds¹. 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.

This supplement is not part of the shareholder report.

SCHWAB CAPITAL TRUST

Laudus MarketMasters Funds^{^®}

Supplement dated December 19, 2011 to the
Prospectus dated February 28, 2011 as amended May 16, 2011

This supplement provides new and additional information beyond that contained in the Prospectus
and should be read in conjunction with the Prospectus.

Effective December 8, 2011, the Board has approved certain changes to underlying investment managers in the Laudus MarketMasters Funds. Specifically, with respect to the Laudus Small-Cap MarketMasters Fund, the Board has approved the termination of two of the fund’s investment managers and approved the hiring of a new investment manager, Mellon Capital Management Corp. With respect to the Laudus International MarketMasters Fund, the Board has approved the hiring of a new investment manager, Mellon Capital Management Corp.

In addition, currently each fund reserves the right to automatically redeem your shares if the value of your investment in the Select Shares falls below the stated minimum balance requirement. Effective January 19, 2012, each fund will also have the option to instead convert the holdings of any existing shareholders who no longer meet the eligibility requirements (including minimum account balances) of Select Shares of a fund to Investor Shares of the same fund.

Accordingly, the following changes are made to the Prospectus:

On page 2, the third paragraph of the section entitled “Principal investment strategies” is deleted and the following language is inserted.

CSIM may also directly manage portions of the fund during transitions between investment managers.

Each investment manager uses its own securities selection process and has discretion to select portfolio securities for its allocation of the funds’ assets. At the same time, each investment manager invests within a specific market capitalization range and investment style under the general supervision of CSIM. CSIM has developed parameters for each investment manager based on CSIM’s assessment of the investment manager’s investment style and expertise. By assigning more specific parameters to each investment manager, CSIM attempts to capitalize on the strengths of each investment manager and to combine their investment activities in a complementary fashion.

CSIM may use derivatives, primarily futures contracts, to seek returns on the fund’s otherwise uninvested cash assets. In addition, the investment managers may use futures contracts as a substitute for investing directly in an underlying asset or to increase returns.

On page 4, in the section entitled “Portfolio manager”, all references to Caroline Lee-Tsao shall be deleted.

On page 4, in the section entitled “Investment managers”, the current language is deleted and replaced with the following language.

The fund has three investment managers: Mellon Capital Management Corp., Neuberger Berman Management LLC, and TAMRO Capital Partners LLC. The table below shows investment managers that are (or are expected to be) responsible for managing more than 30% of the fund’s assets, and the portfolio managers serving as portfolio managers for those investment managers.


	Year founded/assets
Investment manager	under management		Employment
and address	(as of 12/31/10)	Portfolio manager(s)	experience
Neuberger Berman Management LLC 605 Third Avenue New York, NY 10158	Founded: 1939 $32.2 billion	David H. Burshtan, Vice President	David Burshtan is a portfolio manager on the Growth Equity team. He joined the firm in 2002. Previously, he held portfolio manager and analyst positions at Northern Trust, Scudder-Kemper Investments and Texas Commerce Bank.
TAMRO Capital Partners LLC 1701 Duke Street Suite 250 Alexandria, VA 22314	Founded: 2000 Successor Founded: 2007 $1.44 billion	Philip D. Tasho, CFA, Principal, Chief Executive Officer and Chief Investment Officer Timothy A. Holland, CFA Partner, Co-Portfolio Manager	Began investment career in 1980. Co-founded TAMRO in 2000. From 1995 to 2000, Chairman, Chief Executive Officer and Chief Investment Officer of Riggs Investment Management Co. (RIMCO). Began investment career in 2000. Joined TAMRO in 2005 as an equity analyst. Promoted to co-portfolio manager in 2010. From 1993 to 2000 worked in financial services public relations.

For more information on the fund’s other investment managers, please see the “Fund management” and “Fund details” sections in the prospectus.

On page 6, the third paragraph of the section entitled “Principal investment strategies” is deleted and the following language is inserted.

CSIM may also directly manage portions of the fund during transitions between investment managers.

On page 8, in the section entitled “Portfolio manager”, all references to Caroline Lee-Tsao shall be deleted.

On page 8, in the section entitled “Investment managers”, the current language is deleted and replaced with the following language.

The fund has six investment managers: American Century Investment Management, Inc., Harris Associates, L.P., Mellon Capital Management Corp., Mondrian Investment Partners Limited, Wentworth, Hauser and Violich, Inc./Hirayama Investments, LLC, and William Blair & Company, LLC. As of December 12, 2011, none of the investment managers managed more than 30% of the fund’s assets nor are any expected to manage more than 30% of the fund’s assets. For information on the fund’s investment managers, please see the “Fund management” and “Fund details” sections in the prospectus.

On page 9, in the section entitled “Investment strategy”, the third paragraph is deleted and the following is inserted.

CSIM may also directly manage portions of the fund during transitions between investment managers.

On page 9, under “Investment strategy”, the sixth paragraph of that section (the introductory sentence to the table displaying the fund’s investment managers) is modified as follows, and the existing table replaced with the following table.

The following table identifies the fund’s investment managers as of December 9, 2011, their areas of focus, and approximate asset allocation.


Investment manager	Investment style	Approximate allocation of net assets (%)
Mellon Capital Management Corp.	Small-cap blend	0%¹
Neuberger Berman Management LCL	Small-cap growth	25%
TAMRO Capital Partners LLC	Small-cap blend	62%
Cash and other assets	—	13%

¹ Although Mellon Capital Management Corp. was approved by the Board on December 8, 2011 as a new investment manager, CSIM does not expect to allocate any assets to Mellon Capital until after January 1, 2012.

On page 10, all references to TCW Investment Management Company and Toqueville Asset Management LP are deleted. The following information regarding the new investment manager is inserted:

Mellon Capital Management Corp. (“Mellon Capital”) seeks to track the returns of the Russell 2000 Index. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. Mellon Capital’s experienced team of portfolio managers seeks to execute on this strategy by employing a risk-controlled, cost-effective approach. Specifically, in managing their allocation from the fund, the portfolio managers intend to employ a full index replication approach for assets greater than $50 million, and index sampling where assets allocated to Mellon Capital fall below $50 million.

When trading in the open market, Mellon Capital employs a strategic trading approach to minimize transaction costs and preserve value. This approach allows the portfolio managers to minimize market impact by trading small blocks and to take advantage of any favorable movement of the stock price when other managers move into and out of the market.

Furthermore, when index composition changes as a result of corporate actions, Mellon Capital’s portfolio managers screen all potential trades against a list of securities that have pending corporate action activities and evaluate the terms of the corporate action to determine whether the security should be traded or omitted from the trade. The economic value of the alternatives is thoroughly analyzed to maximize the value of client portfolios.

Additionally, when portfolio managers anticipate upcoming changes to the composition of an index, they use dividend cash flows to fund shares purchases to the extent possible. Mellon Capital continually looks for opportunities to allocate cash inflows towards expected index constituent changes in order to minimize transaction costs.

On page 11, in the section entitled “Investment strategy”, the third paragraph is deleted and the following is inserted.

CSIM may also directly manage portions of the fund during transitions between investment managers.

for each investment manager based on CSIM’s assessment of the investment manager’s investment style and expertise. By assigning more specific parameters to each investment manager, CSIM attempts to capitalize on the strengths of each investment manager and to combine their investment activities in a complementary fashion.

On page 12, under “Investment strategy”, the sixth paragraph of that section (introductory sentence to table displaying the fund’s investment managers) is modified as follows, and the existing table replaced with the following table.

The following table identifies the fund’s investment managers as of December 9, 2011, their areas of focus, and approximate asset allocation.


Investment manager	Investment style	Approximate allocation of net assets (%)
American Century Investment Management, Inc.	International small-/mid-cap growth	24%
Harris Associates L.P.	International large-cap value	18%
Mellon Capital Management Corp.	International blend	0%¹
Mondrian Investment Partners Limited	International small-cap value	25%
Wentworth, Hauser and Violich, Inc./Hirayama Investments LLC	International large-cap growth	11%
William Blair & Company LLC	International multi-cap growth	20%
Cash and other assets	—	2%

On page 13, the following information regarding the new investment manager is inserted.

Mellon Capital Management Corp. (“Mellon Capital”) seeks to track the returns of the MSCI-EAFE Index. This index is a free float-adjusted market capitalization index that is designed to measure market equity performance in 22 developed market countries, excluding the U.S. and Canada. Mellon Capital’s experienced team of portfolio managers seeks to execute on this strategy by employing a risk-controlled, cost-effective approach. Specifically, in managing their allocation from the fund, the portfolio managers intend to employ a full index replication approach for assets greater than $50 million, and index sampling where assets allocated to Mellon Capital fall below $50 million.

On page 18, under the section entitled “Fund management”, all references to Caroline Lee-Tsao shall be deleted.

On pages 18-19, under the section entitled “The funds’ investment managers”, “Laudus Small-Cap MarketMasters”, all references to TCW Investment Management Company and Toqueville Asset Management LP are deleted. The following is inserted as a new row in the table.


	Year founded/assets
Investment manager	under management		Employment
and address	(as of 9/30/11)	Portfolio manager(s)	experience
Mellon Capital Management Corp. 50 Fremont St., Suite 3900 San Francisco, CA 94105	Founded: 1983 $195.1 billion	Karen Q. Wong, CFA Managing Director, Head of Equity Portfolio Management	Ms. Wong is a managing director of equity index strategies with Mellon Capital, where she has been employed since 2000. She received an MBA from San Francisco State University in Finance, and a BS from San Francisco State University in Accounting and Statistics.
		Richard A. Brown, CFA Director, Senior Portfolio Manager, Team Leader	Mr. Brown is a director of equity portfolio management with Mellon Capital, where he has been employed since 1995. He holds an MBA from California State University at Hayward.
		Thomas J. Durante, CFA Director, Senior Portfolio Manager, Team Leader	Mr. Durante is a senior portfolio manager with Mellon Capital, where he has been employed since January 2000. He holds a B.A. degree from Fairfield University in Accounting.

On page 20, under the section entitled “The funds’ investment managers”, “Laudus International MarketMasters”, the following is inserted as a new row in the table.


	Year founded/assets
Investment manager	under management		Employment
and address	(as of 9/30/11)	Portfolio manager(s)	experience
Mellon Capital Management Corp. 50 Fremont St., Suite 3900 San Francisco, CA 94105	Founded: 1983 $195.1 billion	Karen Q. Wong, CFA Managing Director, Head of Equity Portfolio Management	Ms. Wong is a managing director of equity index strategies with Mellon Capital, where she has been employed since 2000. She received an MBA from San Francisco State University in Finance, and a BS from San Francisco State University in Accounting and Statistics.
		Richard A. Brown, CFA Director, Senior Portfolio Manager, Team Leader	Mr. Brown is a director of equity portfolio management with Mellon Capital, where he has been employed since 1995. He holds an MBA from California State University at Hayward.
		Thomas J. Durante, CFA Director, Senior Portfolio Manager, Team Leader	Mr. Durante is a senior portfolio manager with Mellon Capital, where he has been employed since January 2000. He holds a B.A. degree from Fairfield University in Accounting.

Two distinct Funds, each combining the expertise of leading

investment managers with CSIM’s overall supervision.

In This Report


Performance at a Glance		2
From the President		3
Fund Management		5
Fund Summaries
Laudus Small-Cap MarketMasters Fund™		6
Laudus International MarketMasters Fund™		8
Fund Expenses		10
Financial Statements and Portfolio Holdings
Laudus Small-Cap MarketMasters Fund™		11
Laudus International MarketMasters Fund™		19
Financial Notes		35
Report of Independent Registered Public Accounting Firm		48
Other Tax Information		49
Approval of Investment Advisory and Sub-Advisory Agreements		50
Trustees and Officers		53
Glossary		56

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor: Charles Schwab & Co., Inc. (Schwab).

Performance at a Glance


Total Return for the Report Period


Laudus Small-Cap MarketMasters Fund^tm

Investor Shares (Ticker Symbol: SWOSX)			4.08%
Select Shares^® (Ticker Symbol: SWMSX)			4.30%
Russell 2000^® Index*			6.71%
Fund Category: Morningstar Small-Cap Growth			8.84%

Performance Details			pages 6-7



Laudus International MarketMasters Fund^tm

Investor Shares (Ticker Symbol: SWOIX)¹			-3.87%
Select Shares^® (Ticker Symbol: SWMIX)¹			-3.76%
MSCI EAFE^® Index**			-3.64%
Fund Category: Morningstar Foreign Large-Cap Growth			-3.95%

Performance Details			pages 8-9



Minimum Initial Investment²

Investor Shares			$ 100
Select Shares^®			$ 50,000

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. These risks may be greater in emerging markets.

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 Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

**	The Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE Index^®) is a free float-adjusted market capitalization index that is designed to measure market equity performance in 22 developed market countries, excluding the U.S. and Canada. Investors cannot invest directly in any index and index figures do not include trading and management costs.

¹	The fund’s performance relative to the index may be affected by fair-value pricing and timing differences in foreign exchange calculations, see financial note 2 for more information.

²	Please see prospectus for further details and eligibility requirements.

2 Laudus MarketMasters Funds

From the President

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

Dear Shareholder,

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.



		8.09%		S&P 500^{^®} Index: measures U.S. large-cap stocks

		6.71%		Russell 2000^{^®} Index: measures U.S. small-cap stocks

		−3.64%		MSCI EAFE^{^®} Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		5.00%		Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market

		0.09%		Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations

Data source: Index provider websites and Charles Schwab Investment Management, 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.

Laudus MarketMasters Funds 3

From the President continued

Thank you for investing in the Laudus MarketMasters Funds. We encourage you to review your investment portfolio regularly to make sure it meets your current financial plan. For answers to questions you may have or to consult our website for more information, please visit www.laudusfunds.com. We are also happy to hear from you at 1-800-447-3332.

Sincerely,

Indices are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. Index return figures assume dividends and distributions were reinvested.

4 Laudus MarketMasters Funds

Laudus Small-Cap MarketMasters Fund™

The Laudus MarketMasters Funds use a multi-manager strategy. Charles Schwab Investment Management, Inc. (CSIM)—the fund’s investment manager—selects investment managers with proven long-term track records to manage a portion of each fund’s assets. In addition to selecting the investment managers and allocating assets among them, CSIM is responsible for monitoring and coordinating the overall management of the funds. Each sub-adviser manages their respective portfolio relative to a comparative index that reflects their individual process and philosophy. The sub-adviser indices may differ from the comparative index of the overall fund.

The Laudus Small-Cap MarketMasters Fund Investor Shares (the fund) returned 4.08% for the 12 months ended October 31, 2011, while its comparative index, the Russell 2000 Index, returned 6.71%. Unlike the return of the fund, the return of the index does not include operational and transactional costs.

Turning to the market backdrop, lackluster economic growth domestically and abroad and limited job growth in the United States, where the unemployment rate hovered around 9.0%, represented key market obstacles. Within the U.S. stock market, the large-cap Russell 1000 Index returned 8.01% and outperformed the small-cap Russell 2000 Index, which generated a gain of 6.71%.

In looking at absolute performance, most sectors in the index produced positive returns. Consumer Staples, Energy, and Utilities were the best performers in the index, each enjoying double-digit gains. On the other end of the performance spectrum, Telecommunication Services and Materials were two of the worst performers in the index.

Within the fund, poor stock selection in Information Technology, Consumer Discretionary, and Health Care—collectively representing approximately 45% of the portfolio—was a key reason that the fund underperformed its comparative index. Helping to counter that result was the fund’s slight overweight in the Energy sector compared with the Russell 2000 Index, which helped fund performance because Energy was the second-best performer during the period. Well-considered stock selection in the Energy sector also boosted the fund’s relative and absolute performance, as did stock selection within the Industrials sector.

The fund’s sub-advisers generated mixed returns. For example, Tocqueville Asset Management LP returned -5.35% and substantially underperformed the Russell 2000 Index. TCW Investment Management Company returned 3.80%, underperforming the 5.83% return of the Russell Midcap Value Index. On the other hand, TAMRO Capital Partners LLC returned 9.69% and comfortably outperformed the Russell 2000 Index. Lastly, Neuberger Berman, LLC, returned 14.09% compared with the 9.84% return of the Russell 2000 Growth Index.

As of 10/31/11:

Statistics


Number of Holdings		251
Weighted Average Market Cap ($ x 1,000,000)		$2,286
Price/Earnings Ratio (P/E)		27.4
Price/Book Ratio (P/B)		1.8
Portfolio Turnover Rate		95%

Sector Weightings % of Investments


Information Technology		17.8%
Financials		15.2%
Industrials		14.6%
Consumer Discretionary		14.0%
Health Care		11.5%
Energy		9.6%
Materials		5.1%
Consumer Staples		3.6%
Telecommunication Services		1.5%
Utilities		0.8%
Other		6.3%
Total		100.0%

Top Equity Holdings % of Net Assets¹


IBERIABANK Corp.		1.3%
Colfax Corp.		1.0%
NETGEAR, Inc.		0.9%
Terex Corp.		0.9%
Stifel Financial Corp.		0.9%
Colonial Properties Trust		0.9%
Morningstar, Inc.		0.9%
Bank of the Ozarks, Inc.		0.9%
TreeHouse Foods, Inc.		0.9%
LaSalle Hotel Properties		0.9%
Total		9.5%

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 categories.


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

6 Laudus MarketMasters Funds

Laudus Small-Cap MarketMasters Fund^tm

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

June 9, 2004 – October 31, 2011
Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2


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

Investor Shares (9/16/97)		4.08	%		0.41	%		6.13	%		4.68%
Select Shares (6/9/04)		4.30	%		0.57	%		n/a			3.79%
Russell 2000^® Index		6.71	%		0.68	%		7.02	%		(9/16/97) 5.10%
											(6/9/04) 4.77%
Fund Category: Morningstar Small-Cap Growth		8.84	%		2.10	%		5.83	%		(9/16/97) 5.35%
											(6/9/04) 5.13%

Fund Expense Ratios³: Investor Shares: Net 1.46% ; Gross 1.50% / Select Shares: Net 1.31%; Gross 1.45%

Investment Managers and Allocations


		% of
Investment Manager	Investment Style	Net Assets


TAMRO Capital Partners LLC	Small—Cap Blend		38.6%

TCW Investment Management Company	Small/Mid—Cap Value		22.3%

Tocqueville Asset Management L.P.	Small—Cap Blend/Value		16.2%

Neuberger Berman Management LLC	Small—Cap Growth		18.5%

Cash and other assets	—		4.4%

Because the fund originally used a multi-fund strategy, performance of the Investor Shares prior to June 3, 2002 does not reflect the current strategy and may have been different if it did.


¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. 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. 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.

Laudus MarketMasters Funds 7

Laudus International MarketMasters Fund™

The Laudus International MarketMasters Fund Investor Shares (the fund) returned -3.87% for the 12 months ended October 31, 2011, while its comparative index, the MSCI EAFE Index (the index), returned -3.64%. Unlike the return of the fund, the return of the index does not include operational and transactional costs. Timing differences in foreign exchange calculations represented part of why the fund underperformed the index.* Fair valuation of the fund’s holdings on the last trading day of the current period also reduced the fund’s relative performance (please see financial note 2 for more information).

Turning to the market backdrop, limited global growth and Europe’s ongoing and largely unresolved sovereign debt crisis tempered the performance of global stock markets. As a result, international equities in developed markets posted slightly negative returns as measured by the MSCI EAFE Index.

The fund’s security selection was positive in six out of 10 sectors, with the strongest performers coming from Materials, Information Technology, and Consumer Discretionary. By comparison, selection was weakest in Energy, Financials, and Health Care. In addition, the fund maintained an average weight of at least one-third less exposure to the Financials sector than the index, and this helped the fund’s performance. On the other side of the performance spectrum, the fund maintained a lower average weight in Consumer Staples, which detracted from the fund’s performance compared with that of the index.

Looking at performance from the standpoint of regional allocations compared with the index, the fund’s underweight in Europe, as well as in the Asia and Pacific Basin, helped the fund’s performance as investments from both areas posted negative total returns. Within these regions, security selection was another positive for the fund. On a country-specific basis, poor stock selection in Switzerland, Hong Kong, and Ireland detracted from the fund’s performance compared with that of the index, while the fund’s non-index, Canadian-based investments helped.

The fund’s sub-advisers generated mixed returns. For example, Mondrian Investment Partners Limited returned 2.50%, outperforming the -1.67% return of the MSCI World ex U.S. Small Index. Wentworth, Hauser, and Violich, Inc./Hirayama Investments, LLC, returned -0.03%, compared with the -3.64% return of the MSCI EAFE Index. On the other hand, William Blair & Company, LLC, returned -5.75% compared with the -3.85% return of the MSCI AC World IMI Growth Index. Harris Associates L.P. also underperformed, returning -4.64% compared with the -3.25% return of the MSCI World ex U.S. Index. Lastly, American Century Investment Management, Inc. returned -3.93%, falling slightly more than the -3.75% return of the MSCI AC World ex U.S. Small/Mid-Cap Growth index.

As of 10/31/11:

Country Weightings % of Investments


United Kingdom			18.5%
Japan			12.8%
Canada			7.9%
Germany			7.6%
Switzerland			7.6%
France			6.5%
Australia			4.9%
Netherlands			4.8%
Singapore			3.7%
United States			3.5%
Other			22.2%
Total			100.0%

Statistics


Number of Holdings		504
Weighted Average Market Cap ($ x 1,000,000)		$20,336
Price/Earnings Ratio (P/E)		15.9
Price/Book Ratio (P/B)		1.6
Portfolio Turnover Rate		78%

Sector Weightings % of Investments


Industrials		20.9%
Consumer Discretionary		15.0%
Materials		13.7%
Financials		13.1%
Information Technology		11.3%
Energy		8.1%
Health Care		6.1%
Consumer Staples		6.0%
Utilities		1.4%
Telecommunication Services		0.9%
Other		3.5%
Total		100.0%

Top Equity Holdings % of Net Assets¹


Croda International plc		1.1%
Koninklijke Boskalis Westminster N.V.		0.9%
Potash Corp. of Saskatchewan, Inc.		0.9%
Rotork plc		0.9%
Neopost S.A.		0.9%
BNP Paribas S.A.		0.8%
BHP Billiton Ltd. ADR		0.8%
SAP AG		0.8%
Spectris plc		0.8%
Commonwealth Property Office Fund		0.8%
Total		8.7%

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

Source of Sector Classification: S&P and MSCI.

Foreign securities can involve risks such as political and economic instability and currency risk. These risks may be greater in emerging markets.


*		Typically, the securities in the index are valued using foreign exchange rates obtained at the close of the London foreign currency exchange (11:00 AM EST), using exchange rates in place at that time. Securities in the fund, however, are valued using foreign exchange rates obtained at the close of the New York foreign currency exchange (4:00 PM EST). This difference in closing times can result in different foreign currency exchange rates between the two exchanges, and thus different foreign currency exchange rates used in the valuation of the index’s and fund’s securities.

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

8 Laudus MarketMasters Funds

Laudus International MarketMasters Fund^tm

Performance Summary as of 10/31/11

October 31, 2001 – October 31, 2011
Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

April 2, 2004 – October 31, 2011
Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2


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

Investor Shares (10/16/96)		-3.87	%		1.54	%		8.40	%		8.36%
Select Shares (4/2/04)		-3.76	%		1.67	%		n/a			7.06%
MSCI EAFE Index^®*		-3.64	%		-1.95	%		6.19	%		(10/16/96) 4.30%
											(4/2/04) 4.61%
Fund Category: Morningstar Foreign Large-Cap Growth		-3.95	%		-0.28	%		6.44	%		(10/16/96) 5.54%
											(4/2/04) 5.32%

Fund Expense Ratios³: Investor Shares: 1.61% / Select Shares: Net 1.48%; Gross 1.50%

Investment Managers and Allocations


		% of
Investment Manager	Investment Style	Net Assets


American Century Investment Management, Inc.	International Small/Mid—Cap Growth		23.9%

Wentworth, Hauser and Violich, Inc./Hirayama Investments, LLC	International Large—Cap Growth		10.6%

Harris Associates L.P.	International Large—Cap Value		18.2%

William Blair & Company, LLC	International Multi—Cap Growth		19.4%

Mondrian Investment Partners Limited	International Small—Cap Value		26.3%

Cash and other assets	—		1.6%

Because the fund originally used a multi-fund strategy, performance of the Investor Shares prior to June 3, 2002 does not reflect the current strategy and may have been different if it did.


*		The Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE Index^®) is a free float-adjusted market capitalization index that is designed to measure market equity performance in 22 developed market countries, excluding the U.S. and Canada. Investors cannot invest directly in any index and index figures do not include trading and management costs.
¹		Fund expenses may have been partially absorbed by CSIM and its affiliates. 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. 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.

Laudus MarketMasters Funds 9

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 5/1/11		at 10/31/11		5/1/11–10/31/11

Laudus Small-Cap MarketMasters Fund^tm
Investor Shares
Actual Return		1.46%	$	1,000	$	847.90	$	6.80
Hypothetical 5% Return		1.46%	$	1,000	$	1,017.85	$	7.43
Select Shares
Actual Return		1.31%	$	1,000	$	848.40	$	6.10
Hypothetical 5% Return		1.31%	$	1,000	$	1,018.60	$	6.67


Laudus International MarketMasters Fund^tm
Investor Shares
Actual Return		1.60%	$	1,000	$	839.70	$	7.42
Hypothetical 5% Return		1.60%	$	1,000	$	1,017.14	$	8.13
Select Shares
Actual Return		1.45%	$	1,000	$	840.20	$	6.73
Hypothetical 5% Return		1.45%	$	1,000	$	1,017.90	$	7.37


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights.
²		Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by the 365 days of the fiscal year.

10 Laudus MarketMasters Funds

Laudus Small-Cap MarketMasters Fund™

Financial Statements

Financial Highlights


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


Per-Share Data ($)

Net asset value at beginning of period		11.52			9.40			8.78			13.74			14.20

Income (loss) from investment operations:
Net investment income (loss)		(0.09	)¹		(0.08	)¹		(0.05	)¹		(0.04	)¹		(0.08	)¹
Net realized and unrealized gains (losses)		0.56			2.20			0.67			(4.59	)		1.81

Total from investment operations		0.47			2.12			0.62			(4.63	)		1.73
Less distributions:
Distributions from net investment income		—			—			(0.00	)²		—			—
Distributions from net realized gains		—			—			—			(0.33	)		(2.19	)

Total distributions		—			—			(0.00	)²		(0.33	)		(2.19	)

Net asset value at end of period		11.99			11.52			9.40			8.78			13.74

Total return (%)		4.08			22.55			7.10			(34.34	)		13.79

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.46			1.46			1.48	³		1.48			1.51	⁴
Gross operating expenses		1.51			1.50			1.50			1.48			1.59
Net investment income (loss)		(0.70	)		(0.72	)		(0.64	)		(0.38	)		(0.60	)
Portfolio turnover rate		95			78			129			134			83
Net assets, end of period ($ x 1,000,000)		62			68			64			64			99


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
Select Shares	10/31/11			10/31/10			10/31/09			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		11.64			9.49			8.86			13.85			14.27

Income (loss) from investment operations:
Net investment income (loss)		(0.07	)¹		(0.06	)¹		(0.04	)¹		(0.04	)¹		(0.04	)¹
Net realized and unrealized gains (losses)		0.57			2.21			0.68			(4.62	)		1.81

Total from investment operations		0.50			2.15			0.64			(4.66	)		1.77
Less distributions:
Distributions from net investment income		—			—			(0.01	)		—			—
Distributions from net realized gains		—			—			—			(0.33	)		(2.19	)

Total distributions		—			—			(0.01	)		(0.33	)		(2.19	)

Net asset value at end of period		12.14			11.64			9.49			8.86			13.85

Total return (%)		4.30			22.66			7.29			(34.28	)		14.04

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.31			1.32	⁵		1.33	³		1.37			1.36	⁶
Gross operating expenses		1.45			1.45			1.45			1.44			1.66
Net investment income (loss)		(0.54	)		(0.58	)		(0.48	)		(0.31	)		(0.29	)
Portfolio turnover rate		95			78			129			134			83
Net assets, end of period ($ x 1,000,000)		219			337			292			260			437

¹ Calculated based on the average shares outstanding during the period.

² Per share amount was less than $0.01.

³ Effective February 28, 2009, the operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

⁴ The ratio of net operating expenses would have been 1.55% if custody credits had not been incurred.

⁵ The ratio of net operating expenses would have been 1.31% if certain non-routine expense had not been incurred.

⁶ The ratio of net operating expenses would have been 1.37% if custody credits had not been incurred.

See financial notes 11

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings as of October 31, 2011

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 the fund’s website at www.laudusfunds.com.


				Cost		Value
Holdings by Category				($)		($)

	93	.5%	Common Stock		235,112,156		263,039,303
	0	.5%	Foreign Common Stock		1,118,911		1,467,033
	5	.8%	Other Investment Company		16,453,477		16,453,477
	0	.5%	Short-Term Investment		1,295,000		1,295,000


	100	.3%	Total Investments		253,979,544		282,254,813
	(0	.3)%	Other Assets and Liabilities, Net				(811,712	)


	100	.0%	Net Assets				281,443,101


	Number		Value
Security	of Shares		($)

Common Stock 93.5% of net assets

Automobiles & Components 0.4%
Dana Holding Corp. *		86,800		1,227,352

Banks 7.8%
Bank of the Ozarks, Inc.		98,373		2,446,536
Comerica, Inc.		21,900		559,545
East West Bancorp, Inc.		121,520		2,365,994
First Horizon National Corp.		57,539		402,198
Fulton Financial Corp.		97,700		922,288
Glacier Bancorp, Inc.		90,139		1,023,078
IBERIABANK Corp.		69,165		3,577,214
KeyCorp		73,500		518,910
MB Financial, Inc.		56,500		936,205
Pinnacle Financial Partners, Inc. *		128,800		1,933,288
Renasant Corp.		34,000		490,280
Susquehanna Bancshares, Inc.		129,900		943,074
Synovus Financial Corp.		408,540		612,810
TCF Financial Corp.		66,600		708,624
Texas Capital Bancshares, Inc. *		35,600		996,800
UMB Financial Corp.		61,410		2,264,187
Umpqua Holdings Corp.		111,500		1,276,675

				21,977,706

Capital Goods 10.3%
Actuant Corp., Class A		53,300		1,199,250
Aerovironment, Inc. *		59,970		1,980,809
Ceradyne, Inc. *		40,000		1,338,400
Chicago Bridge & Iron Co., N.V., NY Shares		63,827		2,334,792
Colfax Corp. *		111,771		2,823,335
Dover Corp.		17,500		971,775
ESCO Technologies, Inc.		35,033		1,070,959
Fortune Brands Home & Security, Inc. *		7,200		104,616
Franklin Electric Co., Inc.		50,048		2,298,204
Gardner Denver, Inc.		3,200		247,456
HEICO Corp.		26,956		1,537,031
Jacobs Engineering Group, Inc. *		25,507		989,672
Joy Global, Inc.		6,700		584,240
Kennametal, Inc.		36,300		1,411,707
Layne Christensen Co. *		10,125		255,049
MasTec, Inc. *		23,700		512,394
MSC Industrial Direct Co., Class A		10,500		714,105
Regal-Beloit Corp.		11,100		589,743
Rockwell Collins, Inc.		7,000		390,810
SPX Corp.		15,860		866,115
Terex Corp. *		157,700		2,624,128
Textron, Inc.		57,900		1,124,418
Triumph Group, Inc.		16,700		970,270
Wabtec Corp.		31,475		2,114,490

				29,053,768

Commercial & Professional Supplies 2.6%
Clean Harbors, Inc. *		9,700		565,219
CoStar Group, Inc. *		9,300		572,229
Insperity, Inc.		65,100		1,678,278
The Advisory Board Co. *		35,223		2,157,409
The Corporate Executive Board Co.		66,307		2,426,173

				7,399,308

Consumer Durables & Apparel 2.5%
Brunswick Corp.		25,500		450,330
Deckers Outdoor Corp. *		4,600		530,104
Harman International Industries, Inc.		52,734		2,275,999
Jarden Corp.		46,000		1,473,380
Lennar Corp., Class A		73,700		1,218,998
Toll Brothers, Inc. *		64,500		1,124,880

				7,073,691

Consumer Services 6.0%
BJ’s Restaurants, Inc. *		45,765		2,422,341
Buffalo Wild Wings, Inc. *		8,200		543,004
Coinstar, Inc. *		36,181		1,727,281
Grand Canyon Education, Inc. *		121,058		1,974,456
International Speedway Corp., Class A		40,012		954,686
Jack in the Box, Inc. *		48,000		987,840
Krispy Kreme Doughnuts, Inc. *		92,000		649,520
Marriott International, Inc., Class A		20,943		659,705
Orient-Express Hotels Ltd., Class A *		152,900		1,304,237
P.F. Chang’s China Bistro, Inc.		22,100		687,310
Peet’s Coffee & Tea, Inc. *		9,200		586,224
Pinnacle Entertainment, Inc. *		44,900		508,268
Red Robin Gourmet Burgers, Inc. *		55,525		1,392,012
Steiner Leisure Ltd. *		13,400		645,612
Texas Roadhouse, Inc.		119,265		1,709,067

				16,751,563

12 See financial notes

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Diversified Financials 2.3%
DFC Global Corp. *		27,700		607,184
First Cash Financial Services, Inc. *		15,800		655,700
GAMCO Investors, Inc., Class A		19,718		928,718
Invesco Ltd.		33,305		668,431
Knight Capital Group, Inc., Class A *		88,360		1,103,617
Stifel Financial Corp. *		81,145		2,586,091

				6,549,741

Energy 9.6%
Arch Coal, Inc.		23,300		424,526
Atwood Oceanics, Inc. *		50,480		2,157,515
Bill Barrett Corp. *		43,437		1,806,979
Carrizo Oil & Gas, Inc. *		22,300		606,560
Comstock Resources, Inc. *		114,306		2,084,941
Contango Oil & Gas Co. *		29,396		1,891,339
Denbury Resources, Inc. *		60,400		948,280
Ensco PLC ADR		14,000		695,240
Gastar Exploration Ltd. *		509,100		1,883,670
Global Geophysical Services, Inc. *		55,013		524,824
Hornbeck Offshore Services, Inc. *		18,800		617,392
ION Geophysical Corp. *		79,500		605,790
Murphy Oil Corp.		13,850		766,875
Nabors Industries Ltd. *		46,100		845,013
Northern Oil & Gas, Inc. *		33,600		812,112
Oasis Petroleum, Inc. *		19,800		580,932
Overseas Shipholding Group, Inc.		36,016		449,480
Precision Drilling Corp. *		200,995		2,325,512
Rosetta Resources, Inc. *		19,800		877,932
Tesoro Corp. *		26,900		697,786
TETRA Technologies, Inc. *		102,000		969,000
Unit Corp. *		23,500		1,152,910
VAALCO Energy, Inc. *		265,500		1,808,055
Weatherford International Ltd. *		55,600		861,800
World Fuel Services Corp.		18,100		721,285

				27,115,748

Food & Staples Retailing 1.4%
PriceSmart, Inc.		18,900		1,437,156
United Natural Foods, Inc. *		46,918		1,712,976
Winn-Dixie Stores, Inc. *		126,300		800,742

				3,950,874

Food, Beverage & Tobacco 1.5%
Beam, Inc.		10,200		504,186
Diamond Foods, Inc.		9,200		604,900
Molson Coors Brewing Co., Class B		12,000		508,080
TreeHouse Foods, Inc. *		39,770		2,439,492

				4,056,658

Health Care Equipment & Services 7.3%
Accretive Health, Inc. *		23,800		566,678
Air Methods Corp. *		11,800		953,676
Allscripts Healthcare Solutions, Inc. *		22,300		427,045
AMERIGROUP Corp. *		31,011		1,725,142
Analogic Corp.		42,729		2,310,784
athenahealth, Inc. *		38,549		2,039,628
Coventry Health Care, Inc. *		35,400		1,126,074
Health Management Associates, Inc., Class A *		153,745		1,346,806
HMS Holdings Corp. *		20,900		510,796
Hologic, Inc. *		47,400		764,088
MAKO Surgical Corp. *		15,400		592,130
Masimo Corp.		8,200		169,576
Neogen Corp. *		14,900		575,885
Omnicell, Inc. *		32,000		478,400
Quality Systems, Inc.		43,898		1,708,071
Sirona Dental Systems, Inc. *		15,300		732,870
SXC Health Solutions Corp. *		13,400		627,388
Teleflex, Inc.		37,050		2,217,813
Tenet Healthcare Corp. *		101,000		477,730
Tornier N.V. *		23,600		548,464
U.S. Physical Therapy, Inc.		29,800		581,696

				20,480,740

Household & Personal Products 0.8%
Elizabeth Arden, Inc. *		21,400		733,592
Energizer Holdings, Inc. *		19,970		1,473,586

				2,207,178

Insurance 0.8%
Arch Capital Group Ltd. *		37,862		1,361,896
PartnerRe Ltd.		5,700		354,654
Reinsurance Group of America, Inc.		9,600		501,408

				2,217,958

Materials 5.1%
Albemarle Corp.		9,900		527,571
Calgon Carbon Corp. *		57,000		909,150
Carpenter Technology Corp.		13,100		743,032
Celanese Corp., Series A		18,670		813,078
Cliffs Natural Resources, Inc.		10,800		736,776
Commercial Metals Co.		91,600		1,138,588
Cytec Industries, Inc.		29,850		1,333,399
Horsehead Holding Corp. *		192,800		1,673,504
International Flavors & Fragrances, Inc.		20,600		1,247,536
Materion Corp. *		39,800		1,052,312
Minerals Technologies, Inc.		23,500		1,288,740
Royal Gold, Inc.		14,515		1,038,984
Silgan Holdings, Inc.		16,700		626,918
Westlake Chemical Corp.		24,694		1,017,640
Worthington Industries, Inc.		16,700		288,576

				14,435,804

Media 1.5%
Morningstar, Inc.		42,076		2,481,222
The E.W. Scripps Co., Class A *		212,294		1,770,532

				4,251,754

Pharmaceuticals, Biotechnology & Life Sciences 4.3%
Akorn, Inc. *		83,600		751,564
Cepheid, Inc. *		14,300		513,084
Covance, Inc. *		27,100		1,374,783
Cubist Pharmaceuticals, Inc. *		20,000		756,200
eResearch Technology, Inc. *		285,650		1,459,671

See financial notes 13

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Isis Pharmaceuticals, Inc. *		82,500		683,925
Jazz Pharmaceuticals, Inc. *		14,600		568,816
Medicis Pharmaceutical Corp., Class A		19,100		731,339
Mylan, Inc. *		35,600		696,692
PAREXEL International Corp. *		67,100		1,478,213
Pharmaceutical Product Development, Inc.		43,200		1,425,168
Salix Pharmaceuticals Ltd. *		16,500		565,208
United Therapeutics Corp. *		22,910		1,001,854

				12,006,517

Real Estate 3.9%
Boston Properties, Inc.		2,600		257,374
Colonial Properties Trust		123,068		2,495,819
Digital Realty Trust, Inc.		8,960		558,477
Health Care REIT, Inc.		10,009		527,374
Home Properties, Inc.		15,100		889,390
Jones Lang LaSalle, Inc.		13,500		872,370
Kilroy Realty Corp.		12,960		475,502
Kimco Realty Corp.		47,800		835,066
LaSalle Hotel Properties		101,672		2,430,978
Liberty Property Trust		29,005		928,160
Regency Centers Corp.		13,060		534,938

				10,805,448

Retailing 3.6%
Aaron’s, Inc.		86,019		2,301,868
American Eagle Outfitters, Inc.		94,965		1,246,891
DSW, Inc., Class A		14,300		748,462
Expedia, Inc.		28,300		743,158
Foot Locker, Inc.		34,100		745,426
GameStop Corp., Class A *		17,100		437,247
Hibbett Sports, Inc. *		13,600		560,184
Sally Beauty Holdings, Inc. *		26,800		514,292
Shutterfly, Inc. *		11,000		458,370
The Gap, Inc.		25,300		478,170
Tractor Supply Co.		9,700		688,118
Ulta Salon, Cosmetics & Fragrance, Inc. *		8,700		585,423
Vitamin Shoppe, Inc. *		16,500		622,215

				10,129,824

Semiconductors & Semiconductor Equipment 2.3%
Cavium, Inc. *		18,800		614,572
Cymer, Inc. *		13,200		573,540
EZchip Semiconductor Ltd. *		15,300		557,379
IXYS Corp. *		50,500		690,335
Maxim Integrated Products, Inc.		39,075		1,022,202
Mellanox Technologies Ltd. *		16,300		527,468
Rudolph Technologies, Inc. *		100,100		737,737
Ultratech, Inc. *		78,300		1,706,940

				6,430,173

Software & Services 9.2%
Ariba, Inc. *		20,400		646,272
BroadSoft, Inc. *		15,700		565,200
CIBER, Inc. *		64,500		224,460
CommVault Systems, Inc. *		50,137		2,134,833
Concur Technologies, Inc. *		14,500		674,540
DemandTec, Inc. *		92,020		695,671
Digital River, Inc. *		46,500		852,345
Echo Global Logistics, Inc. *		37,600		580,544
Heartland Payment Systems, Inc.		24,800		539,648
Keynote Systems, Inc.		35,800		854,546
Lionbridge Technologies, Inc. *		374,935		1,016,074
LivePerson, Inc. *		51,800		652,162
Mitek Systems, Inc. *		42,100		425,631
Parametric Technology Corp. *		59,700		1,243,551
QLIK Technologies, Inc. *		22,200		634,254
Rackspace Hosting, Inc. *		16,700		691,213
RightNow Technologies, Inc. *		38,930		1,674,379
Rosetta Stone, Inc. *		52,142		517,770
SeaChange International, Inc. *		162,586		1,372,226
ServiceSource International, Inc. *		31,100		413,941
SuccessFactors, Inc. *		72,505		1,935,884
TeleCommunication Systems, Inc., Class A *		306,000		1,009,800
The Ultimate Software Group, Inc. *		27,400		1,648,932
TIBCO Software, Inc. *		24,400		704,916
Unisys Corp. *		5,700		148,143
VASCO Data Security International, Inc. *		199,290		1,646,135
VeriFone Systems, Inc. *		15,900		671,139
Websense, Inc. *		95,057		1,695,817

				25,870,026

Technology Hardware & Equipment 6.3%
Acme Packet, Inc. *		54,263		1,964,863
Aruba Networks, Inc. *		23,900		566,191
Aviat Networks, Inc. *		352,500		722,625
Avnet, Inc. *		38,400		1,163,904
Blue Coat Systems, Inc. *		1,874		30,171
Brocade Communications Systems, Inc. *		281,200		1,231,656
Ceragon Networks Ltd. *		145,206		1,465,129
Echelon Corp. *		178,200		1,204,632
Electro Scientific Industries, Inc. *		68,174		837,859
Ixia *		157,198		1,781,053
Meru Networks, Inc. *		74,080		402,254
NETGEAR, Inc. *		74,944		2,657,514
Power-One, Inc. *		156,850		776,408
Powerwave Technologies, Inc. *		122,200		441,142
Seagate Technology plc		107,500		1,736,125
The Western Digital Corp. *		31,800		847,152

				17,828,678

Telecommunication Services 1.5%
Cbeyond, Inc. *		124,340		1,024,562
Cogent Communications Group, Inc. *		119,400		1,916,370
Sprint Nextel Corp. *		61,900		159,083
Windstream Corp.		93,600		1,139,112

				4,239,127

Transportation 1.6%
Arkansas Best Corp.		48,800		1,005,280
Forward Air Corp.		67,475		2,209,806

14 See financial notes

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Hub Group, Inc., Class A *		16,500		515,790
Old Dominion Freight Line, Inc. *		23,900		874,023

				4,604,899

Utilities 0.9%
Hawaiian Electric Industries, Inc.		53,935		1,366,174
Portland General Electric Co.		41,100		1,008,594

				2,374,768

Total Common Stock
(Cost $235,112,156)				263,039,303




Foreign Common Stock 0.5% of net assets

United Kingdom 0.5%


Insurance 0.5%
Willis Group Holdings plc		40,403		1,467,033

Total Foreign Common Stock
(Cost $1,118,911)				1,467,033




Other Investment Company 5.8% of net assets

Money Market Fund 5.8%
State Street Institutional Liquid Reserves Fund - Institutional Class		16,453,477		16,453,477

Total Other Investment Company
(Cost $16,453,477)				16,453,477



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

Short-Term Investment 0.5% of net assets

U.S. Treasury Obligation 0.5%
U.S. Treasury Bill
0.00%, 12/15/11 (a)(b)		1,295,000		1,295,000

Total Short-Term Investment
(Cost $1,295,000)				1,295,000



End of Investments.

At 10/31/11, the tax basis cost of the fund’s investments was $259,495,069 and the unrealized appreciation and depreciation were $40,807,633 and ($18,047,889), respectively, with a net appreciation of $22,759,744.


*		Non-income producing security.
(a)		All or a portion of this security is held as collateral for open futures contracts.
(b)		The rate shown is the purchase yield.


ADR —		American Depositary Receipt
REIT —		Real Estate Investment Trust

In addition to the above, the fund held the following at 10/31/11.

Contract

Unrealized

Number of

Value

Gains

Contracts

($)

Futures Contract

Russell 2000 Index, mini, Long, expires 12/16/11

170

12,568,100

817,872

See financial notes 15

Laudus Small-Cap MarketMasters Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends (net of foreign withholding taxes of $3,196)		$2,439,759
Interest	+	26,663

Total investment income		2,466,422

Expenses

Investment adviser and administrator fees		3,753,731
Shareholder service fees:
Investor Shares		173,123
Select Shares		461,246
Portfolio accounting fees		69,352
Shareholder reports		50,404
Transfer agent fees		44,448
Professional fees		43,630
Registration fees		34,492
Custodian fees		33,527
Trustees’ fees		8,363
Interest expense		181
Other expenses	+	10,774

Total expenses		4,683,271
Expense reduction by CSIM and its affiliates	−	375,005
Payment for state filing fees (see financial note 12)	−	216
Custody credits	−	19

Net expenses	−	4,308,031

Net investment loss		(1,841,609	)

Realized and Unrealized Gains (Losses)

Net realized gains on investments		57,272,591
Net realized gains on futures contracts	+	203,317

Net realized gains		57,475,908
Net unrealized losses on investments		(36,422,892	)
Net unrealized losses on futures contracts	+	(48,829	)

Net unrealized losses	+	(36,471,721	)

Net realized and unrealized gains		21,004,187

Increase in net assets resulting from operations		$19,162,578

See financial notes 17

Laudus Small-Cap MarketMasters Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment loss		($1,841,609	)		($2,384,880	)
Net realized gains		57,475,908			39,071,941
Net unrealized gains (losses)	+	(36,471,721	)		42,387,245

Increase in net assets from operations		$19,162,578			$79,074,306

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares Sold
Investor Shares			126,703		$1,624,965			148,721		$1,584,530
Select Shares	+		2,023,632		24,972,114			4,204,773		44,602,776

Total shares sold			2,150,335		$26,597,079			4,353,494		$46,187,306


Shares Redeemed
Investor Shares			(827,089	)	($10,514,720	)		(1,098,259	)	($11,641,939	)
Select Shares	+		(12,892,563	)	(158,472,758	)		(6,096,263	)	(65,834,703	)

Total shares redeemed			(13,719,652	)	($168,987,478	)		(7,194,522	)	($77,476,642	)

Net transactions in fund shares			(11,569,317	)	($142,390,399	)		(2,841,028	)	($31,289,336	)

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			34,818,153		$404,670,922			37,659,181		$356,885,952
Total increase or decrease	+		(11,569,317	)	(123,227,821	)		(2,841,028	)	47,784,970

End of period			23,248,836		$281,443,101			34,818,153		$404,670,922


Net investment income not yet distributed					$—					$5,385

18 See financial notes

Laudus International MarketMasters Fund™

Financial Statements

Financial Highlights


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


Per-Share Data ($)

Net asset value at beginning of period		18.36			15.04			11.78			25.96			20.73

Income (loss) from investment operations:
Net investment income (loss)		0.16			0.09			0.14			0.20			0.14
Net realized and unrealized gains (losses)		(0.85	)		3.41			3.63			(12.25	)		6.84

Total from investment operations		(0.69	)		3.50			3.77			(12.05	)		6.98
Less distributions:
Distributions from net investment income		(0.22	)		(0.18	)		(0.51	)		(0.10	)		(0.16	)
Distributions from net realized gains		—			—			—			(2.03	)		(1.59	)

Total distributions		(0.22	)		(0.18	)		(0.51	)		(2.13	)		(1.75	)

Net asset value at end of period		17.45			18.36			15.04			11.78			25.96

Total return (%)		(3.87	)		23.47			33.64			(49.97	)		36.01

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.59			1.60			1.62			1.59			1.56	¹
Gross operating expenses		1.60			1.62			1.63			1.59			1.59
Net investment income (loss)		0.80			0.53			0.95			0.95			0.62
Portfolio turnover rate		78			83			96			88			71
Net assets, end of period ($ x 1,000,000)		665			849			931			918			2,297


	11/1/10–			11/1/09–			11/1/08–			11/1/07–			11/1/06–
Select Shares	10/31/11			10/31/10			10/31/09			10/31/08			10/31/07


Per-Share Data ($)

Net asset value at beginning of period		18.38			15.05			11.80			26.00			20.77

Income (loss) from investment operations:
Net investment income (loss)		0.19			0.10			0.15			0.23			0.15
Net realized and unrealized gains (losses)		(0.86	)		3.43			3.64			(12.27	)		6.86

Total from investment operations		(0.67	)		3.53			3.79			(12.04	)		7.01
Less distributions:
Distributions from net investment income		(0.25	)		(0.20	)		(0.54	)		(0.13	)		(0.19	)
Distributions from net realized gains		—			—			—			(2.03	)		(1.59	)

Total distributions		(0.25	)		(0.20	)		(0.54	)		(2.16	)		(1.78	)

Net asset value at end of period		17.46			18.38			15.05			11.80			26.00

Total return (%)		(3.76	)		23.68			33.82			(49.91	)		36.16

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.45			1.48	²		1.47			1.48	²		1.44	³
Gross operating expenses		1.47			1.50			1.58			1.54			1.55
Net investment income (loss)		0.99			0.69			1.08			1.08			0.73
Portfolio turnover rate		78			83			96			88			71
Net assets, end of period ($ x 1,000,000)		961			948			630			540			1,255

¹ The ratio of net operating expenses would have been 1.59% if custody credits had not been included.

² The ratio of net operating expenses would have been 1.47% if certain non-routine expenses had not been incurred.

³ The ratio of net operating expenses would have been 1.47% if custody credits had not been included.

See financial notes 19

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2011

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


				Cost		Value
Holdings by Category				($)		($)

	95	.8%	Common Stock		1,415,129,916		1,557,227,737
	0	.1%	Preferred Stock		998,553		1,267,690
	3	.2%	Other Investment Company		52,203,538		52,203,538
	0	.0%	Corporate Bond		117,495		67,455
	0	.0%	Rights		142,609		141,070
	0	.1%	Short-Term Investment		2,705,000		2,705,000


	99	.2%	Total Investments		1,471,297,111		1,613,612,490
	0	.8%	Other Assets and Liabilities, Net				12,223,173


	100	.0%	Net Assets				1,625,835,663


	Number		Value
Security	of Shares		($)

Common Stock 95.8% of net assets

Australia 4.9%


Capital Goods 0.4%
Boart Longyear Group		282,900		943,969
Monadelphous Group Ltd.		289,694		5,509,757

				6,453,726


Commercial & Professional Supplies 1.0%
Campbell Brothers Ltd.		149,561		7,199,867
SAI Global Ltd.		353,815		1,762,503
Transfield Services Ltd.		3,382,126		8,071,706

				17,034,076


Energy 0.1%
Bandanna Energy Ltd. *		1,079,826		921,626


Food, Beverage & Tobacco 0.0%
Coca-Cola Amatil Ltd.		7,900		101,980
Treasury Wine Estates		134,333		524,500

				626,480


Materials 2.0%
Amcor Ltd.		1,014,500		7,422,315
Atlas Iron Ltd.		557,505		1,808,199
BHP Billiton Ltd. ADR		170,475		13,310,688
Iluka Resources Ltd.		176,915		2,941,158
Medusa Mining Ltd.		315,040		2,214,602
Orica Ltd.		157,300		4,260,559
PanAust Ltd. *		206,820		698,867

				32,656,388


Pharmaceuticals, Biotechnology & Life Sciences 0.2%
Mesoblast Ltd. *		314,821		2,676,606


Real Estate 0.8%
Commonwealth Property Office Fund		13,182,186		12,858,945


Retailing 0.4%
David Jones Ltd.		1,798,275		6,348,200

				79,576,047

Austria 0.2%


Energy 0.2%
Schoeller-Bleckmann Oilfield Equipment AG		33,902		2,678,650

Belgium 0.0%


Pharmaceuticals, Biotechnology & Life Sciences 0.0%
UCB S.A.		14,800		650,232

Brazil 1.8%


Capital Goods 0.2%
Iochpe-Maxion S.A.		37,300		525,765
Mills Estruturas e Servicos de Engenharia S.A.		302,200		3,018,744

				3,544,509


Diversified Financials 0.2%
CETIP SA - Balcao Organizado de Ativos e Derivativos		214,174		2,956,533


Energy 0.4%
OGX Petroleo e Gas Participacoes S.A. *		228,400		1,889,088
Petroleo Brasileiro S.A. - Petrobras		338,400		4,549,187

				6,438,275


Health Care Equipment & Services 0.1%
OdontoPrev S.A.		53,800		846,711


Insurance 0.0%
Sul America S.A.		57,900		465,061


Materials 0.5%
Vale S.A. ADR		343,500		8,728,335


Media 0.0%
T4F Entretenimento S.A. *		35,700		249,527


Real Estate 0.1%
BR Malls Participacoes S.A.		96,100		1,038,329
BR Properties S.A.		62,400		628,779

				1,667,108


Retailing 0.1%
Cia. Hering		82,700		1,847,305


Transportation 0.1%
CCR S.A.		47,000		1,293,503


Utilities 0.1%
Tractebel Energia S.A.		50,500		808,894

				28,845,761

Canada 7.9%


Banks 0.3%
Canadian Western Bank		137,499		3,931,499

20 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Home Capital Group, Inc.		6,868		310,619

				4,242,118


Capital Goods 0.1%
Finning International, Inc.		66,550		1,555,671


Consumer Services 0.1%
Tim Hortons, Inc.		39,740		1,956,001


Diversified Financials 0.1%
CI Financial Corp.		62,837		1,260,838


Energy 2.1%
Canadian Natural Resources Ltd.		116,550		4,120,043
Celtic Exploration Ltd. *		12,196		302,101
Crescent Point Energy Corp.		30,546		1,304,583
Legacy Oil + Gas, Inc. *		355,474		3,216,830
Pason Systems, Inc.		595,500		8,077,412
Penn West Petroleum Ltd.		49,900		894,208
Petrominerales Ltd.		128,357		3,386,796
Peyto Exploration & Development Corp.		41,773		911,525
Precision Drilling Corp. *		95,700		1,109,899
Suncor Energy, Inc.		181,975		5,806,822
Trican Well Service Ltd.		283,581		5,015,835

				34,146,054


Food & Staples Retailing 0.1%
Alimentation Couche-Tard, Inc., Class B		67,161		2,021,400


Food, Beverage & Tobacco 0.1%
Saputo, Inc.		42,949		1,774,407


Health Care Equipment & Services 0.2%
SXC Health Solutions Corp. *		67,128		3,116,813


Insurance 0.1%
Intact Financial Corp.		15,312		854,430
Intact Financial Corp. (Subscription Receipt)		6,173		344,462
Manulife Financial Corp.		52,625		695,176

				1,894,068


Materials 2.1%
Agrium, Inc.		21,800		1,793,922
AuRico Gold, Inc. *		281,345		2,723,832
Copper Mountain Mining Corp. *		166,543		888,897
Detour Gold Corp.		63,792		2,112,000
First Quantum Minerals Ltd.		81,400		1,707,624
Franco-Nevada Corp.		11,900		471,463
IAMGOLD Corp.		18,500		397,748
Major Drilling Group International, Inc.		458,679		6,134,127
New Gold, Inc. *		250,024		3,097,864
Potash Corp. of Saskatchewan, Inc.		312,675		14,798,908

				34,126,385


Media 0.2%
Thomson Reuters Corp.		119,000		3,520,752


Real Estate 0.8%
Brookfield Asset Management, Inc., Class A		160,661		4,659,169
Morguard REIT		223,790		3,403,718
Northern Property REIT		160,700		4,644,863

				12,707,750


Retailing 0.4%
Dollarama, Inc.		177,606		6,685,505


Software & Services 0.1%
CGI Group, Inc., Class A *		18,200		372,491
Open Text Corp. *		19,700		1,202,094

				1,574,585


Transportation 1.1%
Canadian National Railway Co.		129,925		10,188,719
Canadian Pacific Railway Ltd.		116,725		7,222,943

				17,411,662

				127,994,009

Chile 0.3%


Banks 0.1%
Banco Santander Chile ADR		13,935		1,138,211


Materials 0.1%
Sociedad Quimica y Minera de Chile S.A. ADR		22,525		1,317,713


Pharmaceuticals, Biotechnology & Life Sciences 0.0%
CFR Pharmaceuticals S.A. *		2,118,794		501,643


Real Estate 0.1%
Parque Arauco S.A.		527,836		1,011,609


Software & Services 0.0%
Sonda S.A.		124,905		304,901

				4,274,077

China 1.4%


Automobiles & Components 0.0%
Great Wall Motor Co., Ltd., Class H		86,000		116,780


Capital Goods 0.0%
Haitian International Holdings Ltd.		240,000		213,239


Commercial & Professional Supplies 0.2%
51job, Inc. *		49,548		2,288,126


Consumer Services 0.0%
New Oriental Education & Technology Group, Inc. ADR *		16,700		494,988


Food & Staples Retailing 0.0%
Sun Art Retail Group Ltd. *		251,000		325,026


Food, Beverage & Tobacco 0.2%
China Minzhong Food Corp., Ltd. *		204,000		168,164
Shenguan Holdings Group Ltd.		3,738,000		2,008,260

				2,176,424


Insurance 0.1%
Ping An Insurance (Group) Co. of China Ltd., Class H		258,500		1,917,139


Materials 0.4%
AMVIG Holdings Ltd.		6,666,000		4,159,238

See financial notes 21

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
China Lumena New Materials Corp.		4,722,310		1,039,304
Dongyue Group		2,252,000		1,743,811

				6,942,353


Media 0.1%
Focus Media Holding Ltd. ADR *		71,643		1,947,257


Real Estate 0.1%
China Overseas Land & Investment Ltd.		892,000		1,650,547
Evergrande Real Estate Group Ltd.		675,000		291,916

				1,942,463


Retailing 0.1%
China ZhengTong Auto Services Holdings Ltd. *		1,553,000		1,681,607


Semiconductors & Semiconductor Equipment 0.1%
Spreadtrum Communications, Inc.		31,000		823,670


Software & Services 0.1%
21Vianet Group Inc. ADR *		63,380		562,181
Tencent Holdings Ltd.		66,600		1,540,296

				2,102,477

				22,971,549

Denmark 0.7%


Capital Goods 0.0%
FLSmidth & Co. A/S		3,100		196,333


Health Care Equipment & Services 0.1%
Coloplast A/S, Class B		11,684		1,699,106


Materials 0.6%
Christian Hansen Holding A/S		451,123		9,816,212


Software & Services 0.0%
SimCorp A/S		2,812		481,894

				12,193,545

Finland 0.5%


Automobiles & Components 0.2%
Nokian Renkaat Oyj		70,145		2,569,151


Capital Goods 0.2%
Outotec Oyj		87,174		4,046,730


Materials 0.1%
UPM-Kymmene Oyj		135,473		1,584,105

				8,199,986

France 6.5%


Banks 0.8%
BNP Paribas S.A.		305,917		13,660,682


Capital Goods 0.9%
Compagnie de Saint-Gobain		38,441		1,776,646
Mersen S.A.		131,094		5,117,655
Nexans S.A.		76,015		4,781,539
Safran S.A.		37,800		1,234,398
Zodiac Aerospace		11,500		901,699

				13,811,937


Commercial & Professional Supplies 0.1%
Edenred		47,400		1,337,013


Consumer Services 0.0%
Sodexo		3,700		267,157


Energy 0.1%
Technip S.A.		21,000		1,985,697


Food, Beverage & Tobacco 0.1%
DANONE S.A.		26,800		1,857,854


Health Care Equipment & Services 0.4%
Essilor International S.A.		43,266		3,127,016
Medica S.A.		164,058		3,267,530

				6,394,546


Insurance 0.3%
AXA S.A.		328,286		5,280,132


Materials 0.2%
Air Liquide S.A.		13,562		1,751,088
Arkema		8,380		569,497

				2,320,585


Media 1.0%
Eutelsat Communications		10,900		448,884
Ipsos		174,017		5,694,256
Publicis Groupe		168,000		8,104,491
Societe Television Francaise 1		157,900		2,120,108

				16,367,739


Pharmaceuticals, Biotechnology & Life Sciences 0.3%
Boiron S.A.		78,450		2,232,415
Eurofins Scientific		33,999		3,053,996

				5,286,411


Retailing 0.4%
PPR		38,900		6,036,323


Software & Services 0.1%
Alten		26,957		767,635


Technology Hardware & Equipment 1.4%
Gemalto N.V.		23,400		1,064,336
Ingenico S.A.		210,639		8,327,034
Neopost S.A.		181,764		13,824,500

				23,215,870


Utilities 0.4%
Rubis		76,595		4,352,794
Suez Environnement Co.		160,269		2,514,292

				6,867,086

				105,456,667

Germany 7.5%


Automobiles & Components 1.1%
Bayerische Motoren Werke AG		53,360		4,334,652
Daimler AG - Reg’d		176,400		8,959,191
ElringKlinger AG		183,467		5,062,498

				18,356,341


Capital Goods 1.5%
Bilfinger Berger SE		111,789		9,978,123
GEA Group AG		27,400		751,332

22 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Gildemeister AG *		139,553		2,026,561
KUKA AG *		74,820		1,423,605
MTU Aero Engines Holding AG		102,753		6,880,843
Rational AG		14,019		3,227,604

				24,288,068


Consumer Durables & Apparel 0.3%
Gerry Weber International AG		137,319		4,263,088


Insurance 0.6%
Allianz SE - Reg’d		79,600		8,856,462


Materials 1.3%
BASF SE		27,662		2,019,209
BASF SE ADR		76,750		5,629,613
Lanxess AG		32,112		1,875,531
Symrise AG		461,183		11,937,700

				21,462,053


Media 0.3%
GfK SE		101,386		4,688,222
Kabel Deutschland Holding AG *		14,500		822,429

				5,510,651


Pharmaceuticals, Biotechnology & Life Sciences 0.5%
Bayer AG - Reg’d		72,599		4,625,425
QIAGEN N.V. *		271,115		3,770,874

				8,396,299


Retailing 0.5%
Delticom AG		14,969		1,667,905
Fielmann AG		59,597		6,261,877

				7,929,782


Semiconductors & Semiconductor Equipment 0.2%
Aixtron SE		40,740		576,835
Infineon Technologies AG		264,494		2,381,294

				2,958,129


Software & Services 0.9%
SAP AG		217,204		13,133,874
XING AG *		24,809		2,075,819

				15,209,693


Technology Hardware & Equipment 0.2%
Wincor Nixdorf AG		65,021		3,641,049


Transportation 0.1%
Fraport AG		13,600		856,281

				121,727,896

Hong Kong 1.9%


Automobiles & Components 0.1%
Brilliance China Automotive Holdings Ltd. *		964,000		1,033,467


Consumer Durables & Apparel 0.0%
Arts Optical International Holdings Ltd.		1,698,000		548,602


Diversified Financials 0.0%
Value Partners Group Ltd.		828,000		476,453


Food, Beverage & Tobacco 0.2%
Biostime International Holdings Ltd.		1,729,500		3,084,185


Insurance 0.2%
AIA Group Ltd.		760,400		2,325,104


Materials 0.1%
China Resources Cement Holdings Ltd.		210,000		166,637
China Shanshui Cement Group		2,057,000		1,575,613
Yingde Gases		309,000		329,529

				2,071,779


Real Estate 0.1%
China Overseas Grand Oceans Group Ltd.		2,181,500		1,663,994


Retailing 0.3%
Giordano International Ltd.		3,384,000		2,552,497
Golden Eagle Retail Group Ltd.		316,000		794,166
Luk Fook Holdings International Ltd.		411,000		1,762,121
Sa Sa International Holdings Ltd.		546,000		324,594

				5,433,378


Semiconductors & Semiconductor Equipment 0.2%
ASM Pacific Technology Ltd.		312,500		3,431,525


Technology Hardware & Equipment 0.2%
AAC Technologies Holdings, Inc.		1,156,000		2,646,097
China High Precision Automation Group Ltd. (a)		234,000		82,530
Lenovo Group Ltd.		1,626,000		1,093,166

				3,821,793


Telecommunication Services 0.1%
Hutchison Telecommunications Hong Kong Holdings Ltd.		1,932,000		686,889
SmarTone Telecommunications Holdings Ltd.		404,000		746,176

				1,433,065


Transportation 0.4%
Pacific Basin Shipping Ltd.		12,527,000		5,711,940

				31,035,285

India 1.1%


Banks 0.3%
Axis Bank Ltd.		38,377		904,909
HDFC Bank Ltd.		126,340		1,259,593
Indian Bank		540,251		2,394,805

				4,559,307


Consumer Durables & Apparel 0.3%
Titan Industries Ltd.		130,604		579,687
TTK Prestige Ltd.		38,271		2,055,170
V.I.P. Industries Ltd.		413,715		1,471,515

				4,106,372


Consumer Services 0.1%
Jubilant Foodworks Ltd. *		93,058		1,538,392


Diversified Financials 0.0%
Shriram Transport Finance Co., Ltd.		58,695		733,084


Energy 0.1%
Petronet LNG Ltd.		566,754		1,878,854

See financial notes 23

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)


Household & Personal Products 0.0%
Dabur India Ltd.		157,100		325,857


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Lupin Ltd.		74,367		715,324
Sun Pharmaceutical Industries Ltd.		101,029		1,042,512

				1,757,836


Software & Services 0.2%
Tata Consultancy Services Ltd.		135,770		3,090,836

				17,990,538

Indonesia 0.4%


Banks 0.1%
PT Bank Danamon Indonesia Tbk		651,613		363,117
PT Bank Rakyat Indonesia (Persero) Tbk		2,735,500		2,056,685

				2,419,802


Capital Goods 0.1%
PT United Tractors Tbk		550,893		1,515,261


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
PT Kalbe Farma Tbk		2,072,500		806,722


Retailing 0.1%
Mitra Adiperkasa Tbk PT		2,677,500		1,474,669

				6,216,454

Ireland 1.7%


Banks 0.3%
The Governor & Company of the Bank of Ireland *		40,143,680		5,701,936


Capital Goods 0.5%
Cooper Industries plc		117,800		6,179,788
Ingersoll-Rand plc		43,200		1,344,816

				7,524,604


Commercial & Professional Supplies 0.1%
Experian plc		179,473		2,331,489


Consumer Services 0.1%
Paddy Power plc		15,429		848,688


Food, Beverage & Tobacco 0.3%
Glanbia plc		673,843		4,355,994


Materials 0.2%
Kenmare Resources plc *		5,373,919		3,492,219


Pharmaceuticals, Biotechnology & Life Sciences 0.2%
Elan Corp. plc *		88,000		1,055,120
Shire plc		57,991		1,820,081

				2,875,201

				27,130,131

Israel 0.4%


Semiconductors & Semiconductor Equipment 0.3%
Mellanox Technologies Ltd. *		134,781		4,361,513


Software & Services 0.1%
Check Point Software Technologies Ltd. *		27,085		1,560,909


Technology Hardware & Equipment 0.0%
Orbotech Ltd. *		25,000		266,250

				6,188,672

Italy 1.7%


Automobiles & Components 0.5%
Pirelli & C. S.p.A.		965,629		8,522,072


Banks 0.6%
Intesa Sanpaolo		5,687,670		10,038,749


Consumer Durables & Apparel 0.2%
Salvatore Ferragamo Italia S.p.A. *		208,252		3,374,334


Consumer Services 0.1%
Lottomatica S.p.A. *		53,082		1,013,332


Diversified Financials 0.2%
Banca Generali S.p.A.		325,012		3,249,419


Food, Beverage & Tobacco 0.1%
Davide Campari - Milano S.p.A.		164,354		1,269,712


Transportation 0.0%
Ansaldo STS S.p.A.		3,253		34,415

				27,502,033

Japan 12.7%


Automobiles & Components 2.1%
Daihatsu Motor Co., Ltd.		21,000		369,547
EXEDY Corp.		32,900		953,132
F.C.C. Co., Ltd.		391,411		8,269,794
Honda Motor Co., Ltd.		209,500		6,264,833
Nifco, Inc.		373,200		9,733,543
Toyota Motor Corp.		271,400		9,010,688

				34,601,537


Banks 0.6%
Sumitomo Mitsui Financial Group, Inc.		338,400		9,458,789


Capital Goods 1.2%
Chiyoda Corp.		91,000		1,047,929
Fanuc Ltd.		18,700		3,023,606
JGC Corp.		29,000		816,991
Makino Milling Machine Co., Ltd.		511,000		3,391,898
Misumi Group, Inc.		26,000		540,990
Miura Co., Ltd.		110,000		2,951,219
NGK Insulators Ltd.		19,000		219,031
Okuma Corp.		16,000		117,768
SMC Corp.		9,500		1,477,647
Tsubakimoto Chain Co.		598,000		3,069,055
Ushio, Inc.		266,400		3,938,680

				20,594,814


Commercial & Professional Supplies 0.5%
Meitec Corp.		120,000		2,234,591
Park24 Co., Ltd.		49,400		567,990
Secom Co., Ltd.		107,500		5,084,011

				7,886,592


Consumer Durables & Apparel 0.3%
Asics Corp.		57,100		756,984
Sharp Corp.		23,000		212,015

24 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Tamron Co., Ltd.		155,000		4,173,034

				5,142,033


Consumer Services 0.1%
Round One Corp.		191,400		1,397,448


Diversified Financials 0.8%
Credit Saison Co., Ltd.		23,300		454,673
Daiwa Securities Group, Inc.		2,726,000		9,538,191
ORIX Corp.		30,730		2,681,969

				12,674,833


Food & Staples Retailing 0.1%
FamilyMart Co., Ltd.		18,800		739,072
Lawson, Inc.		8,800		495,173

				1,234,245


Food, Beverage & Tobacco 0.2%
Ariake Japan Co., Ltd.		171,000		2,964,486


Health Care Equipment & Services 1.5%
Hogy Medical Co., Ltd.		156,500		6,630,778
M3, Inc.		637		2,880,784
Miraca Holdings, Inc.		154,500		5,892,288
Nihon Kohden Corp.		134,800		3,147,044
Olympus Corp.		227,000		3,459,243
Ship Healthcare Holdings, Inc.		86,300		2,098,066
Sysmex Corp.		13,300		437,172

				24,545,375


Household & Personal Products 0.1%
Dr. Ci:Labo Co., Ltd.		494		2,657,901


Materials 0.2%
Taiyo Holdings Co., Ltd.		108,300		2,831,440
Zeon Corp.		82,000		755,249

				3,586,689


Media 0.5%
CyberAgent, Inc.		2,149		7,242,803
Nippon Television Network Corp.		2,900		410,457

				7,653,260


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Kaken Pharmaceutical Co., Ltd.		39,000		489,516
Sawai Pharmaceutical Co., Ltd.		7,100		664,143

				1,153,659


Real Estate 0.1%
Daito Trust Construction Co., Ltd.		19,200		1,701,130


Retailing 0.9%
Fast Retailing Co., Ltd.		17,600		3,161,581
K’s Holdings Corp.		33,000		1,385,782
Nitori Holdings Co., Ltd.		25,560		2,444,458
Sanrio Co., Ltd.		102,900		5,084,622
Start Today Co., Ltd.		113,500		2,401,004
United Arrows Ltd.		15,600		303,437

				14,780,884


Semiconductors & Semiconductor Equipment 0.5%
Rohm Co., Ltd.		167,200		8,519,081


Software & Services 0.7%
Capcom Co., Ltd.		54,100		1,415,271
Gree, Inc.		48,700		1,571,508
Kakaku.com, Inc.		116,200		4,600,937
Net One Systems Co., Ltd.		1,258		3,272,057

				10,859,773


Technology Hardware & Equipment 1.9%
Anritsu Corp.		457,000		5,167,087
Canon, Inc.		189,400		8,598,344
Horiba Ltd.		228,600		7,251,602
Keyence Corp.		8,500		2,160,791
Murata Manufacturing Co., Ltd.		21,200		1,184,190
OMRON Corp.		280,600		6,047,317

				30,409,331


Telecommunication Services 0.3%
SOFTBANK Corp.		152,500		4,949,484

				206,771,344

Luxembourg 0.5%


Energy 0.4%
Subsea 7 S.A. *		65,300		1,408,080
Tenaris S.A. ADR		176,900		5,627,189

				7,035,269


Retailing 0.0%
L’Occitane International S.A.		42,500		93,704


Telecommunication Services 0.1%
Millicom International Cellular S.A.		15,715		1,733,150

				8,862,123

Malaysia 0.0%


Food, Beverage & Tobacco 0.0%
Kuala Lumpur Kepong Berhad		15,900		108,490

Mexico 0.5%


Diversified Financials 0.1%
Compartamos S.A.B. de C.V.		464,667		718,252


Media 0.1%
Grupo Televisa S.A. ADR		91,300		1,947,429


Pharmaceuticals, Biotechnology & Life Sciences 0.3%
Genomma Lab Internacional S.A., Class B *		2,592,902		5,350,402

				8,016,083

Netherlands 4.8%


Capital Goods 1.5%
Aalberts Industries N.V.		113,535		1,996,777
Koninklijke Boskalis Westminster N.V.		424,513		14,837,866
Koninklijke Philips Electronics N.V.		393,600		8,193,456

				25,028,099


Energy 1.6%
Core Laboratories N.V.		46,100		4,990,786
Royal Dutch Shell plc, B Shares		180,496		6,475,863
SBM Offshore N.V.		170,472		3,745,676

See financial notes 25

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Schlumberger Ltd.		138,325		10,162,738

				25,375,063


Food & Staples Retailing 0.3%
Koninklijke Ahold N.V.		369,300		4,718,312


Food, Beverage & Tobacco 0.7%
Heineken Holding N.V.		91,700		3,922,858
Unilever N.V. CVA		156,899		5,416,727
Unilever N.V., NY Shares		43,850		1,514,141

				10,853,726


Materials 0.5%
Akzo Nobel N.V.		159,600		8,392,092


Semiconductors & Semiconductor Equipment 0.2%
ASML Holding N.V.		59,502		2,496,048


Transportation 0.0%
Koninklijke Vopak N.V.		13,200		680,355

				77,543,695

New Zealand 0.8%


Consumer Services 0.3%
Sky City Entertainment Group Ltd.		1,422,325		4,046,674


Health Care Equipment & Services 0.3%
Fisher & Paykel Healthcare Corp., Ltd.		2,369,299		4,406,844


Transportation 0.2%
Auckland International Airport Ltd.		2,088,250		3,942,865

				12,396,383

Norway 0.9%


Commercial & Professional Supplies 0.3%
Tomra Systems A.S.A.		683,547		5,012,120


Energy 0.4%
Farstad Shipping A.S.A.		107,898		2,951,456
Statoil A.S.A.		87,400		2,217,692
TGS Nopec Geophysical Co., A.S.A.		67,699		1,533,565

				6,702,713


Materials 0.1%
Yara International A.S.A. ADR		14,200		670,382


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Algeta A.S.A. *		47,819		1,666,027


Software & Services 0.0%
Opera Software A.S.A.		61,303		275,870


Transportation 0.0%
Norwegian Air Shuttle A.S.A. *		28,700		375,560

				14,702,672

Panama 0.0%


Transportation 0.0%
Copa Holdings S.A., Class A		7,880		544,272

Papua New Guinea 0.1%


Energy 0.1%
Oil Search Ltd.		152,457		1,040,092

Peru 0.1%


Banks 0.1%
Credicorp Ltd.		17,103		1,860,464

Philippines 0.1%


Capital Goods 0.1%
Alliance Global Group, Inc.		3,331,000		815,540


Transportation 0.0%
International Container Terminal Services, Inc.		524,100		676,646

				1,492,186

Poland 0.0%


Food & Staples Retailing 0.0%
Eurocash S.A.		18,419		147,247

Republic of Korea 2.2%


Automobiles & Components 0.6%
Hyundai Mobis		7,323		2,095,779
Hyundai Motor Co.		12,336		2,484,328
Mando Corp.		28,800		4,932,899

				9,513,006


Capital Goods 0.1%
Samsung Engineering Co., Ltd.		7,594		1,551,070


Consumer Durables & Apparel 0.2%
Handsome Co., Ltd.		132,990		3,241,434


Food & Staples Retailing 0.0%
E-Mart Co., Ltd. *		1,600		417,975


Insurance 0.5%
Dongbu Insurance Co., Ltd.		21,300		896,716
Hyundai Marine & Fire Insurance Co., Ltd.		187,440		5,427,477
Samsung Fire & Marine Insurance Co., Ltd.		11,508		2,447,004

				8,771,197


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Celltrion, Inc.		42,221		1,413,428


Semiconductors & Semiconductor Equipment 0.5%
Samsung Electronics Co., Ltd.		10,025		8,630,127


Software & Services 0.1%
NCSoft Corp.		6,100		1,917,677


Transportation 0.1%
Hyundai Glovis Co., Ltd.		6,000		1,123,849

				36,579,763

Singapore 3.7%


Capital Goods 0.1%
Keppel Corp., Ltd.		247,500		1,852,814

26 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)


Energy 0.1%
Ezra Holdings Ltd.		2,713,000		2,086,221


Health Care Equipment & Services 0.2%
Biosensors International Group Ltd. *		3,334,000		3,716,616


Real Estate 1.4%
Ascendas REIT		4,307,000		7,007,243
CapitaMall Trust		8,301,200		12,333,732
CapitaMalls Asia Ltd.		1,081,000		1,164,787
Global Logistic Properties Ltd. *		1,090,000		1,517,639

				22,023,401


Telecommunication Services 0.4%
StarHub Ltd.		3,172,000		7,099,628


Transportation 1.2%
SATS Ltd.		4,027,000		7,846,219
SIA Engineering Co., Ltd.		2,926,000		8,553,028
SMRT Corp., Ltd.		1,885,553		2,761,059

				19,160,306


Utilities 0.3%
Hyflux Ltd.		3,642,000		4,135,983

				60,074,969

South Africa 0.2%


Capital Goods 0.0%
Wilson Bayly Holmes-Ovcon Ltd.		21,210		287,617


Food & Staples Retailing 0.1%
Shoprite Holdings Ltd.		89,224		1,306,219


Health Care Equipment & Services 0.0%
Life Healthcare Group Holdings Pte Ltd.		294,756		714,507


Retailing 0.1%
Clicks Group Ltd.		46,448		242,691
The Foschini Group Ltd.		82,504		1,035,466

				1,278,157

				3,586,500

Spain 1.1%


Banks 0.5%
Banco Santander S.A.		898,614		7,605,740


Commercial & Professional Supplies 0.3%
Prosegur, Compania de Seguridad S.A. - Reg’d		91,408		4,544,593


Food, Beverage & Tobacco 0.0%
Viscofan S.A.		20,201		775,649


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Grifols S.A. *		56,400		1,048,615


Retailing 0.2%
Industria de Diseno Textil S.A.		41,675		3,783,234

				17,757,831

Sweden 1.4%


Capital Goods 0.6%
Assa Abloy AB, B Shares		370,400		8,995,150
NIBE Industrier AB, B Shares		30,949		462,477

				9,457,627


Commercial & Professional Supplies 0.2%
AF AB, B Shares		218,592		3,682,431


Consumer Durables & Apparel 0.0%
JM AB		27,447		498,009


Diversified Financials 0.1%
Kinnevik Investment AB, B Shares		58,800		1,228,736


Energy 0.1%
Lundin Petroleum AB *		105,600		2,577,148


Food, Beverage & Tobacco 0.1%
Swedish Match AB		30,700		1,060,069


Health Care Equipment & Services 0.2%
Elekta AB, B Shares		36,384		1,452,963
Getinge AB, B Shares		80,307		2,083,250

				3,536,213


Retailing 0.1%
Mekonomen AB		32,022		1,168,315

				23,208,548

Switzerland 7.5%


Capital Goods 0.3%
ABB Ltd. - Reg’d *		134,650		2,534,841
Geberit AG - Reg’d *		10,700		2,191,332
Meyer Burger Technology AG *		12,911		309,043
Rieter Holding AG - Reg’d *		1,618		336,638

				5,371,854


Commercial & Professional Supplies 0.8%
Adecco S.A. - Reg’d *		224,700		10,791,717
SGS S.A. - Reg’d		898		1,540,454

				12,332,171


Consumer Durables & Apparel 0.3%
Compagnie Financiere Richemont S.A., Series A		86,900		4,950,223


Consumer Services 0.0%
Orascom Development Holding AG *		14,366		317,774


Diversified Financials 0.9%
Credit Suisse Group AG - Reg’d *		423,500		12,214,178
Julius Baer Group Ltd. *		37,880		1,423,333
Partners Group Holding AG		8,154		1,525,322

				15,162,833


Energy 1.4%
Noble Corp. *		270,400		9,718,176
Transocean Ltd.		114,121		6,522,015
Weatherford International Ltd. *		416,125		6,449,938

				22,690,129


Food, Beverage & Tobacco 1.5%
Aryzta AG		22,000		1,060,800

See financial notes 27

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Nestle S.A. - Reg’d		181,355		10,489,149
Nestle S.A. - Reg’d ADR		207,512		11,985,893

				23,535,842


Materials 1.2%
Givaudan S.A. - Reg’d *		8,240		7,494,429
Glencore International plc		623,747		4,366,521
Holcim Ltd. - Reg’d *		91,900		5,819,665
Sika AG - BR		604		1,183,729

				18,864,344


Pharmaceuticals, Biotechnology & Life Sciences 0.7%
Novartis AG - Reg’d		95,404		5,374,610
Novartis AG ADR		59,775		3,375,494
Roche Holding AG		12,700		2,083,681

				10,833,785


Retailing 0.0%
Dufry Group - Reg’d *		5,794		620,235


Transportation 0.4%
Kuehne & Nagel International AG - Reg’d		56,100		6,950,293

				121,629,483

Taiwan 1.1%


Capital Goods 0.2%
Yungtay Engineering Co., Ltd.		1,590,000		2,570,290


Health Care Equipment & Services 0.1%
St. Shine Optical Co., Ltd.		177,000		2,223,529


Materials 0.1%
Taiwan Hon Chuan Enterprise Co., Ltd.		680,534		1,467,847


Software & Services 0.2%
PChome Online, Inc.		524,000		3,429,753


Technology Hardware & Equipment 0.5%
Catcher Technology Co., Ltd.		532,490		2,966,770
Compal Communications, Inc.		543,000		775,674
E Ink Holdings, Inc.		1,223,000		2,496,687
Largan Precision Co., Ltd.		34,000		760,113
TPK Holding Co., Ltd. *		36,750		615,398

				7,614,642

				17,306,061

Thailand 0.1%


Banks 0.1%
Kasikornbank Public Co., Ltd.		317,500		1,282,235


Health Care Equipment & Services 0.0%
Bangkok Dusit Medical Services PCL		240,300		527,488

				1,809,723

Turkey 0.3%


Automobiles & Components 0.0%
Tofas Turk Otomobil Fabrikasi A/S		87,036		334,511


Banks 0.1%
Turkiye Halk Bankasi A/S		199,159		1,223,900


Food & Staples Retailing 0.2%
BIM Birlesik Magazalar A/S		25,921		787,951
Bizim Toptan Satis Magazalari AS		183,706		2,353,049

				3,141,000

				4,699,411

United Kingdom 18.4%


Banks 0.1%
Barclays plc		565,707		1,753,659


Capital Goods 3.9%
Ashtead Group plc		1,897,143		4,720,859
BAE Systems plc		398,400		1,766,762
Bodycote plc		1,079,498		4,884,033
Cobham plc		1,539,624		4,442,996
Fenner plc		337,924		1,843,557
Interserve plc		565,576		2,997,377
Kentz Corp., Ltd.		198,964		1,551,312
Meggitt plc		191,970		1,184,762
Rolls-Royce Holdings plc *		251,024		2,825,642
Rolls-Royce Holdings plc, C Shares (a)(b)*		17,320,656		27,850
Rotork plc		529,455		14,280,653
Spirax-Sarco Engineering plc		228,428		7,017,118
The Weir Group plc		115,581		3,541,030
Ultra Electronics Holdings plc		323,123		8,244,158
Wolseley plc		165,100		4,760,835

				64,088,944


Commercial & Professional Supplies 1.7%
Aggreko plc		99,555		2,729,180
Babcock International Group plc		240,096		2,713,462
Capita Group plc		135,305		1,578,659
CPP Group plc		692,512		1,632,655
De La Rue plc		703,812		9,534,541
G4S plc		929,100		3,632,494
RPS Group plc		169,672		491,376
Serco Group plc		538,813		4,486,974

				26,799,341


Consumer Durables & Apparel 0.6%
Bellway plc		302,174		3,438,418
Burberry Group plc		135,905		2,917,553
Persimmon plc		161,600		1,288,703
The Berkeley Group Holdings plc *		74,483		1,493,593

				9,138,267


Consumer Services 0.2%
Greene King plc		344,905		2,486,984
Restaurant Group plc		72,302		347,913
Whitbread plc		33,700		895,456

				3,730,353


Diversified Financials 0.9%
Aberdeen Asset Management plc		1,674,031		5,154,534
Ashmore Group plc		314,754		1,743,458
Hargreaves Lansdown plc		54,886		441,055
IG Group Holdings plc		127,916		953,867
Jupiter Fund Management plc		134,864		507,244

28 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Schroders plc		221,100		5,060,578

				13,860,736


Energy 0.8%
AMEC plc		118,669		1,758,606
BG Group plc		208,149		4,513,505
Enquest plc *		29,654		51,269
John Wood Group plc		253,140		2,506,291
Petrofac Ltd.		140,915		3,236,936
Tullow Oil plc		70,284		1,579,135

				13,645,742


Food & Staples Retailing 0.0%
Tesco plc		35,300		227,594


Food, Beverage & Tobacco 1.4%
British American Tobacco plc ADR		76,850		7,089,412
Diageo plc		566,949		11,733,443
Diageo plc ADR		42,525		3,524,472

				22,347,327


Insurance 0.3%
Amlin plc		189,796		875,405
Hiscox Ltd.		95,007		580,641
Lancashire Holdings Ltd.		109,547		1,257,682
Prudential plc		155,527		1,606,455
St. James’s Place plc		86,176		487,370
Willis Group Holdings plc		22,300		809,713

				5,617,266


Materials 4.0%
AZ Electronic Materials S.A.		1,528,200		6,088,926
BHP Billiton plc		185,365		5,837,047
Croda International plc		658,635		18,516,413
Johnson Matthey plc		94,770		2,850,584
London Mining plc *		325,103		1,668,826
Randgold Resources Ltd. ADR		14,995		1,643,002
Rexam plc		2,259,112		12,522,245
Rio Tinto plc ADR		170,750		9,230,745
Victrex plc		294,066		5,981,496

				64,339,284


Media 0.5%
British Sky Broadcasting Group plc		18,304		206,386
Reed Elsevier plc		334,100		2,860,171
Rightmove plc		203,118		4,249,843

				7,316,400


Pharmaceuticals, Biotechnology & Life Sciences 0.1%
Abcam plc		195,322		1,161,487
GlaxoSmithKline plc		46,300		1,039,081

				2,200,568


Real Estate 0.1%
Shaftesbury plc		236,666		1,912,459


Retailing 0.7%
ASOS plc *		73,753		1,838,818
Carphone Warehouse Group plc		208,546		1,172,982
Dunelm Group plc		103,193		830,507
Next plc		55,695		2,282,726
Ocado Group plc *		333,824		500,262
Signet Jewelers Ltd. *		112,500		4,849,875
Sports Direct International plc *		6,864		25,284

				11,500,454


Semiconductors & Semiconductor Equipment 0.1%
ARM Holdings plc		131,671		1,235,454


Software & Services 0.3%
Moneysupermarket.com Group plc		174,849		300,082
Telecity Group plc *		497,649		4,767,768

				5,067,850


Technology Hardware & Equipment 2.1%
Diploma plc		749,601		3,866,654
Domino Printing Sciences plc		198,596		1,829,651
Halma plc		993,840		5,340,571
Imagination Technologies Group plc *		362,696		2,666,421
Laird plc		1,849,102		4,423,843
Spectris plc		637,761		13,030,355
TT Electronics plc		1,164,116		2,936,380

				34,093,875


Utilities 0.6%
Centrica plc		905,874		4,312,502
Drax Group plc		213,365		1,857,354
SSE plc		197,900		4,275,860

				10,445,716

				299,321,289

United States 0.4%


Energy 0.1%
Golar LNG Ltd.		53,871		2,178,005


Food, Beverage & Tobacco 0.1%
Bunge Ltd.		31,150		1,924,135


Household & Personal Products 0.1%
Herbalife Ltd.		16,800		1,047,648


Insurance 0.1%
PartnerRe Ltd.		27,375		1,703,273


Software & Services 0.0%
SINA Corp. *		3,500		284,515

				7,137,576

Total Common Stock
(Cost $1,415,129,916)				1,557,227,737




Preferred Stock 0.1% of net assets

Germany 0.1%
Hugo Boss AG		13,350		1,267,690

Total Preferred Stock
(Cost $998,553)				1,267,690

See financial notes 29

Laudus International MarketMasters Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Other Investment Company 3.2% of net assets

Money Market Fund 3.2%
State Street Institutional Liquid Reserves Fund - Institutional Class		52,203,538		52,203,538

Total Other Investment Company
(Cost $52,203,538)				52,203,538



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

Corporate Bond 0.0% of net assets

Brazil 0.0%
Lupatech S.A. (a)(b)
6.50%, 04/15/18		226,000		67,455

Total Corporate Bond
(Cost $117,495)				67,455



	Number		Value
Security	of Shares		($)

Rights 0.0% of net assets

Spain 0.0%
Banco Santander S.A. *		815,607		141,070

Total Rights
(Cost $142,609)				141,070



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

Short-Term Investment 0.1% of net assets

U.S. Treasury Obligation 0.1%
U.S. Treasury Bills 0.00%, 12/15/11 (c)(d)		2,705,000		2,705,000

Total Short-Term Investment
(Cost $2,705,000)				2,705,000



End of Investments.

At 10/31/11, the tax basis cost of the fund’s investments was $1,508,785,187 and the unrealized appreciation and depreciation were $197,189,632 and ($92,362,329), respectively, with a net unrealized appreciation of $104,827,303.

At 10/31/11, the values of certain foreign securities held by the fund aggregating $1,235,668,568 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund’s Board of Trustees. (See financial note 2)


*		Non-income producing security.
(a)		Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(b)		Illiquid security. At the period end, the value of these amounted to $95,305 or 0.0% of net assets.
(c)		All or a portion of this security is held as collateral for open futures contracts.
(d)		The rate shown is the purchase yield.


ADR —		American Depositary Receipt
CVA —		Dutch Certificate
Reg’d —		Registered
REIT —		Real Estate Investment Trust

In addition to the above the fund held the following at 10/31/11.


			Contract		Unrealized
	Number of		Value		Gains
	Contracts		($)		($)

Futures Contracts


Russell 2000 Index, mini, Long, expires 12/16/11		180		13,307,400		1,489,245
S&P 500 Index, e-mini, Long, expires 12/16/11		210		13,117,650		1,010,320

Net unrealized gains						2,499,565

30 See financial notes

Laudus International MarketMasters Fund

Portfolio Holdings continued

Amount of

Unrealized

Currency

Gains /

Expiration

to be

(Losses)

Date

Counterparty

Received

Delivered

($)

Forward Foreign Currency Contracts

06/20/2012

State Street Bank & Trust Co.

AUD

370,000

USD

380,321

28,558

06/20/2012

State Street Bank & Trust Co.

AUD

910,000

USD

935,384

97,301

12/19/2011

Northern Trust Co.

CHF

2,084,000

USD

2,375,965

43,042

03/21/2012

State Street Bank & Trust Co.

CHF

1,600,000

USD

1,828,318

(309,862

)

03/21/2012

State Street Bank & Trust Co.

CHF

11,800,000

USD

13,483,845

(186,537

)

03/21/2012

State Street Bank & Trust Co.

CHF

5,400,000

USD

6,170,573

290,910

01/31/2012

State Street Bank & Trust Co.

USD

12,857,297

AUD

12,331,000

(315,930

)

01/31/2012

State Street Bank & Trust Co.

USD

7,383,223

AUD

7,081,000

92,189

06/20/2012

State Street Bank & Trust Co.

USD

8,634,315

AUD

8,400,000

(279,675

)

12/19/2011

Northern Trust Co.

USD

2,375,965

CHF

2,084,000

24,542

03/21/2012

State Street Bank & Trust Co.

USD

12,912,495

CHF

11,300,000

126,774

03/21/2012

State Street Bank & Trust Co.

USD

25,127,944

CHF

21,990,000

1,026,497

03/21/2012

State Street Bank & Trust Co.

USD

5,801,481

CHF

5,077,000

279,050

03/21/2012

State Street Bank & Trust Co.

USD

12,683,955

CHF

11,100,000

892,033

03/21/2012

State Street Bank & Trust Co.

USD

3,313,826

CHF

2,900,000

73,233

12/21/2011

Deutsche Bank AG

USD

5,657,057

EUR

4,090,000

133,340

12/21/2011

Deutsche Bank AG

USD

6,491,092

EUR

4,693,000

36,918

03/21/2012

State Street Bank & Trust Co.

USD

15,211,952

EUR

11,000,000

493,892

03/21/2012

State Street Bank & Trust Co.

USD

4,010,424

EUR

2,900,000

204,958

12/22/2011

State Street Bank & Trust Co.

USD

17,295,091

GBP

10,762,000

41,307

12/20/2011

Bank of New York Mellon

USD

7,751,775

JPY

605,471,000

175,780

12/20/2011

Bank of New York Mellon

USD

8,337,955

JPY

651,256,000

175,896

09/19/2012

State Street Bank & Trust Co.

USD

3,477,537

JPY

270,000,000

81,604

09/19/2012

State Street Bank & Trust Co.

USD

4,765,514

JPY

370,000,000

81,415

09/19/2012

State Street Bank & Trust Co.

USD

39,798,482

JPY

3,090,000,000

779,325

12/21/2011

State Street Bank & Trust Co.

USD

2,072,272

SEK

13,541,000

6,992

12/21/2011

State Street Bank & Trust Co.

USD

520,325

SEK

3,400,000

9,064

12/21/2011

State Street Bank & Trust Co.

USD

581,540

SEK

3,800,000

41,003

Net unrealized gains on Forward Foreign Currency Contracts

4,143,619

See financial notes 31

Laudus International MarketMasters Fund

Statement of

Assets and Liabilities

As of October 31, 2011



Assets

Investments, at value (cost $1,471,297,111)		$1,613,612,490
Foreign currency, at value (cost $1,000,336)		1,006,589
Cash		29,789
Receivables:
Investments sold		18,949,390
Dividends		3,336,515
Fund shares sold		1,081,583
Foreign tax reclaims		690,881
Interest		9,353
Unrealized gains on forward foreign currency contracts		5,235,623
Prepaid expenses	+	170,451

Total assets		1,644,122,664

Liabilities

Payables:
Investments bought		14,979,310
Investment adviser and administrator fees		184,231
Shareholder service fees		345,877
Fund shares redeemed		1,172,119
Due to brokers for futures		513,460
Unrealized losses on forward foreign currency contracts	+	1,092,004

Total liabilities		18,287,001

Net Assets

Total assets		1,644,122,664
Total liabilities	−	18,287,001

Net assets		$1,625,835,663

Net Assets by Source
Capital received from investors		1,876,734,143
Net investment income not yet distributed		2,951,994
Net realized capital losses		(402,866,460	)
Net unrealized capital gains		149,015,986

Net Asset Value (NAV) by Shares Class


			Shares
Share Class	Net Assets	÷	Outstanding	=	NAV
Investor Shares	$665,175,980		38,114,386			$17.45
Select Shares	$960,659,683		55,009,474			$17.46

32 See financial notes

Laudus International MarketMasters Fund

Statement of

Operations

For November 1, 2010 through October 31, 2011



Investment Income

Dividends (net of foreign withholding taxes of $3,305,444)		$43,675,858
Interest (net of foreign withholding taxes of $3,068)	+	139,078

Total investment income		43,814,936

Expenses

Investment adviser and administrator fees		22,960,893
Shareholder service fees:
Investor Shares		1,873,962
Select Shares		1,022,837
Custodian fees		1,050,430
Transfer agent fees		211,538
Portfolio accounting fees		144,950
Professional fees		95,602
Shareholder reports		93,756
Registration fees		77,635
Trustees’ fees		25,188
Interest expense		1,672
Other expenses	+	74,509

Total expenses		27,632,972
Expense reduction by CSIM and its affiliates	−	220,433
Payment for state filing fees (see financial note 12)	−	21,784
Custody credits	−	41

Net expenses	−	27,390,714

Net investment income		16,424,222

Realized and Unrealized Gains (Losses)

Net realized gains on investments (net of foreign capital gain tax of $170,638)		119,164,860
Net realized gains on futures contracts		6,613,548
Net realized losses on foreign currency transactions	+	(13,783,479	)

Net realized gains		111,994,929
Net unrealized losses on investments (net of foreign capital gain tax of $302,279)		(190,092,528	)
Net unrealized losses on futures contracts		(1,832,556	)
Net unrealized gains on foreign currency translations	+	8,333,548

Net unrealized losses	+	(183,591,536	)

Net realized and unrealized losses		(71,596,607	)

Decrease in net assets resulting from operations		($55,172,385	)

See financial notes 33

Laudus International MarketMasters Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/10-10/31/11				11/1/09-10/31/10
Net investment income		$16,424,222			$9,689,033
Net realized gains		111,994,929			128,801,583
Net unrealized gains (losses)	+	(183,591,536	)		205,379,360

Increase (Decrease) in net assets from operations		(55,172,385	)		343,869,976

Distributions to Shareholders

Distributions from net investment income
Investor Shares		(9,898,208	)		(10,988,186	)
Select Shares	+	(12,886,046	)		(8,268,447	)

Total distributions from net investment income		($22,784,254	)		($19,256,633	)

Transactions in Fund Shares


		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		VALUE			SHARES		VALUE
Shares Sold
Investor Shares			5,069,725		$93,748,039			8,143,298		$137,057,352
Select Shares	+		14,896,939		281,255,337			19,260,215		332,599,745

Total shares sold			19,966,664		$375,003,376			27,403,513		$469,657,097


Shares Reinvested
Investor Shares			484,093		$9,134,831			559,839		$8,767,079
Select Shares	+		489,574		9,233,362			363,514		5,692,624

Total shares reinvested			973,667		$18,368,193			923,353		$14,459,703


Shares Redeemed
Investor Shares			(13,644,152	)	($260,043,586	)		(24,384,156	)	($412,672,886	)
Select Shares	+		(11,964,535	)	(226,246,386	)		(9,864,402	)	(159,927,165	)

Total shares redeemed			(25,608,687	)	($486,289,972	)		(34,248,558	)	($572,600,051	)

Net transactions in fund shares			(4,668,356	)	($92,918,403	)		(5,921,692	)	($88,483,251	)

Shares Outstanding and Net Assets

		11/1/10-10/31/11					11/1/09-10/31/10
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			97,792,216		$1,796,710,705			103,713,908		$1,560,580,613
Total increase or decrease	+		(4,668,356	)	(170,875,042	)		(5,921,692	)	236,130,092

End of period			93,123,860		$1,625,835,663			97,792,216		$1,796,710,705


Net investment income not yet distributed					$2,951,994					$16,631,062

34 See financial notes

Laudus MarketMasters Funds

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 as of the end of the period, including the funds discussed in this report, which are highlighted:



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

Each of the Laudus MarketMasters Funds offers two share classes: Investor Shares and Select Shares^®. Shares of each class represent an interest in the same portfolio, but each class has different expenses and investment minimums.

Shares are bought and sold (subject to a redemption fee, see financial note 10) 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 Board of Trustees may authorize the issuance of as many shares as necessary.

2. Significant Accounting Policies:

(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 ask 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, unless these securities are fair valued as discussed below.

	•	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, a 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.

	•	International fair valuation: The Board of Trustees has adopted procedures to fair value foreign equity securities that trade in markets that close prior to when the funds value their holdings. By fair valuing securities whose prices may have

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		been affected by events occurring after the close of trading, each fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to deter “arbitrage” market timers, who seek to exploit delays between the change in the value of a fund’s portfolio holdings and the net asset value of the fund’s shares, and seeks to help ensure that the prices at which the fund’s shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between the return of a fund and that of its comparative index or benchmark. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board of Trustees regularly reviews fair value determinations made by the funds pursuant to the procedures.


	•	Underlying funds: valued at their respective net asset values.

	•	Futures and forward 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.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. The funds do not adjust the quoted prices for such investments, even in situations where the funds hold a large position and a sale could reasonably impact the quoted price. Investments in underlying funds are valued at their NAV daily and are classified as Level 1 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 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 calculates 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

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		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.

Laudus Small-Cap MarketMasters Fund


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

Common Stock(a)		$263,039,303		$—		$—		$263,039,303
Foreign Common Stock(a)		1,467,033		—		—		1,467,033
Other Investment Company(a)		16,453,477		—		—		16,453,477
Short-Term Investment(a)		—		1,295,000		—		1,295,000

Total		$280,959,813		$1,295,000		$—		$282,254,813

Other Financial Instruments
Futures Contract*		$817,872		$—		$—		$817,872

Laudus International MarketMasters Fund

Assets Valuation Input


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

Common Stock(a)		$—		$483,984,596		$—		$483,984,596
Australia(a)		—		46,919,659		—		46,919,659
Materials		13,310,688		19,345,700		—		32,656,388
Brazil(a)		28,845,761		—		—		28,845,761
Canada(a)		127,994,009		—		—		127,994,009
Chile(a)		4,274,077		—		—		4,274,077
China(a)		—		14,990,005		—		14,990,005
Commercial & Professional Supplies		2,288,126		—		—		2,288,126
Consumer Services		494,988		—		—		494,988
Food & Staples Retailing		325,026		—		—		325,026
Media		1,947,257		—		—		1,947,257
Semiconductors & Semiconductor Equipment		823,670		—		—		823,670
Software & Services		562,181		1,540,296		—		2,102,477
Germany(a)		—		100,265,843		—		100,265,843
Materials		5,629,613		15,832,440		—		21,462,053
Hong Kong(a)		—		26,664,890		—		26,664,890
Consumer Durables & Apparel		548,602		—		—		548,602
Technology Hardware & Equipment		—		3,739,263		82,530		3,821,793
India(a)		—		13,884,166		—		13,884,166
Consumer Durables & Apparel		1,471,515		2,634,857		—		4,106,372

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


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

Ireland(a)		$—		$16,730,326		$—		$16,730,326
Capital Goods		7,524,604		—		—		7,524,604
Pharmaceuticals, Biotechnology & Life Sciences		1,055,120		1,820,081		—		2,875,201
Israel(a)		6,188,672		—		—		6,188,672
Italy(a)		—		24,127,699		—		24,127,699
Consumer Durables & Apparel		3,374,334		—		—		3,374,334
Luxembourg(a)		—		1,826,854		—		1,826,854
Energy		5,627,189		1,408,080		—		7,035,269
Mexico(a)		8,016,083		—		—		8,016,083
Netherlands(a)		—		41,314,906		—		41,314,906
Energy		15,153,524		10,221,539		—		25,375,063
Food, Beverage & Tobacco		1,514,141		9,339,585		—		10,853,726
Norway(a)		—		14,032,290		—		14,032,290
Materials		670,382		—		—		670,382
Panama(a)		544,272		—		—		544,272
Peru(a)		1,860,464		—		—		1,860,464
Republic of Korea(a)		—		36,161,788		—		36,161,788
Food & Staples Retailing		417,975		—		—		417,975
Switzerland(a)		—		64,569,727		—		64,569,727
Energy		22,690,129		—		—		22,690,129
Food, Beverage & Tobacco		11,985,893		11,549,949		—		23,535,842
Pharmaceuticals, Biotechnology & Life Sciences		3,375,494		7,458,291		—		10,833,785
Thailand(a)		—		1,282,235		—		1,282,235
Health Care Equipment & Services		527,488		—		—		527,488
United Kingdom(a)		—		104,628,673		—		104,628,673
Capital Goods		—		64,061,094		27,850		64,088,944
Commercial & Professional Supplies		1,632,655		25,166,686		—		26,799,341
Food, Beverage & Tobacco		10,613,884		11,733,443		—		22,347,327
Insurance		809,713		4,807,553		—		5,617,266
Materials		18,631,499		45,707,785		—		64,339,284
Retailing		4,849,875		6,650,579		—		11,500,454
United States(a)		7,137,576		—		—		7,137,576
Preferred Stock(a)		—		1,267,690		—		1,267,690
Other Investment Company(a)		52,203,538		—		—		52,203,538
Rights(a)		141,070		—		—		141,070
Short-Term Investments(a)		—		2,705,000		—		2,705,000
Corporate Bond(a)		—		—		67,455		67,455

Total		$375,061,087		$1,238,373,568		$177,835		$1,613,612,490

Other Financial Instruments
Futures Contracts*		$2,499,565		$—		$—		$2,499,565
Forward Foreign Currency Contracts*		5,235,623		—		—		5,235,623

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

Liabilities Valuation Input

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total

Other Financial Instruments

Forward Foreign Currency Contracts*

($1,092,004

)

$—

($1,092,004

)

The following is a reconciliation of Level 3 Investments for which significant unobservable inputs were used to determine fair value:


	Balance								Change in												Balance
	as of		Accrued			Realized			Unrealized								Gross		Gross		as of
	October 31,		Discounts			Gains			Gains			Gross		Gross			Transfers		Transfers		October 31,
Investments in Securities	2010		(Premiums)			(Losses)			(Losses)			Purchases		Sales			in**		out**		2011

Common Stock
Hong Kong		$—		$—			($117,946	)		($72,917	)		$359,883		($86,490	)		$—		$—		$82,530
United Kingdom		42,232		—			9			(536	)		27,703		(41,558	)		—		—		27,850
Corporate Bonds
Brazil		136,224		(328	)		—			(68,441	)		—		—			—		—		67,455

Total		$178,456		($328	)		($117,937	)		($141,894	)		$387,586		($128,048	)		$—		$—		$177,835


*		Futures Contracts and Forward Foreign Currency Contracts are not included in Investments and are valued at unrealized appreciation or depreciation.
**		All security transfers in and out of Level 3 from Level 1 or Level 2 were the result of fair valued securities for which no quoted value was available.
(a)		As categorized in Portfolio Holdings.

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

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(c) Security Transactions:

Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations in the Statement of Operations. The funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

(d) Investment Income:

(e) Expenses:

For funds offering multiple share classes, the 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.

(f) Distributions to Shareholders:

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

(g) Custody Credit:

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

(h) Accounting Estimates:

Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

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:

(j) Foreign Taxes:

The funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, corporate events, foreign currency exchanges, capital gains on investments on currency repatriation. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of October 31, 2011, if any, are reflected in the funds’ Statement of Assets and Liabilities.

(k) Indemnification:

(l) New Accounting Pronouncements:

At this time, management is evaluating the implications of these changes and their impact on the financial statements.

3. Risk Factors:

Stock markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of your investment in a fund will fluctuate, which means that you could lose money.

Laudus MarketMasters Funds

Financial Notes (continued)

3. Risk Factors (continued):

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 — a fund’s small-cap holdings could reduce performance.

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 — a fund’s large- and mid-cap holdings could reduce performance.

Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and reporting requirements and unreliable securities valuation and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a fund’s investments in emerging market countries.

Although CSIM monitors and seeks to coordinate the overall management of a fund, each investment manager makes investment decisions independently, and it is possible that the investment styles of the investment managers may not complement one another. As a result, a fund’s exposure to a given stock, industry or investment style could unintentionally be smaller or larger than if a fund had a single manager.

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:


	Laudus Small-Cap		Laudus International
% of Average Daily Net Assets	MarketMasters Fund		MarketMasters Fund

First $500 million		1.17%		1.29%
$500 million to $1 billion		1.13%		1.275%
Over $1 billion		1.07%		1.25%

Laudus MarketMasters Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Pursuant to the Plan, each fund’s shares are subject to an annual shareholder servicing fee up to 0.25% for Investor Shares and 0.20% for Select Shares. 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), and the funds will pay no more than 0.25% for Investor Shares and 0.20% for Select Shares of the average annual daily net asset value of the fund shares owned by shareholders holding shares through such service providers. 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.


	Laudus Small-Cap		Laudus International
	MarketMasters Fund		MarketMasters Fund

Investor Shares		1.46%		1.65%
Select Shares		1.31%		1.47%

Certain Schwab Funds may own shares of other Schwab Funds. The table below reflects the percentage of each fund shares in this report owned by other Schwab Funds as of October 31, 2011.


	Laudus Small-Cap		Laudus International
	MarketMasters Fund		MarketMasters Fund

Schwab Target Funds:
Schwab Target 2010 Fund		0.3%		0.1%
Schwab Target 2015 Fund		0.4%		0.1%
Schwab Target 2020 Fund		2.5%		0.9%
Schwab Target 2025 Fund		1.1%		0.4%
Schwab Target 2030 Fund		4.9%		1.5%
Schwab Target 2035 Fund		1.1%		0.3%
Schwab Target 2040 Fund		5.1%		1.5%
Schwab Monthly Income Funds:
Schwab Monthly Income Fund - Moderate Payout		—%		0.1%
Schwab Monthly Income Fund - Enhanced Payout		—%		0.1%

Schwab Balanced Fund		3.9%		—%


Laudus Small-Cap MarketMasters Fund			$237,359
Laudus International MarketMasters Fund			414,093

Laudus MarketMasters Funds

Financial Notes (continued)

5. Transfer Agent Services:

Boston Financial Data Services, Inc. (“BFDS”) provides transfer agent services for each fund.

6. Board of Trustees:

Trustees may include people who are officers and/or directors of the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

7. Borrowing from Banks:

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2011, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:


	Purchases of Securities		Sales/Maturities of Securities

Laudus Small-Cap MarketMasters Fund		$291,521,005		$418,669,279
Laudus International MarketMasters Fund		1,361,220,299		1,441,960,631

9. Disclosures about Derivative Instruments and Hedging Activities:

During the period ended October 31, 2011, the funds invested in equity index futures contracts and the Laudus International MarketMasters Fund also invested in forward foreign currency exchange contracts. The fair value, due to brokers for futures and the realized/unrealized gains (losses) on derivatives contracts held by the funds are presented on the face of each fund’s Portfolio Holdings, Statement of Assets and Liabilities and Statement of Operations. Investments in forward foreign currency contracts subject the Laudus International MarketMasters Fund to foreign currency risk and risk of default by the counterparty. Refer to Financial Note 2(b) for the funds’ accounting policies with respect to derivatives contracts and Financial Note 3 for additional disclosures concerning the risks of investing in derivatives contracts.

The funds invested in futures contracts to seek returns on the funds’ otherwise uninvested cash assets. The Laudus International MarketMasters Fund invested in forward foreign currency contracts in connection with the purchase and sale of portfolio securities to minimize the uncertainty of changes in future foreign currency exchange rates.

During the period ending October 31, 2011, the monthly average contract value of futures contracts and the monthly average number of contracts held by the funds were as follows:


	Contract Values		Number of Contracts

Laudus Small-Cap MarketMasters Fund		$13,457,066		171
Laudus International MarketMasters Fund		45,313,950		618

During the period ended October 31, 2011, the monthly average notional amount and the monthly average unrealized gains (losses) on the Laudus International MarketMasters Fund’s investment in forward foreign currency exchange contracts were $230,777,194 and ($4,298,719), respectively.

Laudus MarketMasters Funds

Financial Notes (continued)

9. Disclosures about Derivative Instruments and Hedging Activities (continued):

As of October 31, 2011, the derivatives contracts held by the Laudus International MarketMasters Fund, categorized by primary risk exposure, were:


Asset Derivatives	Fair Value

Equity Index - Futures Contracts¹		$2,499,565
Foreign Exchange - Forward Contracts²		5,235,623

Total		$7,735,188


Liability Derivatives	Fair Value

Foreign Exchange - Forward Contracts³		$1,092,004


¹		Includes cumulative unrealized losses of futures contracts as reported in the Schedule of Portfolio Holdings. Only current day’s variation margin is reported within the Statement of Assets & Liabilities.
²		Statement of Assets and Liabilities location: Unrealized gains on forward foreign currency contracts.
³		Statement of Assets and Liabilities location: Unrealized losses on forward foreign currency contracts.

During the period ending October 31, 2011, the derivatives held by the Laudus International MarketMasters Fund, categorized by primary risk exposure, were:


	Equity Index			Foreign Exchange –
	Futures Contracts			Forward Contracts

Realized Gain (Losses)¹		$6,613,548			(12,759,625	)
Change in Unrealized Gains (Losses)²		(1,832,555	)		8,393,012


¹		Statement of Operations location: Net realized gains/losses on futures contracts and net realized gains/losses on foreign currency transactions.
²		Statement of Operations location: Net unrealized gains/losses on futures contracts and net unrealized gains/losses on foreign currency translations.

10. Redemption Fee:


	Current Period		Prior Period
	(11/1/10-10/31/11)		(11/1/09-10/31/10)

Laudus Small-Cap MarketMasters Fund		$3,545		$4,162
Laudus International MarketMasters Fund		32,578		6,103

11. Federal Income Taxes:

As of October 31, 2011, the components of distributable earnings on a tax-basis were as follows:


	Laudus Small-Cap			Laudus International
	MarketMasters Fund			MarketMasters Fund

Undistributed ordinary income		$—			$14,967,812
Undistributed long-term capital gains		—			—
Unrealized appreciation on investments		40,807,633			197,189,632
Unrealized depreciation on investments		(18,047,889	)		(92,362,329	)
Other unrealized appreciation/(depreciation)		—			(34,842	)

Net unrealized appreciation/(depreciation)		$22,759,744			$104,792,461

The primary differences between book-basis and tax-basis unrealized appreciation or unrealized depreciation of investments are Passive Foreign Investment Companies (PFIC), Partnerships and the tax defferal of losses on wash sale.

Laudus MarketMasters Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):


	Laudus Small-Cap		Laudus International
Expiration Date	MarketMasters Fund		MarketMasters Fund

October 31, 2016		$3,679,494		$4,009,455
October 31, 2017		59,667,102		366,649,297

Total		$63,346,596		$370,658,752

For the year ended October 31, 2011, the funds had capital losses utilized as follows:


	Laudus Small-Cap		Laudus International
	MarketMasters Fund		MarketMasters Fund

Capital losses utilized		$55,366,378		$111,719,333

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


	Laudus Small-Cap		Laudus International
	MarketMasters Fund		MarketMasters Fund

Current period distributions
Ordinary income		$—		$22,784,254
Long-term capital gains		—		—
Return of capital		—		—

Prior period distributions
Ordinary income		$—		$19,256,633
Long-term capital gains		—		—
Return of capital		—		—


	Laudus Small-Cap			Laudus International
	MarketMasters Fund			MarketMasters Fund

Capital shares		($1,841,608	)		$4
Undistributed net investment income		1,836,224			(7,319,036	)
Net realized capital gains/(losses)		5,384			7,319,032

Laudus MarketMasters Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):

Certain of the enacted provisions include:

12. Other:

During the period, the funds received a payment related to state filing fees resulting from revised calculation methodologies being applied on sales of the funds’ shares in prior periods in certain states. This payment is presented in the funds’ Statement of Operations as “Payment for state filing fees”.

13. Subsequent Events:

On November 29, 2011, subsequent to the Laudus Small-Cap MarketMasters Fund’s fiscal year-end, approximately 11 million shares valued at $125,279,678 were redeemed from the fund. This redemption represented approximately 48% of the fund’s net assets as of that date.

In addition, effective December 8, 2011, the Board of Trustees approved certain changes to the sub-advisers of both the Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund. Specifically, with respect to the Laudus Small-Cap MarketMasters Fund, the Board of Trustees approved the termination of two of the fund’s sub-advisers and approved the hiring of a new sub-adviser, Mellon Capital Management Corp. With respect to the Laudus International MarketMasters Fund, the Board of Trustees has approved the hiring of a new sub-adviser, Mellon Capital Management Corp. For additional information, please refer to the prospectus supplement dated December 19, 2011 which is included with this report.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Laudus Small-Cap MarketMasters Fund

Laudus International MarketMasters Fund

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 Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund (two of the portfolios constituting Schwab Capital Trust, hereafter collectively referred to as the “Funds”) at October 31, 2011, 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 at October 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 15, 2011

Approval of Investment Advisory and Sub-Advisory Agreements

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 agreements must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund¹, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreements 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 agreements.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in part, to considering whether to renew the investment advisory agreements between Schwab Capital Trust (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) with respect to the existing funds in the Trust, including Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund (the “Funds”), and the individual subadvisory agreements between CSIM and Neuberger Berman Management LLC, TAMRO Capital Partners, LLC, TCW Investment Management Company and Tocqueville Asset Management L.P. relating to Laudus Small-Cap MarketMasters Fund; and CSIM and American Century Global Investment Management, Inc., Harris Associates L.P., William Blair & Company, LLC, Mondrian Investment Partners Limited and Wentworth, Hauser & Violich relating to the Laudus International MarketMasters Fund (collectively, the “Sub-Advisers”). Such investment advisory and sub-advisory agreements are collectively referred to herein as the “Agreements”. The Trustees also review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM and the Sub-Advisers, including information about their affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Funds that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM. The Board also discusses with CSIM the Funds’ operations and CSIM’s ability, consistent with the “manager of managers” structure of each of the Funds to (i) identify and recommend to the Trustees sub-advisers for each Fund, (ii) monitor and oversee the performance and investment capabilities of each sub-adviser, and (iii) recommend the replacement of a sub-adviser when appropriate. As part of the renewal process, Independent Trustees’ legal counsel sends an information request letter to CSIM and CSIM sends an information request letter to each of the Sub-Advisers seeking certain relevant information. The responses by CSIM and the Sub-Advisers are provided to the Trustees for their review prior to their meeting, and the Trustees are provided with the opportunity to request any additional materials.


1.	the nature, extent and quality of the services provided to the Funds under the Agreements, including the resources of CSIM and its affiliates, and the Sub-Advisers, 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, and other types of accounts;

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, as well as the profitability of the Sub-Advisers; and

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

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. In addition, the Trustees considered that many of the Funds’ shareholders are also brokerage clients of Schwab. The Board also considered the nature, extent and quality of the sub-advisory services provided by the Sub-Advisers to the Funds and the resources each dedicates to the Funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM and the Sub-Advisers to the Funds and the resources of CSIM, and its affiliates, and the Sub-Advisers dedicated to the Funds supported renewal of the Agreements with respect to the Funds.

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreements 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, 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. In addition, the Trustees considered whether irrespective of relative performance, each Sub-Adviser’s absolute performance was consistent with expectations for such Sub-Adviser’s unique investment methodology. The Trustees further considered the level of Fund performance in the context of its review of Fund expenses and adviser and Sub-Adviser profitability discussed below. Laudus Small-Cap MarketMasters Fund had performance that lagged that of a relevant peer group for certain (although not necessarily all) periods considered. Notwithstanding the forgoing, the Board concluded that other factors relevant to performance supported renewal of the Agreement with respect to Laudus Small-Cap MarketMasters Fund. These factors included the following: (1) that the underperformance was attributable, to a significant extent, to investment decisions by CSIM that were reasonable and consistent with the Fund’s investment objective and policies; (2) that recent performance showed improvement; and (3) that CSIM had taken steps designed to help improve performance. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Funds supported renewal of the Agreements with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreements, 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 and the Sub-Advisers to other mutual funds, and to other types of accounts, such as separate accounts, pooled vehicles, wrap accounts and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts. 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 Agreements with respect to the Funds.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly. 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. With respect to CSIM, the Trustees considered whether the varied levels of compensation and profitability under the Agreements and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by CSIM, and its respective affiliates. The Trustees also considered the compensation flowing to the Sub-Advisers, directly or indirectly. The Trustees also considered any other benefits derived by the Sub-Advisers from their relationship with the Funds, such as whether, by virtue of its management of the Funds, any Sub-Adviser obtains investment information or other research resources that aid it in providing advisory services to other clients. With respect to the Sub-Advisers, the Trustees considered whether the varied levels of compensation and profitability under the Agreements and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by the Sub-Advisers, and their respective affiliates. The Board also considered the profitability of the Sub-Advisers with respect to the sub-advisory services they provide to the Funds, although, when doing so, the Board took into account the fact that the Sub-Advisers are compensated by CSIM, and not by the Funds directly, and such compensation with respect to any Sub-Adviser reflects an arms-length negotiation between the Sub-Adviser and CSIM. Based on this evaluation, the Board concluded, within the context of its

full deliberations, that the profitability of CSIM and the Sub-Advisers is reasonable and supported renewal of the Agreements 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 the 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.


¹		Laudus MarketMasters Funds and the investment adviser have received exemptive relief from the Securities and Exchange Commission to permit the investment adviser and the Funds to hire or terminate investment managers without shareholder approval, subject to certain conditions. One of the conditions requires approval by the Funds’ Board of Trustees before any such hiring is implemented.

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 87 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.	70	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


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).	70	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).	70	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Aviat Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Capital Trust since 2011.)	Private Investor.	70	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Tercica Inc. (2004 – 2008)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Capital Trust since 2011.)	Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – present); Senior Vice President and General Manager of Consumer Group, Intuit, Inc. (June 2007 – Dec. 2008); Senior Vice President and Chief Financial Officer, Intuit, Inc. (Sept. 2005 – Jan. 2008).	70	Director, KLA-Tencor Corporation (2008 – present) Director, BEA Systems, Inc. (2007 – 2008) Director, Eaton Corp. (2003 – 2006)


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).	70	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)

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).	70	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

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.	70	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.	87	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 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer and Chief Investment 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 (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Funds (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 Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006- June 2007).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Capital Trust since 2011.)		Senior Vice President and Chief Investment Officer – Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer — Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).


Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Capital Trust since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (April 2006 – Jan. 2008); Managing Director, Head of Market-Based Strategies State Street Research (August 2003 – Jan. 2005).


David Lekich 1964 Secretary and Chief Legal Officer (Officer of Schwab Capital Trust since 2011.)		Senior Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (Oct. 2011 – present); Vice President, Charles Schwab & Co., Inc., (March 2004 – Oct. 2011) and Charles Schwab Investment Management, Inc. (Jan 2011 – Oct. 2011); Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011-present); Secretary (May 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab ETFs.


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 (March 2007 – present), Laudus Funds; Vice President and Assistant Secretary, Schwab Funds (June 2007 – present) and Schwab ETFs (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of Schwab Capital Trust since 2006.)		Senior Vice President (March 2011 – present), Vice President (2004 – March 2011), Asset Management Client Services, Charles Schwab & Co., Inc.; 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 twenty years as a trustee, whichever comes first. In addition, the Schwab Funds retirement policy also requires any independent trustee of the Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
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.