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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
Performance and Fund Facts
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^®		31
Schwab Total Stock Market Index Fund^®		38
Schwab International Index Fund^®		45
Financial Notes		52
Report of Independent Registered Public Accounting Firm		64
Other Federal Tax Information		65
Investment Advisory Agreement Approval		66
Trustees and Officers		68
Glossary		71
EX-99.CODEETH
EX-99.CERT
EX-99.906CERT

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 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)			15.09%


S&P 500^® Index			15.21%
Fund Category: Morningstar Large-Cap Blend			12.55%


Performance Details			pages 6-7




Schwab 1000 Index^® Fund (Ticker Symbol: SNXFX)			14.38%


Schwab 1000 Index^®			14.67%
Fund Category: Morningstar Large-Cap Blend			12.55%


Performance Details			pages 8-9




Schwab Small-Cap Index Fund^® (Ticker Symbol: SWSSX)			11.87%


Russell 2000^® Index*			12.08%
Fund Category: Morningstar Small-Cap Blend			10.82%


Performance Details			pages 10-11




Schwab Total Stock Market Index Fund^® (Ticker Symbol: SWTSX)			14.71%


Dow Jones U.S. Total Stock Market Index^SM			14.73%
Fund Category: Morningstar Large-Cap Blend			12.55%


Performance Details			pages 12-13




Schwab International Index Fund^®¹ (Ticker Symbol: SWISX)			6.07%


MSCI EAFE Index^®**			5.15%
Fund Category: Morningstar Foreign Large-Cap Blend			6.15%


Performance Details			pages 14-15


Minimum Initial Investment²	$	100

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.

Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, a fund’s total return would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on 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.


*		Effective December 14, 2011, the fund changed its primary benchmark index from the Schwab Small-Cap Index to the Russell 2000 Index in connection with a change to the fund’s investment strategy. See Glossary for index definitions.
**		Effective December 20, 2011, the fund changed its primary benchmark index from the Schwab International Index to the MSCI EAFE Index^® in connection with a change to the fund’s investment strategy. See Glossary for index definitions.
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 the funds’ prospectus for further detail 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,

As President and CEO of Charles Schwab Investment Management, Inc., I’d like to thank you for trusting us to help you meet your investment objectives, and for reading this important report concerning the Schwab Equity Index Funds. These funds employ an indexing strategy to track the performance of a particular cap-weighted stock market index, seeking returns by modeling portfolios according to each fund’s respective benchmark index.

For the 12 months ended October 31, 2012, all but one of the Schwab Equity Index Funds generated double-digit returns, as U.S. stocks solidly outperformed international equities. The continued low rate backdrop and governmental efforts to speed up economic growth supported the performance of U.S. stocks. The Federal Reserve extended its forecast for keeping short-term interest rates at 0-0.25% from late 2014 to mid-2015, and announced policies aimed at quickening the pace of economic expansion. Large-cap stocks generated higher returns than small-cap stocks, while value outperformed growth. From a sector standpoint, Health Care and Financials were two of the strongest performers, while Materials and Energy were two of the weakest.

The euro zone’s sovereign debt crisis represented an ongoing challenge, particularly for international equities. Overseas stocks endured particularly sharp losses in May amid concerns regarding Greek elections and worries that the crisis might spread. However, meaningful subsequent progress by European leaders helped international equities recover.

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.



		15.21%		S&P 500^® Index: measures U.S. large-cap stocks

		12.08%		Russell 2000^® Index: measures U.S. small-cap stocks

		5.15%		MSCI EAFE^® Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		5.25%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.06%		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 CSIM.

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

Management’s views and portfolio holdings may have changed since the report date.

Schwab Equity Index Funds 3

Fund Management



		Agnes Hong, CFA, Managing Director and Head of Passive Equity Strategies, leads the portfolio management teams of Schwab’s index mutual funds and equity ETFs. She also has overall responsibility for all aspects of the management of the funds. Prior to joining CSIM in 2009, Ms. Hong spent five years as a portfolio manager at Barclays Global Investors (subsequently acquired by BlackRock), where she managed institutional index funds and quantitative active funds. Prior to that, Ms. Hong worked in management consulting and product management, servicing global financial services clients.

		Larry Mano, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of each of the funds. Prior to joining CSIM in 1998, Mr. Mano was a vice president and principal in the Institutional Services Group at Wilshire Associates, Inc., where he directed the product development and client servicing of analytical tools to aid in the management of structured equity and indexed portfolios. He has over 20 years of experience in asset management.

		Ron Toll, Portfolio Manager, is responsible for the day-to-day co-management of each of the funds, except for the Schwab Total Stock Market Index Fund. Mr. Toll has been a portfolio manager with CSIM since 2007, and has held a number of positions at the firm since beginning his tenure in 1998. His previous roles include serving as a manager in Portfolio Operations, and as a manager in Portfolio Operations and Analytics.

Schwab Equity Index Funds 5

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), which includes the stocks of 500 leading U.S. publicly traded companies from a broad range of industries. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as does the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 15.09% for the 12-month period that ended October 31, 2012, compared with the index, which returned 15.21%. 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.

Market Highlights. Large-cap U.S. stocks generated double-digit overall returns for the 12-month report period. The low-rate environment and governmental efforts aimed at increasing the pace of economic growth helped to support this performance. Challenges included the euro zone’s ongoing sovereign debt crisis, worries over the November elections, and the upcoming fiscal cliff—the potential expiration of many tax cuts and governmental spending policies in 2013.

Contributors and Detractors. The Financials sector was the biggest contributor to the fund’s total return. The large average weight of this sector reflected part of the reason for this contribution, with Financials stocks comprising more than 14% of the fund. Financials stocks also performed well, returning approximately 20%. One significant contributor in this sector was Wells Fargo & Co., a diversified financial services company. The fund’s Wells Fargo & Co. holdings returned more than 33% over the 12 months.

The Health Care sector, which represented an average weight of nearly 12% of the fund, also provided a meaningful total return contribution. The fund’s Health Care stocks returned approximately 22%, reflecting the overall performance of companies involved in health care and equipment services, biotechnology, and pharmaceuticals. One significant contributor in this sector was Pfizer Inc., a global pharmaceutical company. The fund’s Pfizer Inc. holdings returned more than 34% over the report period.

The Materials sector generated positive returns for the fund, but was the weakest total return contributor. The Materials sector represented an average weight of more than 3% of the fund, and returned more than 7%. One significant detractor in this sector was Newmont Mining Corporation, which acquires, explores, and develops mineral properties. The fund’s Newmont Mining Corporation holdings returned approximately -16%.

As of 10/31/12:

Statistics


Number of Holdings			503
Weighted Average Market Cap ($ x 1,000,000)			$111,376
Price/Earnings Ratio (P/E)			15.8
Price/Book Ratio (P/B)			2.2
Portfolio Turnover Rate			2%

Sector Weightings % of Investments


Information Technology			18.9%
Financials			15.0%
Health Care			12.0%
Energy			11.1%
Consumer Discretionary			10.9%
Consumer Staples			10.8%
Industrials			9.8%
Utilities			3.6%
Materials			3.4%
Telecommunication Services			3.1%
Other			1.4%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Apple, Inc.			4.3%
Exxon Mobil Corp.			3.3%
General Electric Co.			1.7%
Chevron Corp.			1.7%
Microsoft Corp.			1.7%
International Business Machines Corp.			1.6%
AT&T, Inc.			1.6%
Johnson & Johnson			1.5%
The Procter & Gamble Co.			1.5%
Pfizer, Inc.			1.4%
Total			20.3%

Management’s 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.

6 Schwab Equity Index Funds

Schwab^® S&P 500 Index Fund

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,2,3

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


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab^® S&P 500 Index Fund (5/19/97)		15.09	%		0.37	%		6.86	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Large-Cap Blend		12.55	%		-0.71	%		6.42	%

Fund Expense Ratios⁴: Net 0.09%; Gross 0.10%

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


	1 Year			5 Years			10 Years


Fund: Schwab^® S&P 500 Index Fund (5/19/97)
Pre-Liquidation (still own shares)		14.72	%		0.06	%		6.45	%
Post-Liquidation (shares were sold)		10.16	%		0.25	%		5.87	%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		10.71	%		-1.57	%		5.73	%
Post-Liquidation (shares were sold)		7.44	%		-1.05	%		5.31	%

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Performance results less than one year are not annualized.

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 Schwab S&P 500 Index Fund. The Schwab S&P 500 Index 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		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 returns 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 10/31/12 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. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		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 past performance and financial history of the fund are that of the fund’s former Select Shares. On September 9, 2009, the Schwab Institutional Select S&P 500 Fund merged into the fund.
⁴		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), which includes the stocks of the largest 1,000 publicly traded companies in the U.S., with size being determined by market capitalization (total market value of all shares outstanding). To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as does the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 14.38% for the 12-month period that ended October 31, 2012, compared with the index, which returned 14.67%. 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.

Contributors and Detractors. The Financials sector was the biggest contributor to the fund’s return. The large average weight of this sector reflected part of the reason for this contribution, with Financials stocks comprising approximately 15% of the fund. The fund’s Financials stocks also performed well, returning nearly 20%. One significant contributor in this sector was Wells Fargo & Co., a diversified financial services company. The fund’s Wells Fargo & Co. holdings returned more than 33% over the 12 months.

The Health Care sector, which represented an average weight of more than 11% of the fund, also provided a meaningful contribution to the fund’s total return. The fund’s Health Care stocks returned approximately 22%, reflecting the overall performance of companies involved in health care and equipment services, biotechnology, and pharmaceuticals. One significant contributor in this sector was Pfizer Inc., a global pharmaceutical company. The fund’s Pfizer Inc. holdings returned more than 34% over the report period.

The Materials sector generated positive returns for the fund, but was the weakest total return contributor. The Materials sector represented an average weight of nearly 4% of the fund, and returned approximately 10%. One significant detractor in this sector was Newmont Mining Corporation, which acquires, explores, and develops mineral properties. The fund’s Newmont Mining Corporation holdings returned approximately -16%.

As of 10/31/12:

Statistics


Number of Holdings			981
Weighted Average Market Cap ($ x 1,000,000)			$99,495
Price/Earnings Ratio (P/E)			16.6
Price/Book Ratio (P/B)			2.2
Portfolio Turnover Rate			4%

Sector Weightings % of Investments


Information Technology			18.4%
Financials			15.8%
Consumer Discretionary			12.0%
Health Care			11.8%
Energy			10.6%
Industrials			10.5%
Consumer Staples			9.9%
Materials			3.8%
Utilities			3.8%
Telecommunication Services			2.9%
Other			0.5%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Apple, Inc.			3.9%
Exxon Mobil Corp.			2.9%
General Electric Co.			1.6%
Chevron Corp.			1.5%
Microsoft Corp.			1.5%
International Business Machines Corp.			1.5%
AT&T, Inc.			1.4%
Johnson & Johnson			1.4%
The Procter & Gamble Co.			1.3%
Pfizer, Inc.			1.3%
Total			18.3%

Management’s 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 and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,2,3

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


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab 1000 Index^® Fund (4/2/91)		14.38	%		0.35	%		6.99	%
Schwab 1000 Index^®		14.67	%		0.56	%		7.31	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Large-Cap Blend		12.55	%		-0.71	%		6.42	%

Fund Expense Ratios⁴: Net 0.29%; Gross 0.34%

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


	1 Year			5 Years			10 Years


Fund: Schwab 1000 Index^® Fund (4/2/91)
Pre-Liquidation (still own shares)		13.33	%		-0.09	%		6.57	%
Post-Liquidation (shares were sold)		10.43	%		0.22	%		6.01	%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		10.71	%		-1.57	%		5.73	%
Post-Liquidation (shares were sold)		7.44	%		-1.05	%		5.31	%


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 returns 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 10/31/12 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. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		On September 18, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Investor Shares.
⁴		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 Russell 2000 Index (the index), which is designed to measure the performance of the small-cap sector of the U.S. equity market. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as does the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 11.87% for the 12-month period that ended October 31, 2012. In December 2011, the fund transitioned from the Schwab Small-Cap Index, which returned 13.68% for the 12-month period, to the new index, which returned 12.08%. The Small-Cap Spliced Index returned 11.60% for the same period. In addition, the fund engaged in securities lending, which positively contributed to the fund’s performance versus the index. Because the return of an index does not include operational and transactional costs, the return of the fund tends to differ from that of an index.

Market Highlights. Small-cap U.S. stocks generated double-digit overall returns for the 12-month report period. The low-rate environment and governmental efforts aimed at increasing the pace of economic growth helped to support this performance. Challenges included the euro zone’s ongoing sovereign debt crisis, worries over the November elections, and the upcoming fiscal cliff—the potential expiration of many tax cuts and governmental spending policies in 2013.

Contributors and Detractors. The Financials sector was the biggest contributor to the fund’s return. The large average weight of this sector reflected part of the reason for this contribution, with Financials stocks comprising nearly 22% of the fund. The fund’s Financials stocks also performed well, returning almost 21%. One significant contributor in this sector was Ocwen Financial Corporation, a diversified financial services holding company. The fund’s Ocwen Financial Corporation holdings returned approximately 166% over the 12 months.

The Health Care sector, which represented an average weight of nearly 13% of the fund, also provided a meaningful contribution to the fund’s total return. The fund’s Health Care stocks returned more than 20%, reflecting the overall performance of companies involved in health care and equipment services, biotechnology, and pharmaceuticals. One significant contributor in this sector was Medivation Inc., a company involved in biomedical technologies. The fund’s Medivation Inc. holdings returned roughly 392% over the report period.

The Energy sector detracted the most from the fund’s total return. The Energy sector represented an average weight of more than 6% of the fund, and returned roughly -11%. One significant detractor in this sector was Bill Barrett Corporation, an independent oil and gas company. The fund’s Bill Barrett Corporation holdings returned approximately -45%.

As of 10/31/12:

Statistics


Number of Holdings			1988
Weighted Average Market Cap ($ x 1,000,000)			$1,285
Price/Earnings Ratio (P/E)			43.5
Price/Book Ratio (P/B)			1.9
Portfolio Turnover Rate			41%

Sector Weightings % of Investments


Financials			21.9%
Information Technology			16.2%
Industrials			14.9%
Consumer Discretionary			13.6%
Health Care			12.1%
Energy			5.8%
Materials			5.0%
Utilities			3.6%
Consumer Staples			3.6%
Telecommunication Services			0.7%
Other			2.6%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Ocwen Financial Corp.			0.3%
Two Harbors Investment Corp.			0.3%
Pharmacyclics, Inc.			0.3%
Genesee & Wyoming, Inc., Class A			0.3%
Starwood Property Trust, Inc.			0.3%
The Warnaco Group, Inc.			0.2%
WEX, Inc.			0.2%
CommVault Systems, Inc.			0.2%
Coeur d’Alene Mines Corp.			0.2%
Dril-Quip, Inc.			0.2%
Total			2.5%

Management’s 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 and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,2,3

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


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Small-Cap Index Fund^® (5/19/97)		11.87	%		2.62	%		9.94	%
Russell 2000^® Index⁴		12.08	%		1.19	%		9.58	%
Schwab Small-Cap Index^®		13.68	%		3.04	%		10.24	%
Small-Cap Spliced Index⁵		11.60	%		2.66	%		10.04	%
Fund Category: Morningstar Small-Cap Blend		10.82	%		0.75	%		9.07	%

Fund Expense Ratios⁶: Net 0.17%; Gross 0.19%

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


	1 Year			5 Years			10 Years


Fund: Schwab Small-Cap Index Fund^® (5/19/97)
Pre-Liquidation (still own shares)		9.79	%		1.45	%		8.91	%
Post-Liquidation (shares were sold)		8.30	%		1.83	%		8.44	%
Fund Category: Morningstar Small-Cap Blend
Pre-Liquidation (still own shares)		9.12	%		-0.13	%		8.05	%
Post-Liquidation (shares were sold)		6.66	%		0.24	%		7.66	%

Index ownership – “Russell 2000^®” is a registered mark of the Frank Russell Company (“Russell”) and has been licensed for use by the Schwab Small-Cap Index Fund. The Schwab Small-Cap Index Fund is not sponsored, endorsed, sold or promoted by Russell and Russell makes no representation regarding the advisability of investing in the fund.


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 returns 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 10/31/12 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. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		On August 21, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		Effective December 14, 2011, the fund changed its primary benchmark index from the Schwab Small-Cap Index to the Russell 2000 Index in connection with a change to the fund’s investment strategy. See Glossary for index definitions.
⁵		The Small-Cap Spliced Index is an internally calculated index, comprised of the Schwab Small-Cap Index from inception of the Schwab Small-Cap Index Fund until the close of business on December 14, 2011 and the Russell 2000 Index from December 15, 2011 forward.
⁶		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), which includes the stocks of all publicly traded companies headquartered in the U.S. for which pricing information is readily available—approximately 3,800 stocks. To pursue its investment objective, the funds uses a sampling investment approach that involves investing in a representative sample of stocks with similar risk and return characteristics as the index, and maintains a tight allocation across all sectors, market capitalizations, and valuation measures compared with the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 14.71% for the 12-month period that ended October 31, 2012, compared with the index, which returned 14.73%. 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.

Market Highlights. U.S. stocks generated double-digit overall returns for the 12-month report period. Governmental efforts aimed at increasing the pace of economic growth and the low-rate environment helped to support this performance. Challenges included the euro zone’s ongoing sovereign debt crisis, worries over the November elections, and the upcoming fiscal cliff—the potential expiration of many tax cuts and governmental spending policies in 2013.

Contributors and Detractors. The Financials sector was the biggest contributor to the fund’s return. The large average weight of this sector reflected part of the reason for this contribution, with Financials stocks comprising approximately 16% of the fund. Financials stocks also performed well, returning more than 19% for the fund. One significant contributor in this sector was Wells Fargo & Co., a diversified financial services company. The fund’s Wells Fargo & Co. holdings returned more than 33% over the 12 months.

The Health Care sector, which represented an average weight of approximately 12% of the fund, also provided a meaningful contribution to the fund’s total return. The fund’s Health Care stocks returned more than 22%, reflecting the overall performance of companies involved in health care and equipment services, biotechnology, and pharmaceuticals. One significant contributor in this sector was Pfizer Inc., a global pharmaceutical company. The fund’s Pfizer Inc. holdings returned more than 34% over the report period.

The Utilities sector generated positive returns for the fund, but was the weakest total return contributor. The Utilities sector represented an average weight of approximately 4% of the fund, and returned roughly 11%. One significant detractor in this sector was Exelon Corporation, a utility services holding company. The fund’s Exelon Corporation holdings returned approximately -15%.

As of 10/31/12:

Statistics


Number of Holdings			2451
Weighted Average Market Cap ($ x 1,000,000)			$91,599
Price/Earnings Ratio (P/E)			17.5
Price/Book Ratio (P/B)			2.2
Portfolio Turnover Rate			3%

Sector Weightings % of Investments


Information Technology			18.1%
Financials			16.4%
Consumer Discretionary			12.0%
Health Care			11.7%
Industrials			10.7%
Energy			10.3%
Consumer Staples			9.4%
Materials			3.9%
Utilities			3.6%
Telecommunication Services			2.8%
Other			1.1%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Apple, Inc.			3.6%
Exxon Mobil Corp.			2.7%
General Electric Co.			1.4%
Chevron Corp.			1.4%
Microsoft Corp.			1.4%
International Business Machines Corp.			1.3%
AT&T, Inc.			1.3%
Johnson & Johnson			1.2%
The Procter & Gamble Co.			1.2%
Pfizer, Inc.			1.2%
Total			16.7%

Management’s 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.

12 Schwab Equity Index Funds

Schwab Total Stock Market Index Fund^®

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,2,3

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


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Total Stock Market Index Fund^® (6/1/99)		14.71	%		0.93	%		7.70	%
Dow Jones U.S. Total Stock Market Index^SM		14.73	%		0.76	%		7.75	%
Fund Category: Morningstar Large-Cap Blend		12.55	%		-0.71	%		6.42	%

Fund Expense Ratios⁴: Net 0.09%; Gross 0.11%

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


	1 Year			5 Years			10 Years


Fund: Schwab Total Stock Market Index Fund^® (6/1/99)
Pre-Liquidation (still own shares)		14.36	%		0.64	%		7.33	%
Post-Liquidation (shares were sold)		9.87	%		0.73	%		6.64	%

Fund Category: Morningstar Large-Cap Blend
Pre-Liquidation (still own shares)		10.71	%		-1.57	%		5.73	%
Post-Liquidation (shares were sold)		7.44	%		-1.05	%		5.31	%

“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		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 returns 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 10/31/12 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. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		On September 18, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		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 the MSCI EAFE Index (the index), which measures the total return of large, publicly traded non-U.S. companies from international countries with developed equity markets. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as does the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 6.07% for the 12 months ended October 31, 2012. In December 2011, the fund transitioned from the Schwab International Index (net), which returned 4.78% for the 12-month period, to the new index, which returned 5.15%. The International Spliced Index returned 5.05% for the same period. 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. In addition, timing differences in foreign exchange calculations and fair valuation of the fund’s holdings contributed positively to the fund’s relative performance.*

Market Highlights. The euro zone’s sovereign debt crisis and decelerating economic growth represented challenges for international stocks. However, meaningful eventual progress by European leaders toward resolving the crisis helped, while major currencies finished mixed versus the U.S. dollar.

Contributors and Detractors. U.K. stocks were the biggest contributors to the fund’s total return from a country perspective, and represented an average weight of more than 22%. U.K. investments benefitted from being alternatives to the crisis-plagued euro zone, and returned approximately 9% for the fund in U.S. dollar terms. HSBC Holdings plc—an international banking and financial services company—was a significant contributor in this market, with the fund’s holdings returning more than 18%.

The fund’s Canadian stocks returned approximately -8% in U.S. dollar terms, the biggest detractors from a country standpoint. Holdings of Canadian companies represented a 9% weight in the fund prior to the index conversion, and these holdings were subsequently eliminated.

As of 10/31/12:

Country Weightings % of Equity Investments


United Kingdom			22.9%
Japan			19.3%
France			9.2%
Australia			8.9%
Switzerland			8.6%
Germany			8.5%
Hong Kong			3.1%
Sweden			3.1%
Spain			2.9%
Netherlands			2.5%
Other Countries			11.0%
Total			100.0%

Statistics


Number of Holdings			927
Weighted Average Market Cap ($ x 1,000,000)			$50,565
Price/Earnings Ratio (P/E)			18.3
Price/Book Ratio (P/B)			0.8
Portfolio Turnover Rate			31%

Sector Weightings % of Investments


Financials			23.7%
Industrials			12.3%
Consumer Staples			11.8%
Consumer Discretionary			10.0%
Health Care			10.0%
Materials			9.5%
Energy			8.1%
Telecommunication Services			5.0%
Information Technology			4.2%
Utilities			3.9%
Other			1.5%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Nestle S.A. – Reg’d			2.0%
HSBC Holdings plc			1.7%
iShares MSCI EAFE Index Fund			1.5%
Novartis AG – Reg’d			1.3%
BP plc			1.3%
Roche Holding AG			1.3%
Vodafone Group plc			1.3%
Royal Dutch Shell plc, A Shares			1.2%
BHP Billiton Ltd.			1.1%
GlaxoSmithKline plc			1.1%
Total			13.8%

Management’s 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.


*		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). 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.

14 Schwab Equity Index Funds

Schwab International Index Fund^®

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,2,3

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


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab International Index Fund^® (5/19/97)		6.07	%		-5.76	%		7.51	%
MSCI EAFE Index^®⁴		5.15	%		-5.35	%		8.21	%
Schwab International Index^® (Net)		4.78	%		-5.64	%		7.74	%
International Spliced Index⁵		5.05	%		-5.59	%		7.77	%
Fund Category: Morningstar Foreign Large-Cap Blend		6.15	%		-5.92	%		7.31	%

Fund Expense Ratios⁶: Net 0.19%; Gross 0.21%

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


	1 Year			5 Years			10 Years


Fund: Schwab International Index Fund^® (5/19/97)
Pre-Liquidation (still own shares)		5.48	%		-6.10	%		6.97	%
Post-Liquidation (shares were sold)		4.70	%		-4.72	%		6.49	%
Fund Category: Morningstar Foreign Large-Cap Blend
Pre-Liquidation (still own shares)		4.14	%		-7.11	%		6.32	%
Post-Liquidation (shares were sold)		3.20	%		-5.46	%		6.01	%

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

Index ownership — “MSCI EAFE” is a registered mark of MSCI and has been licensed for use by the Schwab International Index Fund. The Schwab International Index Fund is not sponsored, endorsed, sold or promoted by MSCI and MSCI bears no liability with respect to the fund. The Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with the fund.


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 returns 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 10/31/12 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. Source for category information: Morningstar, Inc. Some funds in this category may not use tax-efficient strategies, including this fund. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³		On August 21, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		Effective December 20, 2011, the fund changed its primary benchmark index from the Schwab International Index to the MSCI EAFE Index^® in connection with a change to the fund’s investment strategy. See Glossary for index definitions.
⁵		The International Spliced Index is an internally calculated index, comprised of the Schwab International Index from inception of the Schwab International Index Fund until the close of business on December 20, 2011 and the MSCI EAFE Index from December 21, 2011 forward.
⁶		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, 2012 and held through October 31, 2012.

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 5/1/12		at 10/31/12		5/1/12–10/31/12

Schwab^® S&P 500 Index Fund
Actual Return		0.09%	$	1,000	$	1,021.00	$	0.46
Hypothetical 5% Return		0.09%	$	1,000	$	1,024.68	$	0.46


Schwab 1000 Index^® Fund
Actual Return		0.29%	$	1,000	$	1,015.40	$	1.47
Hypothetical 5% Return		0.29%	$	1,000	$	1,023.68	$	1.48


Schwab Small-Cap Index Fund^®
Actual Return		0.17%	$	1,000	$	1,010.50	$	0.86
Hypothetical 5% Return		0.17%	$	1,000	$	1,024.28	$	0.87


Schwab Total Stock Market Index Fund^®
Actual Return		0.09%	$	1,000	$	1,017.80	$	0.46
Hypothetical 5% Return		0.09%	$	1,000	$	1,024.68	$	0.46


Schwab International Index Fund^®
Actual Return		0.19%	$	1,000	$	1,024.50	$	0.97
Hypothetical 5% Return		0.19%	$	1,000	$	1,024.18	$	0.97


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²		Expenses for 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 366 days of the fiscal year.

16 Schwab Equity Index Funds

Schwab^® S&P 500 Index Fund

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

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

Income (loss) from investment operations:
Net investment income (loss)		0.44			0.39			0.35			0.20			0.44
Net realized and unrealized gains (losses)		2.49			1.09			2.31			1.22			(9.02	)

Total from investment operations		2.93			1.48			2.66			1.42			(8.58	)
Less distributions:
Distributions from net investment income		(0.40	)		(0.36	)		(0.24	)		(0.42	)		(0.42	)

Net asset value at end of period		22.35			19.82			18.70			16.28			15.28

Total return (%)		15.09			7.97			16.50			9.81			(35.92	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.09			0.09			0.09			0.13	²		0.19
Gross operating expenses		0.10			0.10			0.10			0.16			0.21
Net investment income (loss)		2.09			1.96			1.97			2.09			2.06
Portfolio turnover rate		2			3			2			3	³		3
Net assets, end of period ($ x 1,000,000)		12,687			10,909			10,007			8,718			2,598

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, 2012

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	.4%	Common Stock		9,225,822,139		12,480,987,418
	1	.4%	Short-Term Investments		179,821,589		179,821,589


	99	.8%	Total Investments		9,405,643,728		12,660,809,007
	0	.2%	Collateral Invested for Securities on Loan		31,508,589		31,508,589
	0	.0%	Other Assets and Liabilities, Net				(5,367,984	)


	100	.0%	Net Assets				12,686,949,612


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

Common Stock 98.4% of net assets

Automobiles & Components 0.6%
Other Securities				0.6		80,260,645

Banks 2.8%
U.S. Bancorp		1,872,428		0.5		62,183,334
Wells Fargo & Co.		4,854,909		1.3		163,561,884
Other Securities				1.0		132,516,025

				2.8		358,261,243

Capital Goods 7.5%
3M Co.		628,619		0.4		55,067,024
Caterpillar, Inc.		645,662		0.4		54,758,594
General Electric Co.		10,435,252		1.7		219,766,407
United Technologies Corp.		829,035		0.5		64,797,376
Other Securities				4.5		561,454,899

				7.5		955,844,300

Commercial & Professional Supplies 0.7%
Other Securities				0.7		83,683,994

Consumer Durables & Apparel 1.0%
Other Securities				1.0		130,109,338

Consumer Services 1.8%
McDonald’s Corp.		996,638		0.7		86,508,178
Other Securities				1.1		143,576,565

				1.8		230,084,743

Diversified Financials 6.1%
American Express Co.		973,041		0.4		54,461,105
Bank of America Corp.		10,650,811		0.8		99,265,558
Citigroup, Inc.		2,898,147		0.9		108,361,716
JPMorgan Chase & Co.		3,754,331		1.2		156,480,516
The Charles Schwab Corp. (a)		1,085,681		0.1		14,743,548
The Goldman Sachs Group, Inc.		445,369		0.4		54,508,712
Other Securities				2.3		284,800,054

				6.1		772,621,209

Energy 11.1%
Chevron Corp.		1,939,134		1.7		213,711,958
ConocoPhillips		1,200,290		0.5		69,436,776
Exxon Mobil Corp.		4,561,941		3.3		415,912,161
Occidental Petroleum Corp.		800,450		0.5		63,203,532
Schlumberger Ltd.		1,311,515		0.7		91,189,638
Other Securities				4.4		550,945,804

				11.1		1,404,399,869

Food & Staples Retailing 2.4%
CVS Caremark Corp.		1,258,851		0.5		58,410,686
Wal-Mart Stores, Inc.		1,661,002		1.0		124,608,370
Other Securities				0.9		122,798,638

				2.4		305,817,694

Food, Beverage & Tobacco 6.0%
Altria Group, Inc.		2,008,991		0.5		63,885,914
PepsiCo, Inc.		1,538,063		0.8		106,495,482
Philip Morris International, Inc.		1,665,946		1.2		147,536,178
The Coca-Cola Co.		3,826,356		1.1		142,263,916
Other Securities				2.4		298,304,914

				6.0		758,486,404

Health Care Equipment & Services 3.8%
UnitedHealth Group, Inc.		1,011,410		0.4		56,638,960
Other Securities				3.4		423,558,985

				3.8		480,197,945

Household & Personal Products 2.4%
The Procter & Gamble Co.		2,721,990		1.5		188,470,588
Other Securities				0.9		109,021,461

				2.4		297,492,049

Insurance 3.9%
Berkshire Hathaway, Inc., Class B *		1,812,330		1.2		156,494,696
Other Securities				2.7		334,390,634

				3.9		490,885,330

Materials 3.4%
Other Securities				3.4		435,381,741

18 See financial notes

Schwab S&P 500 Index Fund

Portfolio Holdings continued


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

Media 3.5%
Comcast Corp., Class A		2,644,464		0.8		99,193,845
The Walt Disney Co.		1,773,283		0.7		87,014,997
Other Securities				2.0		255,040,771

				3.5		441,249,613

Pharmaceuticals, Biotechnology & Life Sciences 8.2%
Abbott Laboratories		1,550,986		0.8		101,620,603
Amgen, Inc.		760,959		0.5		65,857,197
Bristol-Myers Squibb Co.		1,659,364		0.4		55,173,853
Johnson & Johnson		2,724,725		1.5		192,965,025
Merck & Co., Inc.		3,010,014		1.1		137,346,939
Pfizer, Inc.		7,382,033		1.4		183,591,161
Other Securities				2.5		304,382,993

				8.2		1,040,937,771

Real Estate 2.1%
Other Securities				2.1		270,996,641

Retailing 4.0%
Amazon.com, Inc. *		357,380		0.7		83,205,212
The Home Depot, Inc.		1,491,550		0.7		91,551,339
Other Securities				2.6		332,561,522

				4.0		507,318,073

Semiconductors & Semiconductor Equipment 1.9%
Intel Corp.		4,944,405		0.8		106,922,758
Other Securities				1.1		139,066,042

				1.9		245,988,800

Software & Services 9.3%
eBay, Inc. *		1,146,269		0.4		55,353,330
Google, Inc., Class A *		261,796		1.4		177,961,067
International Business Machines Corp.		1,061,590		1.6		206,511,103
Microsoft Corp.		7,456,731		1.7		212,777,819
Oracle Corp.		3,786,586		0.9		117,573,495
Visa, Inc., Class A		516,600		0.6		71,683,416
Other Securities				2.7		336,172,775

				9.3		1,178,033,005

Technology Hardware & Equipment 7.6%
Apple, Inc.		926,434		4.3		551,320,873
Cisco Systems, Inc.		5,241,228		0.7		89,834,648
QUALCOMM, Inc.		1,683,365		0.8		98,603,105
Other Securities				1.8		222,519,840

				7.6		962,278,466

Telecommunication Services 3.1%
AT&T, Inc.		5,695,136		1.6		196,994,754
Verizon Communications, Inc.		2,815,578		1.0		125,687,402
Other Securities				0.5		72,916,996

				3.1		395,599,152

Transportation 1.6%
Union Pacific Corp.		464,175		0.5		57,107,450
Other Securities				1.1		145,373,069

				1.6		202,480,519

Utilities 3.6%
Other Securities				3.6		452,578,874

Total Common Stock
(Cost $9,225,822,139)						12,480,987,418



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

Short-Term Investments 1.4% of net assets

Time Deposits 1.3%
BNP Paribas
0.03%, 11/01/12		88,564,698		0.7		88,564,698
Other Securities				0.6		80,478,432

				1.3		169,043,130

U.S. Treasury Obligations 0.1%
Other Securities				0.1		10,778,459

Total Short-Term Investments
(Cost $179,821,589)						179,821,589



End of Investments.


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

Collateral Invested for Securities on Loan 0.2% of net assets


Wells Fargo Advantage Government Money Market Fund		31,508,589		0.2		31,508,589

Total Collateral Invested for Securities on Loan
(Cost $31,508,589)						31,508,589



End of Collateral Invested for Securities on Loan.

At 10/31/12, tax basis cost of the fund’s investments was $9,446,008,739 and the unrealized appreciation and depreciation were $4,389,637,779 and ($1,174,837,511), respectively, with a net unrealized appreciation of $3,214,800,268.

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.
(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

Portfolio Holdings continued

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

2,500

175,850,000

(5,136,125

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$12,480,987,418			$—		$—		$12,480,987,418
Short-Term Investments¹		—			179,821,589		—		179,821,589

Total		$12,480,987,418			$179,821,589		$—		$12,660,809,007

Other Financial Instruments
Collateral Invested for Securities on Loan		$31,508,589			$—		$—		$31,508,589


Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($5,136,125	)		$—		$—		($5,136,125	)


¹		As categorized in complete schedule of holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2012.

20 See financial notes

Schwab S&P 500 Index Fund

Statement of

Assets and Liabilities

As of October 31, 2012



Assets

Investments in affiliated issuers, at value (cost $12,551,700)		$14,743,548
Investments in unaffiliated issuers, at value (cost $9,393,092,028) including securities on loan of $31,036,509	+	12,646,065,459

Total investments, at value (cost $9,405,643,728)		12,660,809,007
Cash		51,475
Collateral invested for securities on loan		31,508,589
Receivables:
Fund shares sold		29,246,054
Dividends		14,737,433
Income from securities on loan		54,232
Foreign tax reclaims		22,821
Prepaid expenses	+	255,858

Total assets		12,736,685,469

Liabilities

Collateral held for securities on loan		31,508,589
Payables:
Investment adviser and administrator fees		56,667
Shareholder service fees		22,157
Fund shares redeemed		17,773,209
Due to brokers for futures		100,000
Accrued expenses	+	275,235

Total liabilities		49,735,857

Net Assets

Total assets		12,736,685,469
Total liabilities	−	49,735,857

Net assets		$12,686,949,612

Net Assets by Source
Capital received from investors		9,687,771,668
Net investment income not yet distributed		200,192,592
Net realized capital losses		(451,043,802	)
Net unrealized capital gains		3,250,029,154

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$12,686,949,612

567,542,349

$22.35

See financial notes 21

Schwab S&P 500 Index Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends received from affiliated issuer		$251,479
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $72)		259,344,993
Interest		57,705
Securities on loan	+	906,094

Total investment income		260,560,271

Expenses

Investment adviser and administrator fees		7,167,350
Shareholder service fees		2,319,964
Transfer agent fees		556,280
Shareholder reports		316,052
Portfolio accounting fees		279,665
Custodian fees		219,042
Registration fees		189,844
Professional fees		95,087
Trustees’ fees		83,697
State filing fee reimbursement (Note 4)		(27,175	)
Other expenses	+	357,449

Total expenses		11,557,255
Expense reduction by CSIM and its affiliates¹	−	806,252

Net expenses	−	10,751,003

Net investment income		249,809,268

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(1,233,233	)
Net realized gains on futures contracts	+	36,168,842

Net realized gains		34,935,609
Net unrealized gains on affiliated issuer		1,290,265
Net unrealized gains on unaffiliated investments		1,377,702,361
Net unrealized losses on futures contracts	+	(13,253,988	)

Net unrealized gains	+	1,365,738,638

Net realized and unrealized gains		1,400,674,247

Increase in net assets resulting from operations		$1,650,483,515


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $27,175. See financial note 4 for additional information.

22 See financial notes

Schwab S&P 500 Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$249,809,268			$212,608,956
Net realized gains		34,935,609			137,575,248
Net unrealized gains	+	1,365,738,638			450,444,867

Increase in net assets from operations		1,650,483,515			800,629,071

Distributions to Shareholders

Distributions from net investment income		($218,494,240	)		($191,615,698	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			94,452,205		$2,011,893,595			93,309,499		$1,842,476,643
Shares reinvested			10,225,170		196,221,005			9,010,183		172,725,206
Shares redeemed	+		(87,533,037	)	(1,861,743,855	)		(87,190,945	)	(1,722,551,980	)

Net transactions in fund shares			17,144,338		$346,370,745			15,128,737		$292,649,869

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			550,398,011		$10,908,589,592			535,269,274		$10,006,926,350
Total increase	+		17,144,338		1,778,360,020			15,128,737		901,663,242

End of period			567,542,349		$12,686,949,612			550,398,011		$10,908,589,592


Net investment income not yet distributed					$200,192,592					$171,894,015

See financial notes 23

Schwab 1000 Index^® Fund

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

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

Income (loss) from investment operations:
Net investment income (loss)		0.71	²		0.62	²		0.57	²		0.54	²		0.66	²
Net realized and unrealized gains (losses)		4.32			2.07			4.80			2.41			(17.13	)

Total from investment operations		5.03			2.69			5.37			2.95			(16.47	)
Less distributions:
Distributions from net investment income		(0.72	)		(0.57	)		(0.58	)		(0.64	)		(0.62	)
Distributions from net realized gains		(1.52	)		(0.47	)		—			—			(0.03	)

Total distributions		(2.24	)		(1.04	)		(0.58	)		(0.64	)		(0.65	)

Net asset value at end of period		40.23			37.44			35.79			31.00			28.69

Total return (%)		14.38			7.60			17.51			10.72			(36.43	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.29			0.29			0.29			0.38	³		0.49
Gross operating expenses		0.34			0.34			0.35			0.44			0.49
Net investment income (loss)		1.85			1.64			1.71			1.96			1.68
Portfolio turnover rate		4			5			5			4			4
Net assets, end of period ($ x 1,000,000)		4,848			4,552			4,575			4,279			2,260

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, 2012


				Cost		Value
Holdings by Category				($)		($)

	99	.5%	Common Stock		1,982,137,394		4,824,056,196
	0	.4%	Other Investment Company		20,278,008		20,278,008
	0	.1%	Short-Term Investment		1,430,820		1,430,820


	100	.0%	Total Investments		2,003,846,222		4,845,765,024
	0	.5%	Collateral Invested for Securities on Loan		23,866,457		23,866,457
	(0	.5)%	Other Assets and Liabilities, Net				(21,633,884	)


	100	.0%	Net Assets				4,847,997,597


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

Common Stock 99.5% of net assets

Automobiles & Components 0.9%
Other Securities				0.9		42,006,982

Banks 2.9%
U.S. Bancorp		641,705		0.4		21,311,023
Wells Fargo & Co.		1,666,696		1.2		56,150,988
Other Securities				1.3		62,754,309

				2.9		140,216,320

Capital Goods 7.9%
3M Co.		215,754		0.4		18,900,050
Caterpillar, Inc.		221,596		0.4		18,793,557
General Electric Co.		3,580,702		1.6		75,409,584
United Technologies Corp.		284,603		0.5		22,244,571
Other Securities				5.0		248,406,917

				7.9		383,754,679

Commercial & Professional Supplies 0.8%
Other Securities				0.8		37,601,568

Consumer Durables & Apparel 1.3%
Other Securities				1.3		63,321,355

Consumer Services 2.0%
McDonald’s Corp.		341,436		0.6		29,636,645
Other Securities				1.4		67,563,335

				2.0		97,199,980

Diversified Financials 5.8%
American Express Co.		334,677		0.4		18,731,872
Bank of America Corp.		3,646,541		0.7		33,985,762
Citigroup, Inc.		994,956		0.8		37,201,405
JPMorgan Chase & Co.		1,288,878		1.1		53,720,435
The Charles Schwab Corp. (a)		367,065		0.1		4,984,743
The Goldman Sachs Group, Inc.		152,932		0.4		18,717,348
Other Securities				2.3		112,737,600

				5.8		280,079,165

Energy 10.6%
Chevron Corp.		666,837		1.5		73,492,106
ConocoPhillips		412,066		0.5		23,838,018
Exxon Mobil Corp.		1,566,163		2.9		142,787,081
Occidental Petroleum Corp.		274,816		0.4		21,699,471
Schlumberger Ltd.		450,647		0.6		31,333,486
Other Securities				4.7		221,016,585

				10.6		514,166,747

Food & Staples Retailing 2.2%
CVS Caremark Corp.		433,511		0.4		20,114,910
Wal-Mart Stores, Inc.		570,227		0.9		42,778,430
Other Securities				0.9		45,886,238

				2.2		108,779,578

Food, Beverage & Tobacco 5.4%
Altria Group, Inc.		689,705		0.5		21,932,619
PepsiCo, Inc.		526,885		0.8		36,481,517
Philip Morris International, Inc.		571,965		1.0		50,653,220
The Coca-Cola Co.		1,313,648		1.0		48,841,433
Other Securities				2.1		103,757,155

				5.4		261,665,944

Health Care Equipment & Services 3.9%
UnitedHealth Group, Inc.		350,392		0.4		19,621,952
Other Securities				3.5		168,713,730

				3.9		188,335,682

Household & Personal Products 2.2%
The Procter & Gamble Co.		934,519		1.3		64,706,096
Other Securities				0.9		44,335,635

				2.2		109,041,731

Insurance 4.1%
Berkshire Hathaway, Inc., Class B *		622,212		1.1		53,728,006
Other Securities				3.0		144,722,572

				4.1		198,450,578

Materials 3.8%
Other Securities				3.8		185,543,441

See financial notes 25

Schwab 1000 Index Fund

Portfolio Holdings continued


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

Media 3.6%
Comcast Corp., Class A		909,123		0.7		34,101,204
The Walt Disney Co.		608,760		0.6		29,871,853
Other Securities				2.3		109,294,723

				3.6		173,267,780

Pharmaceuticals, Biotechnology & Life Sciences 7.9%
Abbott Laboratories		532,446		0.7		34,885,862
Amgen, Inc.		260,702		0.5		22,562,455
Bristol-Myers Squibb Co.		569,639		0.4		18,940,497
Johnson & Johnson		935,387		1.4		66,244,107
Merck & Co., Inc.		1,033,318		1.0		47,150,300
Pfizer, Inc.		2,530,651		1.3		62,937,290
Other Securities				2.6		132,420,969

				7.9		385,141,480

Real Estate 3.0%
Other Securities				3.0		147,502,663

Retailing 4.3%
Amazon.com, Inc. *		122,741		0.6		28,576,560
The Home Depot, Inc.		511,435		0.6		31,391,880
Other Securities				3.1		146,699,964

				4.3		206,668,404

Semiconductors & Semiconductor Equipment 1.9%
Intel Corp.		1,700,280		0.8		36,768,555
Other Securities				1.1		56,818,666

				1.9		93,587,221

Software & Services 9.3%
eBay, Inc. *		393,470		0.4		19,000,666
Google, Inc., Class A *		89,876		1.3		61,095,009
International Business Machines Corp.		364,440		1.5		70,894,513
Microsoft Corp.		2,559,938		1.5		73,047,831
Oracle Corp.		1,292,110		0.8		40,120,015
Visa, Inc., Class A		177,300		0.5		24,602,148
Other Securities				3.3		161,756,831

				9.3		450,517,013

Technology Hardware & Equipment 7.2%
Apple, Inc.		318,050		3.9		189,271,555
Cisco Systems, Inc.		1,794,815		0.6		30,763,129
QUALCOMM, Inc.		578,278		0.7		33,872,634
Other Securities				2.0		92,902,316

				7.2		346,809,634

Telecommunication Services 2.9%
AT&T, Inc.		1,957,377		1.4		67,705,670
Verizon Communications, Inc.		966,557		0.9		43,147,105
Other Securities				0.6		31,500,815

				2.9		142,353,590

Transportation 1.8%
Union Pacific Corp.		159,662		0.4		19,643,216
Other Securities				1.4		66,441,334

				1.8		86,084,550

Utilities 3.8%
Other Securities				3.8		181,960,111

Total Common Stock
(Cost $1,982,137,394)						4,824,056,196




Other Investment Company 0.4% of net assets

Money Market Fund 0.4%
State Street Institutional U.S. Government Money Market Fund		20,278,008		0.4		20,278,008

Total Other Investment Company
(Cost $20,278,008)						20,278,008



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

Short-Term Investment 0.1% of net assets

U.S. Treasury Obligation 0.1%
Other Securities				0.1		1,430,820

Total Short-Term Investment
(Cost $1,430,820)						1,430,820



End of Investments.


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

Collateral Invested for Securities on Loan 0.5% of net assets


State Street Institutional U.S. Government Money Market Fund		23,866,457		0.5		23,866,457

Total Collateral Invested for Securities on Loan
(Cost $23,866,457)						23,866,457



End of Collateral Invested for Securities on Loan.

At 10/31/12, tax basis cost of the fund’s investments was $1,980,916,319 and the unrealized appreciation and depreciation were $2,967,356,004 and ($102,507,299), respectively, with a net unrealized appreciation of $2,864,848,705.

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.
(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

26 See financial notes

Schwab 1000 Index Fund

Portfolio Holdings continued

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

280

19,695,200

(665,290

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$4,617,387,792			$—		$—		$4,617,387,792
Retailing		206,603,407			—		64,997		206,668,404
Other Investment Company¹		20,278,008			—		—		20,278,008
Short-Term Investments¹		—			1,430,820		—		1,430,820

Total		$4,844,269,207			$1,430,820		$64,997		$4,845,765,024

Other Financial Instruments
Collateral Invested for Securities on Loan		$23,866,457			$—		$—		$23,866,457


Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($665,290	)		$—		$—		($665,290	)


¹		As categorized in complete schedule of holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

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

2011

(Losses)

Purchases

Sales

out

2012

Common Stock

$—

$4,047

$60,950

$—

$64,997

Total

$—

$4,047

$60,950

$—

$64,997

All net realized and change in unrealized gains (losses) in the table above are reflected on the accompanying Statement of Operations. The change in net unrealized gains (losses) for Level 3 investments held by the fund at October 31, 2012 was $4,047.

See financial notes 27

Schwab 1000 Index Fund

Statement of

Assets and Liabilities

As of October 31, 2012



Assets

Investments in affiliated issuers, at value (cost $1,803,228)		$4,984,743
Investments in unaffiliated issuers, at value (cost $2,002,042,994) including securities on loan of $23,386,814	+	4,840,780,281

Total investments, at value (cost $2,003,846,222)		4,845,765,024
Collateral invested for securities on loan		23,866,457
Receivables:
Dividends		5,589,281
Fund shares sold		2,870,135
Income from securities on loan		69,208
Foreign tax reclaims		7,846
Interest		956
Prepaid expenses	+	124,756

Total assets		4,878,293,663

Liabilities

Collateral held for securities on loan		23,866,457
Payables:
Investments bought		60,950
Investment adviser and administrator fees		69,378
Shareholder service fees		40,344
Fund shares redeemed		6,091,741
Due to brokers for futures		14,778
Accrued expenses	+	152,418

Total liabilities		30,296,066

Net Assets

Total assets		4,878,293,663
Total liabilities	−	30,296,066

Net assets		$4,847,997,597

Net Assets by Source
Capital received from investors		1,716,239,836
Net investment income not yet distributed		69,309,270
Net realized capital gains		221,194,979
Net unrealized capital gains		2,841,253,512

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$4,847,997,597

120,492,478

$40.23

28 See financial notes

Schwab 1000 Index Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends received from affiliated issuer		$86,284
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $89,066)		100,914,058
Interest		10,650
Securities on loan	+	723,591

Total investment income		101,734,583

Expenses

Investment adviser and administrator fees		10,852,291
Shareholder service fees		4,633,485
Shareholder reports		195,027
Portfolio accounting fees		141,638
Transfer agent fees		137,141
Custodian fees		93,457
Professional fees		63,835
Registration fees		53,091
Trustees’ fees		48,806
Interest expense		2,292
Other expenses	+	118,816

Total expenses		16,339,879
Expense reduction by CSIM and its affiliates	−	2,559,048
Custody credits	−	141

Net expenses	−	13,780,690

Net investment income		87,953,893

Realized and Unrealized Gains (Losses)

Net realized gains on investments		195,449,231
Net realized gains on futures contracts	+	1,432,658

Net realized gains		196,881,889
Net unrealized gains on affiliated issuer		474,466
Net unrealized gains on unaffiliated investments		349,984,546
Net unrealized losses on futures contracts	+	(665,290	)

Net unrealized gains	+	349,793,722

Net realized and unrealized gains		546,675,611

Increase in net assets resulting from operations		$634,629,504

See financial notes 29

Schwab 1000 Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$87,953,893			$78,010,205
Net realized gains		196,881,889			201,802,116
Net unrealized gains	+	349,793,722			69,288,970

Increase in net assets from operations		634,629,504			349,101,291

Distributions to Shareholders

Distributions from net investment income		(86,671,033	)		(72,629,008	)
Distributions from net realized gains	+	(183,283,175	)		(59,077,498	)

Total distributions		($269,954,208	)		($131,706,506	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			6,643,918		$254,453,021			8,119,509		$304,265,267
Shares reinvested			6,777,525		235,112,352			3,151,858		114,822,202
Shares redeemed	+		(14,504,214	)	(557,797,536	)		(17,520,002	)	(660,242,679	)

Net transactions in fund shares			(1,082,771	)	($68,232,163	)		(6,248,635	)	($241,155,210	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			121,575,249		$4,551,554,464			127,823,884		$4,575,314,889
Total increase or decrease	+		(1,082,771	)	296,443,133			(6,248,635	)	(23,760,425	)

End of period			120,492,478		$4,847,997,597			121,575,249		$4,551,554,464


Net investment income not yet distributed					$69,309,270					$68,967,233

30 See financial notes

Schwab Small-Cap Index Fund^®

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

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

Income (loss) from investment operations:
Net investment income (loss)		0.33	²		0.25	²		0.22	²		0.18	²		0.33	²
Net realized and unrealized gains (losses)		1.89			1.37			3.97			1.40			(7.89	)

Total from investment operations		2.22			1.62			4.19			1.58			(7.56	)
Less distributions:
Distributions from net investment income		(0.35	)		(0.20	)		(0.15	)		(0.29	)		(0.32	)
Distributions from net realized gains		(1.16	)		(0.05	)		—			—			(3.62	)

Total distributions		(1.51	)		(0.25	)		(0.15	)		(0.29	)		(3.94	)

Net asset value at end of period		21.26			20.55			19.18			15.14			13.85

Total return (%)		11.87			8.45			27.85			11.98			(34.48	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.17			0.19			0.19			0.28	³		0.42
Gross operating expenses		0.21			0.19			0.20			0.33			0.42
Net investment income (loss)		1.63			1.18			1.23			1.41			1.78
Portfolio turnover rate		41	⁴		26			33			26			64
Net assets, end of period ($ x 1,000,000)		1,675			1,502			1,406			1,142			628

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.

⁴ Portfolio turnover rate increase was mainly the result of trading activities in connection with the change in primary benchmark index effective December 14, 2011.

See financial notes 31

Schwab Small-Cap Index Fund

Portfolio Holdings as of October 31, 2012


				Cost		Value
Holdings by Category				($)		($)

	97	.4%	Common Stock		1,363,052,199		1,630,498,243
	0	.0%	Rights		—		—
	0	.0%	Warrants		—		591
	2	.6%	Short-Term Investments		43,991,885		43,991,885


	100	.0%	Total Investments		1,407,044,084		1,674,490,719
	5	.6%	Collateral Invested for Securities on Loan		93,407,211		93,407,211
	(5	.6)%	Other Assets and Liabilities, Net				(93,156,428	)


	100	.0%	Net Assets				1,674,741,502


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

Common Stock 97.4% of net assets

Automobiles & Components 0.8%
Other Securities				0.8		13,785,346

Banks 8.2%
Hancock Holding Co.		106,049		0.2		3,350,088
Ocwen Financial Corp. *		149,200		0.3		5,754,644
Other Securities				7.7		127,203,896

				8.2		136,308,628

Capital Goods 8.8%
A.O. Smith Corp.		54,295		0.2		3,299,507
Acuity Brands, Inc.		58,800		0.2		3,804,360
CLARCOR, Inc.		69,900		0.2		3,162,276
Hexcel Corp. *		138,383		0.2		3,537,070
Middleby Corp. *		26,152		0.2		3,267,692
Robbins & Myers, Inc.		53,500		0.2		3,171,480
Teledyne Technologies, Inc. *		51,200		0.2		3,278,336
Woodward, Inc.		96,000		0.2		3,216,000
Other Securities				7.2		121,273,685

				8.8		148,010,406

Commercial & Professional Supplies 3.6%
Other Securities				3.6		60,913,847

Consumer Durables & Apparel 3.1%
The Warnaco Group, Inc. *		57,200		0.2		4,037,176
Other Securities				2.9		48,009,190

				3.1		52,046,366

Consumer Services 4.1%
Domino’s Pizza, Inc.		80,679		0.2		3,277,181
Six Flags Entertainment Corp.		55,000		0.2		3,141,050
Other Securities				3.7		62,867,321

				4.1		69,285,552

Diversified Financials 3.2%
Other Securities				3.2		54,217,032

Energy 5.8%
Dril-Quip, Inc. *		55,800		0.2		3,864,708
Energy XXI (Bermuda) Ltd.		109,500		0.2		3,624,450
Kodiak Oil & Gas Corp. *		366,300		0.2		3,384,612
Oasis Petroleum, Inc. *		111,100		0.2		3,263,007
Rosetta Resources, Inc. *		73,600		0.2		3,388,544
Other Securities				4.8		79,522,559

				5.8		97,047,880

Food & Staples Retailing 1.1%
United Natural Foods, Inc. *		67,882		0.2		3,614,038
Other Securities				0.9		13,930,129

				1.1		17,544,167

Food, Beverage & Tobacco 1.9%
Other Securities				1.9		32,257,694

Health Care Equipment & Services 6.5%
athenahealth, Inc. *		49,700		0.2		3,195,213
Other Securities				6.3		105,020,861

				6.5		108,216,074

Household & Personal Products 0.6%
Other Securities				0.6		9,613,379

Insurance 2.5%
First American Financial Corp.		147,800		0.2		3,362,450
Other Securities				2.3		38,238,627

				2.5		41,601,077

Materials 5.0%
Coeur d’Alene Mines Corp. *		125,350		0.2		3,874,569
Eagle Materials, Inc.		67,890		0.2		3,596,133
Other Securities				4.6		76,406,191

				5.0		83,876,893

Media 1.2%
Other Securities				1.2		19,764,535

32 See financial notes

Schwab Small-Cap Index Fund

Portfolio Holdings continued


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

Pharmaceuticals, Biotechnology & Life Sciences 5.7%
Alkermes plc *		170,242		0.2		3,154,584
Cubist Pharmaceuticals, Inc. *		87,932		0.2		3,772,283
Jazz Pharmaceuticals plc *		57,900		0.2		3,110,967
Medicis Pharmaceutical Corp., Class A		80,149		0.2		3,479,268
Pharmacyclics, Inc. *		75,400		0.3		4,604,678
Seattle Genetics, Inc. *		131,798		0.2		3,316,038
Other Securities				4.4		73,114,074

				5.7		94,551,892

Real Estate 8.0%
CYS Investments, Inc.		242,900		0.2		3,259,718
Highwoods Properties, Inc.		102,800		0.2		3,315,300
Invesco Mortgage Capital, Inc.		160,500		0.2		3,439,515
Omega Healthcare Investors, Inc.		147,000		0.2		3,372,180
Starwood Property Trust, Inc.		187,900		0.3		4,306,668
Two Harbors Investment Corp.		387,300		0.3		4,620,489
Other Securities				6.6		111,753,534

				8.0		134,067,404

Retailing 4.3%
Other Securities				4.3		72,242,319

Semiconductors & Semiconductor Equipment 3.3%
Cirrus Logic, Inc. *		89,800		0.2		3,660,248
Cymer, Inc. *		43,165		0.2		3,439,819
Other Securities				2.9		48,790,324

				3.3		55,890,391

Software & Services 8.1%
Aspen Technology, Inc. *		130,200		0.2		3,226,356
CommVault Systems, Inc. *		62,100		0.2		3,879,387
CoStar Group, Inc. *		39,175		0.2		3,247,607
Parametric Technology Corp. *		166,100		0.2		3,351,898
Ultimate Software Group, Inc. *		37,100		0.2		3,760,456
WEX, Inc. *		54,076		0.2		3,989,727
Other Securities				6.9		113,710,935

				8.1		135,166,366

Technology Hardware & Equipment 4.8%
Other Securities				4.8		80,389,726

Telecommunication Services 0.7%
Other Securities				0.7		11,516,315

Transportation 2.5%
Alaska Air Group, Inc. *		98,800		0.2		3,778,112
Genesee & Wyoming, Inc., Class A *		61,600		0.3		4,464,152
Old Dominion Freight Line, Inc. *		99,124		0.2		3,324,619
Other Securities				1.8		29,861,864

				2.5		41,428,747

Utilities 3.6%
Cleco Corp.		84,600		0.2		3,650,490
IDACORP, Inc.		69,800		0.2		3,121,456
Piedmont Natural Gas Co., Inc.		99,700		0.2		3,177,439
Other Securities				3.0		50,806,822

				3.6		60,756,207

Total Common Stock
(Cost $1,363,052,199)						1,630,498,243




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		591

Total Warrants
(Cost $—)						591



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

Short-Term Investments 2.6% of net assets

Time Deposit 2.5%
Royal Bank of Canada
0.03%, 11/01/12		41,374,248		2.5		41,374,248

U.S. Treasury Obligations 0.1%
Other Securities				0.1		2,617,637

Total Short-Term Investments
(Cost $43,991,885)						43,991,885



End of Investments.


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

Collateral Invested for Securities on Loan 5.6% of net assets


Wells Fargo Advantage Government Money Market Fund		93,407,211		5.6		93,407,211

Total Collateral Invested for Securities on Loan
(Cost $93,407,211)						93,407,211



End of Collateral Invested for Securities on Loan.

At 10/31/12 tax basis cost of the fund’s investments was $1,412,644,938 and the unrealized appreciation and depreciation were $406,103,935 and ($144,258,154), respectively, with a net unrealized appreciation of $261,845,781.

See financial notes 33

Schwab Small-Cap Index Fund

Portfolio Holdings continued

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 $320,070 or 0.0% of net assets.
(c)		All or a portion of this security is on loan.
(d)		All or a portion of this security is held as collateral for open futures contracts.
(e)		The rate shown is the purchase yield.


REIT —		Real Estate Investment Trust

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

Russell 2000 Index, mini, Long, expires 12/21/12

510

41,631,300

(1,350,122

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$1,482,487,837			$—		$—		$1,482,487,837
Capital Goods		147,690,927			—		319,479		148,010,406
Rights¹		—			—		—		—
Warrants		591			—		—		591
Short-Term Investments¹		—			43,991,885		—		43,991,885

Total		$1,630,179,355			$43,991,885		$319,479		$1,674,490,719

Other Financial Instruments
Collateral Invested for Securities on Loan		$93,407,211			$—		$—		$93,407,211


Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($1,350,122	)		$—		$—		($1,350,122	)


¹		As categorized in complete schedule of holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

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

2011

(Losses)

Purchases

Sales

out

2012

Common Stock

$127,375

($3,526,188

)

$3,697,493

$116,631

($95,832

)

$—

$319,479

Total

$127,375

($3,526,188

)

$3,697,493

$116,631

($95,832

)

$—

$319,479

34 See financial notes

Schwab Small-Cap Index Fund

Statement of

Assets and Liabilities

As of October 31, 2012



Assets

Investments, at value (cost $1,407,044,084) including securities on loan of $90,461,226		$1,674,490,719
Collateral invested for securities on loan		93,407,211
Receivables:
Investments sold		350,272
Fund shares sold		3,865,849
Dividends		666,468
Income from securities on loan		379,680
Due from broker for futures		224,400
Interest		35
Prepaid expenses	+	38,106

Total assets		1,773,422,740

Liabilities

Collateral held for securities on loan		93,407,211
Payables:
Investments bought		4,110,730
Investment adviser and administrator fees		12,497
Shareholder service fees		2,825
Fund shares redeemed		980,247
Accrued expenses	+	167,728

Total liabilities		98,681,238

Net Assets

Total assets		1,773,422,740
Total liabilities	−	98,681,238

Net assets		$1,674,741,502

Net Assets by Source
Capital received from investors		1,351,648,137
Net investment income not yet distributed		21,861,474
Net realized capital gains		35,135,356
Net unrealized capital gains		266,096,535

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$1,674,741,502

78,771,380

$21.26

See financial notes 35

Schwab Small-Cap Index Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends (net of foreign withholding taxes of $27,069)		$24,289,577
Interest		6,664
Securities on loan	+	4,304,672

Total investment income		28,600,913

Expenses

Investment adviser and administrator fees		2,382,479
Shareholder service fees		311,248
Index fee		137,671
Shareholder reports		121,934
Portfolio accounting fees		88,897
Transfer agent fees		71,860
Professional fees		71,084
Registration fees		62,659
Custodian fees		50,916
Trustees’ fees		16,343
Interest expense		1,041
State filing fee reimbursement (Note 4)		(4,304	)
Other expenses	+	40,274

Total expenses		3,352,102
Expense reduction by CSIM and its affiliates¹	−	650,918

Net expenses	−	2,701,184

Net investment income		25,899,729

Realized and Unrealized Gains (Losses)

Net realized gains on investments		41,537,460
Net realized gains on futures contracts		1,218,580
Net realized gains on foreign currency transactions	+	19

Net realized gains		42,756,059
Net unrealized gains on investments		107,250,891
Net unrealized losses on futures contracts		(1,557,114	)
Net unrealized gains on foreign currency translations	+	22

Net unrealized gains	+	105,693,799

Net realized and unrealized gains		148,449,858

Increase in net assets resulting from operations		$174,349,587


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $4,304. See financial note 4 for additional information.

36 See financial notes

Schwab Small-Cap Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$25,899,729			$18,466,000
Net realized gains		42,756,059			95,376,181
Net unrealized gains	+	105,693,799			8,082,589

Increase in net assets from operations		174,349,587			121,924,770

Distributions to Shareholders

Distributions from net investment income		(25,652,389	)		(14,254,530	)
Distributions from net realized gains	+	(84,544,390	)		(4,031,438	)

Total distributions		($110,196,779	)		($18,285,968	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			13,103,409		$271,438,282			14,936,269		$309,163,569
Shares reinvested			5,456,861		101,552,188			814,081		16,827,051
Shares redeemed	+		(12,880,545	)	(264,077,786	)		(15,965,406	)	(333,977,185	)

Net transactions in fund shares			5,679,725		$108,912,684			(215,056	)	($7,986,565	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			73,091,655		$1,501,676,010			73,306,711		$1,406,023,773
Total increase or decrease	+		5,679,725		173,065,492			(215,056	)	95,652,237

End of period			78,771,380		$1,674,741,502			73,091,655		$1,501,676,010


Net investment income not yet distributed					$21,861,474					$21,301,466

See financial notes 37

Schwab Total Stock Market Index Fund^®

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

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

Income (loss) from investment operations:
Net investment income (loss)		0.47			0.41			0.37			0.24			0.40
Net realized and unrealized gains (losses)		2.83			1.33			3.02			1.55			(9.93	)

Total from investment operations		3.30			1.74			3.39			1.79			(9.53	)
Less distributions:
Distributions from net investment income		(0.42	)		(0.39	)		(0.32	)		(0.37	)		(0.37	)
Distributions from net realized gains		—			—			—			—			(0.06	)

Total distributions		(0.42	)		(0.39	)		(0.32	)		(0.37	)		(0.43	)

Net asset value at end of period		25.80			22.92			21.57			18.50			17.08

Total return (%)		14.71			8.14			18.53			10.92			(35.76	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.09			0.09			0.09			0.21	²		0.38
Gross operating expenses		0.10			0.11			0.11			0.28			0.38
Net investment income (loss)		2.02			1.79			1.85			2.02			1.71
Portfolio turnover rate		3			1			3			5			1
Net assets, end of period ($ x 1,000,000)		2,240			1,747			1,470			1,205			585

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.

38 See financial notes

Schwab Total Stock Market Index Fund

Portfolio Holdings as of October 31, 2012


				Cost		Value
Holdings by Category				($)		($)

	98	.6%	Common Stock		1,684,732,545		2,208,790,277
	0	.0%	Rights		—		—
	0	.0%	Warrants		—		—
	1	.1%	Short-Term Investments		24,098,126		24,098,126


	99	.7%	Total Investments		1,708,830,671		2,232,888,403
	0	.8%	Collateral Invested for Securities on Loan		18,504,950		18,504,950
	(0	.5)%	Other Assets and Liabilities, Net				(11,715,225	)


	100	.0%	Net Assets				2,239,678,128


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

Common Stock 98.6% of net assets

Automobiles & Components 0.8%
Other Securities				0.8		18,343,892

Banks 3.3%
U.S. Bancorp		270,431		0.4		8,981,014
Wells Fargo & Co.		701,006		1.1		23,616,892
Other Securities				1.8		41,440,364

				3.3		74,038,270

Capital Goods 7.8%
3M Co.		90,800		0.4		7,954,080
Caterpillar, Inc.		93,200		0.4		7,904,292
General Electric Co.		1,506,666		1.4		31,730,386
United Technologies Corp.		119,668		0.4		9,353,251
Other Securities				5.2		118,523,491

				7.8		175,465,500

Commercial & Professional Supplies 1.1%
Other Securities				1.1		24,726,338

Consumer Durables & Apparel 1.5%
Other Securities				1.5		32,585,030

Consumer Services 2.1%
McDonald’s Corp.		143,909		0.6		12,491,301
Other Securities				1.5		35,320,197

				2.1		47,811,498

Diversified Financials 5.4%
American Express Co.		140,750		0.4		7,877,777
Bank of America Corp.		1,537,856		0.6		14,332,818
Citigroup, Inc.		418,428		0.7		15,645,023
JPMorgan Chase & Co.		542,044		1.0		22,592,394
The Charles Schwab Corp. (b)		154,226		0.1		2,094,389
The Goldman Sachs Group, Inc.		64,300		0.4		7,869,677
Other Securities				2.2		50,463,170

				5.4		120,875,248

Energy 10.2%
Chevron Corp.		279,939		1.4		30,852,077
ConocoPhillips		173,323		0.4		10,026,735
Exxon Mobil Corp.		658,634		2.7		60,047,662
Occidental Petroleum Corp.		115,620		0.4		9,129,355
Schlumberger Ltd.		189,360		0.6		13,166,201
Other Securities				4.7		105,925,254

				10.2		229,147,284

Food & Staples Retailing 2.1%
CVS Caremark Corp.		181,590		0.4		8,425,776
Wal-Mart Stores, Inc.		239,800		0.8		17,989,796
Other Securities				0.9		19,781,324

				2.1		46,196,896

Food, Beverage & Tobacco 5.2%
Altria Group, Inc.		290,100		0.4		9,225,180
PepsiCo, Inc.		222,058		0.7		15,375,296
Philip Morris International, Inc.		240,500		1.0		21,298,680
The Coca-Cola Co.		552,500		0.9		20,541,950
Other Securities				2.2		51,069,761

				5.2		117,510,867

Health Care Equipment & Services 4.1%
UnitedHealth Group, Inc.		147,380		0.4		8,253,280
Other Securities				3.7		82,683,385

				4.1		90,936,665

Household & Personal Products 2.1%
The Procter & Gamble Co.		393,015		1.2		27,212,359
Other Securities				0.9		19,941,972

				2.1		47,154,331

Insurance 4.0%
Berkshire Hathaway, Inc., Class B *		261,674		1.0		22,595,550
Other Securities				3.0		66,564,740

				4.0		89,160,290

See financial notes 39

Schwab Total Stock Market Index Fund

Portfolio Holdings continued


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

Materials 3.9%
Other Securities				3.9		86,493,807

Media 3.4%
Comcast Corp., Class A		322,304		0.5		12,089,623
The Walt Disney Co.		255,993		0.6		12,561,577
Other Securities				2.3		50,506,245

				3.4		75,157,445

Pharmaceuticals, Biotechnology & Life Sciences 7.6%
Abbott Laboratories		223,905		0.7		14,670,256
Amgen, Inc.		109,968		0.4		9,517,181
Bristol-Myers Squibb Co.		239,550		0.4		7,965,037
Johnson & Johnson		393,370		1.2		27,858,463
Merck & Co., Inc.		434,570		0.9		19,829,429
Pfizer, Inc.		1,065,901		1.2		26,508,958
Other Securities				2.8		64,824,705

				7.6		171,174,029

Real Estate 3.7%
Other Securities				3.7		81,728,836

Retailing 4.2%
Amazon.com, Inc. *		51,600		0.5		12,013,512
The Home Depot, Inc.		215,070		0.6		13,200,997
Other Securities				3.1		68,947,583

				4.2		94,162,092

Semiconductors & Semiconductor Equipment 2.0%
Intel Corp.		713,932		0.7		15,438,779
Other Securities				1.3		29,881,171

				2.0		45,319,950

Software & Services 9.1%
eBay, Inc. *		165,448		0.4		7,989,484
Google, Inc., Class A *		37,765		1.1		25,671,514
International Business Machines Corp.		153,310		1.3		29,823,394
Microsoft Corp.		1,076,650		1.4		30,722,208
Oracle Corp.		543,449		0.8		16,874,091
Visa, Inc., Class A		74,600		0.5		10,351,496
Other Securities				3.6		83,212,469

				9.1		204,644,656

Technology Hardware & Equipment 6.9%
Apple, Inc.		133,800		3.6		79,624,380
Cisco Systems, Inc.		754,909		0.6		12,939,140
QUALCOMM, Inc.		243,100		0.6		14,239,582
Other Securities				2.1		47,544,636

				6.9		154,347,738

Telecommunication Services 2.7%
AT&T, Inc.		823,156		1.3		28,472,966
Verizon Communications, Inc.		406,472		0.8		18,144,910
Other Securities				0.6		14,696,524

				2.7		61,314,400

Transportation 1.8%
Union Pacific Corp.		67,600		0.4		8,316,828
Other Securities				1.4		31,058,374

				1.8		39,375,202

Utilities 3.6%
Other Securities				3.6		81,120,013

Total Common Stock
(Cost $1,684,732,545)						2,208,790,277




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 Investments 1.1% of net assets

Time Deposit 1.0%
Societe Generale
0.03%, 11/01/12		22,399,356		1.0		22,399,356

U.S. Treasury Obligation 0.1%
Other Securities				0.1		1,698,770

Total Short-Term Investments
(Cost $24,098,126)						24,098,126



End of Investments.


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

Collateral Invested for Securities on Loan 0.8% of net assets


Wells Fargo Advantage Government Money Market Fund		18,504,950		0.8		18,504,950

Total Collateral Invested for Securities on Loan
(Cost $18,504,950)						18,504,950



End of Collateral Invested for Securities on Loan.

40 See financial notes

Schwab Total Stock Market Index Fund

Portfolio Holdings continued

At 10/31/12 the tax basis cost of the fund’s investments was $1,721,800,478 and the unrealized appreciation and depreciation were $678,801,448 and ($167,713,523), respectively, with a net unrealized appreciation of $511,087,925.

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 $54,704 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 10/31/12.


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

Futures Contracts


Russell 2000 Index, mini, Long, expires 12/21/12		45		3,673,350		(74,614	)
S&P 500 Index, e-mini, Long, expires 12/21/12		310		21,805,400		(427,367	)

Net unrealized losses						(501,981	)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$1,906,577,655			$—		$—		$1,906,577,655
Capital Goods		175,412,096			—		53,404		175,465,500
Consumer Durables & Apparel		32,583,730			—		1,300		32,585,030
Retailing		94,130,405			—		31,687		94,162,092
Rights¹		—			—		—		—
Warrants¹		—			—		—		—
Short-Term Investments¹		—			24,098,126		—		24,098,126

Total		$2,208,703,886			$24,098,126		$86,391		$2,232,888,403

Other Financial Instruments
Collateral Invested for Securities on Loan		$18,504,950			$—		$—		$18,504,950


Liabilities Valuation Input


Other Financial Instruments
Futures Contracts²		($501,981	)		$—		$—		($501,981	)


¹		As categorized in complete schedule of holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

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

2011

(Losses)

Purchases

Sales

out

2012

Common Stock

$8,367

($623,248

)

$649,260

$51,105

($4,868

)

$5,775

$—

$86,391

Rights

(29

)

—

Total

$8,396

($623,245

)

$649,231

$51,105

($4,871

)

$5,775

$—

$86,391

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1 and Level 2 for the period ended October 31, 2012.

See financial notes 41

Schwab Total Stock Market Index Fund

Statement of

Assets and Liabilities

As of October 31, 2012



Assets

Investments in affiliated issuers, at value (cost $2,858,683)		$2,094,389
Investments in unaffiliated issuers, at value (cost $1,705,971,988) including securities on loan of $18,013,429	+	2,230,794,014

Total investments, at value (cost $1,708,830,671)		2,232,888,403
Cash		75
Collateral invested for securities on loan		18,504,950
Receivables:
Fund shares sold		5,848,955
Dividends		2,414,743
Income from securities on loan		53,363
Due from broker for futures		11,204
Foreign tax reclaims		3,253
Prepaid expenses	+	43,087

Total assets		2,259,768,033

Liabilities

Collateral held for securities on loan		18,504,950
Payables:
Investments bought		259,503
Investment adviser and administrator fees		7,920
Shareholder service fees		3,787
Fund shares redeemed		1,220,214
Accrued expenses	+	93,531

Total liabilities		20,089,905

Net Assets

Total assets		2,259,768,033
Total liabilities	−	20,089,905

Net assets		$2,239,678,128

Net Assets by Source
Capital received from investors		1,703,682,008
Net investment income not yet distributed		32,773,528
Net realized capital losses		(20,333,159	)
Net unrealized capital gains		523,555,751

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$2,239,678,128

86,821,058

$25.80

42 See financial notes

Schwab Total Stock Market Index Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends received from affiliated issuer		$31,602
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $39,197)		40,834,541
Interest		9,590
Securities on loan	+	565,075

Total investment income		41,440,808

Expenses

Investment adviser and administrator fees		1,180,226
Shareholder service fees		381,850
Transfer agent fees		107,227
Portfolio accounting fees		100,937
Shareholder reports		79,588
Registration fees		64,441
Professional fees		49,943
Custodian fees		45,543
Trustees’ fees		18,254
Interest expense		30
State filing fee reimbursement (Note 4)		(11,512	)
Other expenses	+	46,596

Total expenses		2,063,123
Expense reduction by CSIM and its affiliates¹	−	296,521

Net expenses	−	1,766,602

Net investment income		39,674,206

Realized and Unrealized Gains (Losses)

Net realized gains on investments		8,130,210
Net realized gains on futures contracts	+	3,929,040

Net realized gains		12,059,250
Net unrealized gains on affiliated issuer		174,471
Net unrealized gains on unaffiliated investments		212,369,531
Net unrealized losses on futures contracts	+	(1,542,227	)

Net unrealized gains	+	211,001,775

Net realized and unrealized gains		223,061,025

Increase in net assets resulting from operations		$262,735,231


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $11,512. See financial note 4 for additional information.

See financial notes 43

Schwab Total Stock Market Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$39,674,206			$30,636,588
Net realized gains		12,059,250			2,761,150
Net unrealized gains	+	211,001,775			81,349,337

Increase in net assets from operations		262,735,231			114,747,075

Distributions to Shareholders

Distributions from net investment income		($32,188,219	)		($26,769,873	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			21,918,622		$541,100,465			22,264,739		$513,941,756
Shares reinvested			1,240,438		27,500,498			1,030,256		22,943,799
Shares redeemed	+		(12,563,348	)	(306,292,186	)		(15,226,159	)	(348,432,230	)

Net transactions in fund shares			10,595,712		$262,308,777			8,068,836		$188,453,325

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			76,225,346		$1,746,822,339			68,156,510		$1,470,391,812
Total increase	+		10,595,712		492,855,789			8,068,836		276,430,527

End of period			86,821,058		$2,239,678,128			76,225,346		$1,746,822,339


Net investment income not yet distributed					$32,773,528					$25,269,704

44 See financial notes

Schwab International Index Fund^®

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

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

Income (loss) from investment operations:
Net investment income (loss)		0.57			0.57			0.48			0.37			0.68
Net realized and unrealized gains (losses)		0.33			(1.38	)		1.01			2.58			(12.13	)

Total from investment operations		0.90			(0.81	)		1.49			2.95			(11.45	)
Less distributions:
Distributions from net investment income		(0.60	)		(0.48	)		(0.44	)		(0.64	)		(0.55	)

Net asset value at end of period		16.32			16.02			17.31			16.26			13.95

Total return (%)		6.07			(4.83	)		9.31			22.55			(45.02	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.19			0.19			0.19			0.32	²		0.50
Gross operating expenses		0.23			0.21			0.22			0.41			0.54
Net investment income (loss)		3.66			3.26			2.88			2.92			3.15
Portfolio turnover rate		31	³		10			13			21			10
Net assets, end of period ($ x 1,000,000)		1,415			1,375			1,471			1,369			711

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 rate increase was mainly the result of trading activities in connection with the change in primary benchmark index effective December 20, 2011.

See financial notes 45

Schwab International Index Fund

Portfolio Holdings as of October 31, 2012


				Cost		Value
Holdings by Category				($)		($)

	97	.5%	Common Stock		1,162,030,883		1,379,481,700
	0	.6%	Preferred Stock		5,868,851		8,184,188
	1	.5%	Other Investment Company		21,315,494		21,428,000
	0	.0%	Short-Term Investment		311,494		311,494


	99	.6%	Total Investments		1,189,526,722		1,409,405,382
	0	.3%	Collateral Invested for Securities on Loan		4,237,548		4,237,548
	0	.1%	Other Assets and Liabilities, Net				1,330,528


	100	.0%	Net Assets				1,414,973,458


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

Common Stock 97.5% of net assets

Australia 8.9%
Australia & New Zealand Banking Group Ltd.		360,234		0.7		9,503,422
BHP Billiton Ltd.		432,113		1.1		15,299,137
Commonwealth Bank of Australia		213,508		0.9		12,786,034
National Australia Bank Ltd.		300,095		0.6		8,019,955
Westpac Banking Corp.		410,808		0.8		10,860,904
Other Securities				4.8		69,319,607

				8.9		125,789,059

Austria 0.3%
Other Securities				0.3		3,878,772

Belgium 1.1%
Anheuser-Busch InBev N.V.		107,945		0.6		9,027,556
Other Securities				0.5		6,707,248

				1.1		15,734,804

Denmark 1.1%
Novo Nordisk A/S, Class B		54,730		0.6		8,774,064
Other Securities				0.5		7,452,131

				1.1		16,226,195

Finland 0.7%
Other Securities				0.7		10,562,991

France 9.2%
BNP Paribas S.A.		129,519		0.5		6,533,581
LVMH Moet Hennessy Louis Vuitton S.A.		34,039		0.4		5,534,090
Sanofi		159,318		1.0		13,992,487
Total S.A.		285,793		1.0		14,395,452
Other Securities				6.3		89,441,363

				9.2		129,896,973

Germany 7.9%
Allianz SE - Reg’d		61,106		0.5		7,590,915
BASF SE		123,500		0.7		10,244,366
Bayer AG - Reg’d		111,137		0.7		9,690,373
Daimler AG - Reg’d		121,899		0.4		5,710,339
Deutsche Bank AG - Reg’d		124,475		0.4		5,669,970
E.ON AG		241,763		0.4		5,503,754
SAP AG		123,431		0.6		9,000,958
Siemens AG - Reg’d		110,665		0.8		11,150,484
Other Securities				3.4		47,261,205

				7.9		111,822,364

Greece 0.1%
Other Securities				0.1		780,828

Hong Kong 3.1%
Other Securities				3.1		43,610,213

Ireland 0.3%
Other Securities				0.3		3,748,710

Israel 0.6%
Other Securities				0.6		8,325,266

Italy 2.2%
Eni S.p.A.		340,912		0.6		7,844,694
Other Securities				1.6		23,606,464

				2.2		31,451,158

Japan 19.2%
Honda Motor Co., Ltd.		218,439		0.5		6,566,981
Mitsubishi UFJ Financial Group, Inc.		1,707,209		0.5		7,723,359
Sumitomo Mitsui Financial Group, Inc.		180,546		0.4		5,516,941
Toyota Motor Corp.		369,603		1.0		14,250,837
Other Securities				16.8		237,395,971

				19.2		271,454,089

Netherlands 2.5%
Unilever N.V. CVA		218,301		0.6		8,023,569

46 See financial notes

Schwab International Index Fund

Portfolio Holdings continued


	Number		% of Net		Value
Security	of Shares		Assets		($)
Other Securities				1.9		27,073,425

				2.5		35,096,994

New Zealand 0.1%
Other Securities				0.1		1,775,992

Norway 0.9%
Other Securities				0.9		13,362,330

Portugal 0.2%
Other Securities				0.2		2,337,686

Singapore 1.8%
Other Securities				1.8		25,824,456

Spain 2.9%
Banco Bilbao Vizcaya Argentaria S.A.		721,256		0.4		6,026,775
Banco Santander S.A.		1,319,541		0.7		9,935,095
Telefonica S.A.		540,302		0.5		7,131,329
Other Securities				1.3		17,595,930

				2.9		40,689,129

Sweden 3.1%
Other Securities				3.1		43,554,713

Switzerland 8.6%
Nestle S.A. - Reg’d		442,233		2.0		28,076,565
Novartis AG - Reg’d		308,258		1.3		18,588,125
Roche Holding AG		94,150		1.3		18,135,653
UBS AG - Reg’d *		488,512		0.5		7,329,433
Other Securities				3.5		49,456,954

				8.6		121,586,730

United Kingdom 22.7%
Anglo American plc		186,285		0.4		5,740,225
AstraZeneca plc		169,309		0.6		7,851,663
Barclays plc		1,551,180		0.4		5,735,845
BG Group plc		456,581		0.6		8,477,284
BHP Billiton plc		283,039		0.6		9,071,742
BP plc		2,549,771		1.3		18,209,432
British American Tobacco plc		262,096		0.9		12,999,847
Diageo plc		336,445		0.7		9,618,457
GlaxoSmithKline plc		672,218		1.1		15,062,680
HSBC Holdings plc		2,431,036		1.7		23,968,271
Rio Tinto plc		179,629		0.6		8,973,620
Royal Dutch Shell plc, A Shares		495,336		1.2		16,996,320
Royal Dutch Shell plc, B Shares		354,342		0.9		12,533,927
Standard Chartered plc		320,089		0.5		7,578,602
Tesco plc		1,079,635		0.4		5,586,494
Unilever plc		173,067		0.5		6,455,942
Vodafone Group plc		6,613,226		1.3		17,959,085
Other Securities				9.0		129,152,812

				22.7		321,972,248

Total Common Stock
(Cost $1,162,030,883)						1,379,481,700




Preferred Stock 0.6% of net assets

Germany 0.6%
Other Securities				0.6		8,153,359

United Kingdom 0.0%
Other Securities				0.0		30,829

Total Preferred Stock
(Cost $5,868,851)						8,184,188




Other Investment Company 1.5% of net assets

United States 1.5%
iShares MSCI EAFE Index Fund		400,000		1.5		21,428,000

Total Other Investment Company
(Cost $21,315,494)						21,428,000



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

Short-Term Investment 0.0% of net assets

Time Deposit 0.0%
Other Securities				0.0		311,494

Total Short-Term Investment
(Cost $311,494)						311,494



End of Investments.


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

Collateral Invested for Securities on Loan 0.3% of net assets


Wells Fargo Advantage Government Money Market Fund		4,237,548		0.3		4,237,548

Total Collateral Invested for Securities on Loan
(Cost $4,237,548)						4,237,548



End of Collateral Invested for Securities on Loan.

At 10/31/12, the tax basis cost of the fund’s investments was $1,209,596,758 and the unrealized appreciation and depreciation were $364,596,385 and ($164,787,761), respectively, with a net unrealized appreciation of $199,808,624.

See financial notes 47

Schwab International Index Fund

Portfolio Holdings continued

At 10/31/12, the values of certain foreign securities held by the fund aggregating $1,383,209,691 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)		All or a portion of this security is on loan.
(b)		Fair-valued by management in accordance with procedures approved by the Board of Trustees.


CDI —		CHESS Depositary Interest
CVA —		Dutch Certificate
Reg’d —		Registered
REIT —		Real Estate Investment Trust
RSP —		Risparmio (Convertible Savings Shares)
SDR —		Swedish Depositary Receipt

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):


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

Common Stock¹		$—		$833,941,880		$—		$833,941,880
Belgium		108,305		15,626,499		—		15,734,804
France		311,361		129,585,612		—		129,896,973
Greece		586,074		194,754		—		780,828
Ireland		1,065,976		2,682,734		—		3,748,710
Japan		775,980		270,678,109		—		271,454,089
Portugal		433,164		1,904,522		—		2,337,686
Switzerland		1,144,508		120,442,222		—		121,586,730
Preferred Stock¹		—		8,153,359		—		8,153,359
United Kingdom		—		—		30,829		30,829
Other Investment Company¹		21,428,000		—		—		21,428,000
Short-Term Investments¹		—		311,494		—		311,494

Total		$25,853,368		$1,383,521,185		$30,829		$1,409,405,382

Other Financial Instruments
Collateral Invested for Securities on Loan		$4,237,548		$—		$—		$4,237,548


¹		As categorized in complete schedule of holdings.

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

2011

(Losses)

Purchases

Sales

out

2012

Common Stock

United Kingdom

$32,986

($587

)

($174

)

$—

($32,225

)

$—

Preferred Stock

United Kingdom

—

361

30,468

—

30,829

Total

$32,986

($587

)

$187

$30,468

($32,225

)

$—

$30,829

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $2,091,443 and $1,018,143 from Level 1 to Level 2 and from Level 2 to Level 1, respectively, for the period ended October 31, 2012. The transfers between Level 1 and Level 2 were primarily due to the use of international fair valuation by the fund. There were no transfers in or out of Level 3 securities during the period.

48 See financial notes

Schwab International Index Fund

Statement of

Assets and Liabilities

As of October 31, 2012



Assets

Investments, at value (cost $1,189,526,722) including securities on loan of $3,979,374		$1,409,405,382
Foreign currency, at value (cost $263)		263
Cash		163
Collateral invested for securities on loan		4,237,548
Receivables:
Dividends		3,538,503
Fund shares sold		3,188,932
Foreign tax reclaims		894,594
Income from securities on loan		12,846
Prepaid expenses	+	35,847

Total assets		1,421,314,078

Liabilities

Collateral held for securities on loan		4,237,548
Payables:
Investments bought		30,829
Investment adviser and administrator fees		10,677
Shareholder service fees		2,547
Fund shares redeemed		1,873,434
Accrued expenses	+	185,585

Total liabilities		6,340,620

Net Assets

Total assets		1,421,314,078
Total liabilities	−	6,340,620

Net assets		$1,414,973,458

Net Assets by Source
Capital received from investors		1,195,189,205
Net investment income not yet distributed		35,644,277
Net realized capital losses		(35,658,274	)
Net unrealized capital gains		219,798,250

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$1,414,973,458

86,678,890

$16.32

See financial notes 49

Schwab International Index Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends (net of foreign withholding taxes of $3,641,093)		$50,981,682
Interest		1,468
Securities on loan	+	1,164,903

Total investment income		52,148,053

Expenses

Investment adviser and administrator fees		2,033,613
Shareholder service fees		266,406
Custodian fees		249,578
Index fee		127,061
Shareholder reports		121,489
Portfolio accounting fees		99,259
Transfer agent fees		84,365
Professional fees		70,771
Registration fees		44,312
Trustees’ fees		15,243
Interest expense		9,848
State filing fee reimbursement (Note 4)		(6,103	)
Other expenses	+	48,368

Total expenses		3,164,210
Expense reduction by CSIM and its affiliates¹	−	578,516

Net expenses	−	2,585,694

Net investment income		49,562,359

Realized and Unrealized Gains (Losses)

Net realized gains on investments		54,779,055
Net realized losses on foreign currency transactions	+	(90,061	)

Net realized gains		54,688,994
Net unrealized losses on investments		(22,053,260	)
Net unrealized losses on foreign currency translations	+	(16,078	)

Net unrealized losses	+	(22,069,338	)

Net realized and unrealized gains		32,619,656

Increase in net assets resulting from operations		$82,182,015


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $6,103. See financial note 4 for additional information.

50 See financial notes

Schwab International Index Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$49,562,359			$48,709,948
Net realized gains		54,688,994			35,464,233
Net unrealized losses	+	(22,069,338	)		(151,198,441	)

Increase (Decrease) in net assets from operations		82,182,015			(67,024,260	)

Distributions to Shareholders

Distributions from net investment income		($51,830,156	)		($40,811,469	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			14,938,008		$230,299,984			15,538,810		$265,131,011
Shares reinvested			3,211,483		47,080,346			2,149,594		36,392,628
Shares redeemed	+		(17,316,607	)	(267,897,568	)		(16,818,082	)	(289,204,022	)

Net transactions in fund shares			832,884		$9,482,762			870,322		$12,319,617

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			85,846,006		$1,375,138,837			84,975,684		$1,470,654,949
Total increase or decrease	+		832,884		39,834,621			870,322		(95,516,112	)

End of period			86,678,890		$1,414,973,458			85,846,006		$1,375,138,837


Net investment income not yet distributed					$35,644,277					$34,013,997

See financial notes 51

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

Each fund in this report offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 10) at closing net asset value per share (“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 funds’ Board of Trustees (the “Board”) 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:

Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

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


	•	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 at halfway between the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.


	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the procedures.

	•	International fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the funds valuing 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 regularly reviews fair value determinations made by the funds pursuant to the procedures.

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

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		close of the foreign markets. The Board 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 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 levels associated with valuing the funds’ investments as of October 31, 2012 are disclosed in the Portfolio Holdings.

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

Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A fund must give the broker a deposit of cash and/or securities (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 Exchange 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 forwards is accounted for as unrealized gains or losses until the contracts settle, at which time the gains or losses are realized.

Securities Lending: Under the trusts’ Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to have a value of at least 102% of the prior day’s market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities and is marked to market daily. The cash collateral of securities loaned is invested in money market portfolios operating 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, 2012 and the value of the related collateral are disclosed in the complete Portfolio Holdings and the Statement of Assets and Liabilities.

(c) Security Transactions:

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains 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):

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.

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

When a fund closes out a futures 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 GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.

(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.

Schwab Equity Index Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(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 and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of October 31, 2012, if any, are reflected in the funds’ Statements 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 December 2011, Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” was issued and is effective for interim and annual periods beginning after January 1, 2013. The ASU enhances disclosure requirements with respect to an entity’s rights of offset and related arrangements associated with its financial and derivative instruments. Management is currently evaluating the impact the adoption of ASU 2011-11 may have on the funds’ financial statement disclosures.

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 the investment in a fund will fluctuate, which means that investors 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. For example, a fund may not invest in certain securities in the benchmark index, or match the securities’ weightings to the benchmark index, due to regulatory, operational, custodial or liquidity constraints; corporate transactions; asset valuations; transaction costs and timing; tax considerations; and index rebalancing, which may result in tracking error.

Each fund invests in companies measured by its respective index. It follows these stocks during upturns as well as downturns. Because of its indexing strategy, a fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of a fund’s expenses, the fund’s performance may be below that of the index.

If a fund uses a sampling method, the fund will not fully replicate the index and may hold securities not included in the index. As a result, the fund is subject to the risk that the investment adviser’s investment management strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. If a fund utilizes a sampling approach, it may not track the return of the index as well as it would if the fund purchased all of the securities in its benchmark index.

To the extent that a fund’s or the index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector, country or asset class, the fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector, country or asset class.

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

Schwab Equity Index Funds

Financial Notes (continued)

3. Risk Factors (continued):

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.

To the extent a fund’s investments in a single country or a limited number of countries represent a higher percentage of the fund’s assets, the fund assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance and it may be subject to increased price volatility.

A fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk and market risk, are discussed elsewhere in this section. A fund’s use of derivatives is also subject to credit risk, leverage risk, lack of availability risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately larger impact on a fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gain. These risks could cause a fund to lose more than the principal amount invested.

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 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 above regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payments received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.

Schwab

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 its affiliates 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 Board, 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%

0.17%

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		11/01/11		11/01/11
Fund	10/31/11		Additions		Sales		10/31/12		10/31/12		to 10/31/12		to 10/31/12

Schwab S&P 500 Index Fund		1,009,981		75,700		—		1,085,681		$14,743,548		$—		$251,479
Schwab 1000 Index Fund		351,965		15,100		—		367,065		4,984,743		—		86,284
Schwab Total Stock Market Index Fund		126,026		28,200		—		154,226		2,094,389		—		31,602

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, 2012:


								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		1.7%			—%		7.0%		—%		10.1%
Schwab Growth Portfolio		1.8%			—%		6.8%		—%		8.2%
Schwab Balanced Portfolio		1.0%			—%		3.8%		—%		4.6%
Schwab Conservative Portfolio		0.3%			—%		1.1%		—%		1.4%
Schwab Annuity Portfolios:
Schwab Growth Portfolio II		0.1%			0.1%		0.3%		—%		0.4%
Schwab Target Funds:
Schwab Target 2010 Fund		0.0%	*		—%		—%		—%		—%
Schwab Target 2015 Fund		0.0%	*		—%		—%		—%		—%
Schwab Target 2020 Fund		0.2%			—%		—%		—%		—%
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%

Certain other related parties may own shares of Schwab funds in this report. As of October 31, 2012, the shares owned by Schwab Charitable Giving Trust (an affiliate of Schwab) as a percentage of the total shares of the Schwab Small Cap Index Fund and the Schwab Total Stock Market Fund were 2.0% and 5.0%, 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, 2012, the funds had no direct security transactions with other Schwab Funds.

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

During the period, the Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund and Schwab International Index Fund received a payment of $27,175, $4,304, $11,512 and $6,103, respectively, related to state filing fees resulting from revised fee calculation methodologies being applied on sales of the funds’ shares in prior periods. These payments are presented in each fund’s Statement of Operations as “State filing fee reimbursement”.

All or a portion of the state filing fees were previously borne by CSIM through a waiver of CSIM’s management fee. As this expense was previously waived, the payments received during the period had the effect of decreasing the total “Expense reduction by CSIM and its affiliates” in each fund’s Statement of Operations. The current net operating expense ratio was not impacted by this payment.

5. Transfer Agent Services:

Boston Financial Data Services, Inc. provides transfer agent services for each fund.

Schwab Equity Index Funds

Financial Notes (continued)

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:

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, 2012, 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		$662,992,759		$224,494,770
Schwab 1000 Index Fund		203,243,192		452,111,512
Schwab Small-Cap Index Fund		685,861,648		648,685,486
Schwab Total Stock Market Index Fund		333,819,176		61,608,203
Schwab International Index Fund		423,453,074		413,652,816

9. Derivatives:

Certain funds entered into equity index futures contracts (“futures”) during the report period. The funds invested in futures to equitize available cash. The fair value and due to brokers for futures contracts held at October 31, 2012 and the net realized/unrealized gains (losses) on futures contracts held during the period ended October 31, 2012 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 the period, the month-end average values of futures contracts held by the funds and the month-end average number of contracts held were as follows:


	Contract Values		Number of Contracts

Schwab S&P 500 Index Fund		$174,810,802		2,590
Schwab 1000 Index Fund		13,560,913		198
Schwab Small-Cap Index Fund		19,799,575		246
Schwab Total Stock Market Index Fund		21,066,829		294
Schwab International Index Fund		—		—

Schwab Equity Index Funds

Financial Notes (continued)

10. 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
	(11/1/11-10/31/12)		(11/1/10-10/31/11)

Schwab S&P 500 Index Fund		$148,766		$176,039
Schwab 1000 Index Fund		18,501		35,850
Schwab Small-Cap Index Fund		13,063		25,087
Schwab Total Stock Market Index Fund		149,791		108,924
Schwab International Index Fund		11,378		16,287

11. Federal Income Taxes:

As of October 31, 2012, 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		$199,865,251			$69,090,621			$22,010,515			$32,024,450			$46,346,374
Undistributed long-term capital gains		—			197,818,436			39,237,045			—			—
Unrealized appreciation on investments		4,389,637,779			2,967,356,004			406,103,935			678,801,448			364,596,385
Unrealized depreciation on investments		(1,174,837,511	)		(102,507,299	)		(144,258,154	)		(167,713,523	)		(164,787,761	)
Other unrealized appreciation/(depreciation)		1			—			22			—			(80,407	)

Net unrealized appreciation/(depreciation)		$3,214,800,269			$2,864,848,705			$261,845,803			$511,087,925			$199,728,217

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. As of October 31, 2012, 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, 2013		$118,657,105		$—		$—		$—		$—
October 31, 2014		109,256,533		—		—		—		—
October 31, 2015		89,645,092		—		—		—		—
October 31, 2016		77,879,594		—		—		2,244,763		—
October 31, 2017		20,049,252		—		—		4,871,496		26,290,338

Total		$415,487,576		$—		$—		$7,116,259		$26,290,338

For the year ended October 31, 2012, the funds had capital losses utilized as follows:

Schwab

Total Stock

Schwab

S&P 500

1000

Small-Cap

Market

International

Index Fund

Capital losses utilized

$20,828,436

$—

$12,375,982

$50,888,806

Schwab Equity Index Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):

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

Current period distributions
Ordinary income		$218,494,240		$86,671,033		$69,464,601		$32,188,219		$51,830,156
Long-term capital gains		—		183,283,175		40,732,178		—		—
Return of capital		—		—		—		—		—

Prior 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		—		—		—		—		—

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.

Permanent book and tax basis differences may result in reclassifications between components of net assets as required. The adjustments will have no impact on net assets or the results of operations. As of October 31, 2012, 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		$—			$—			$—			$—			$—
Undistributed net investment income		(3,016,451	)		(940,823	)		312,668			17,837			3,898,077
Net realized capital gains/(losses)		3,016,451			940,823			(312,668	)		(17,837	)		(3,898,077	)

As of October 31, 2012, 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, 2012, 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. However, such losses must be utilized prior to the pre-enactment capital losses, which increases the likelihood that the pre-enactment capital losses will expire unused. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital loss, 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.

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 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, 2012, and the results of their operations for the year then ended, changes in 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, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 14, 2012

Other Federal Tax Information (unaudited)

Schwab International Index Fund may elect to pass on the benefits of the foreign tax credit of $2,551,221 to its shareholders for the year ended October 31, 2012. The respective foreign source income on the fund is $53,414,164.

For corporate shareholders, the following percentage of the funds dividend distributions paid during the fiscal year ended October 31, 2012, 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		66.87
Schwab Total Stock Market Index Fund		97.63
Schwab International Index Fund		0.03

For the fiscal year ended October 31, 2012, 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 2013 via IRS form 1099 of the amounts for use in preparing their 2012 income tax return.


Schwab S&P 500 Index Fund			$218,494,240
Schwab 1000 Index Fund			86,671,033
Schwab Small-Cap Index Fund			47,970,693
Schwab Total Stock Market Index Fund			31,074,492
Schwab International Index Fund			42,736,850

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, 2012:


Schwab S&P 500 Index Fund			$—
Schwab 1000 Index Fund			183,283,175
Schwab Small-Cap Index Fund			40,732,178
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 24, 2012, and June 5, 2012, and approved the renewal of the Agreements with respect to the Funds for an additional one year term at the meeting held on June 5, 2012. 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 and exchange-traded 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.

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.

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 of 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 91 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 funds’ 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.	74	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).	74	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).	74	Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Aviat Networks (2001 – present) Director, Ditech Networks Corporation (1997 – Jan. 2012) 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.	74	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).	74	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).	74	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).	74	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.	74	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.	91	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 and Chief Executive Officer (Dec. 2010 – present) and Chief Investment Officer (Dec. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; 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.; Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds 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., (Sept. 2011 – present); Senior Vice President and Chief Counsel, Charles Schwab Investment Management Inc. (Sept. 2011 – present); Vice President, Charles Schwab & Co., Inc., (March 2004 – Sept. 2011) and Charles Schwab Investment Management, Inc. (Jan 2011 – Sept. 2011); Secretary, Schwab Funds (April 2011 – present); Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


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 (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, 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. In addition to their employment with Schwab, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation, the parent company of Schwab and the investment adviser.
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 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 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 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 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 Company* Index Fund

Schwab Fundamental International* Large Company Index Fund

Schwab Fundamental International* Small Company Index Fund

Schwab Fundamental Emerging Markets* Large Company 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 Intermediate-Term Bond Fund^tm

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab^® Treasury Inflation Protected Securities Fund

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 COMPANY, FUNDAMENTAL US SMALL COMPANY, 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.

Schwab Active Equity Funds

In This Report


Performance at a Glance		2
From the President		3
Fund Management		5
Performance and Fund Facts
Schwab Core Equity Fund™		6
Schwab Dividend Equity Fund™		8
Schwab Large-Cap Growth Fund™		10
Schwab Small-Cap Equity Fund™		12
Schwab Hedged Equity Fund™		14
Schwab Financial Services Fund™		16
Schwab Health Care Fund™		18
Schwab^® International Core Equity Fund		20
Fund Expenses		22
Financial Statements and Portfolio Holdings
Schwab Core Equity Fund™		23
Schwab Dividend Equity Fund™		31
Schwab Large-Cap Growth Fund™		38
Schwab Small-Cap Equity Fund™		45
Schwab Hedged Equity Fund™		55
Schwab Financial Services Fund™		65
Schwab Health Care Fund™		71
Schwab^® International Core Equity Fund		78
Financial Notes		87
Report of Independent Registered Public Accounting Firm		101
Other Federal Tax Information		102
Investment Advisory Agreement Approval		103
Trustees and Officers		105
Glossary		108

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


Total Return for
the Report Period


Schwab Core Equity Fund^tm (Ticker Symbol: SWANX)			13.99%


S&P 500^® Index			15.21%
Fund Category: Morningstar Large-Cap Blend			12.55%


Performance Details			pages 6-7




Schwab Dividend Equity Fund^tm (Ticker Symbol: SWDSX)			12.65%


S&P 500^® Index			15.21%
Fund Category: Morningstar Large-Cap Value			13.70%


Performance Details			pages 8-9




Schwab Large-Cap Growth Fund^tm (Ticker Symbol: SWLSX)			12.18%


Russell 1000 Growth Index			13.02%
Fund Category: Morningstar Large-Cap Growth			10.10%


Performance Details			pages 10-11




Schwab Small-Cap Equity Fund^tm (Ticker Symbol: SWSCX)			13.57%


Russell 2000^® Index			12.08%
Fund Category: Morningstar Small-Cap Blend			10.82%


Performance Details			pages 12-13




Schwab Hedged Equity Fund^tm (Ticker Symbol: SWHEX)			6.79%


S&P 500^® Index			15.21%
Fund Category: Morningstar Long-Short			3.22%


Performance Details			pages 14-15




Schwab Financial Services Fund^tm (Ticker Symbol: SWFFX)			16.92%


S&P 1500 SuperComposite Financials Sector Index			19.67%
Fund Category: Morningstar Financial Services			17.67%


Performance Details			pages 16-17




Schwab Health Care Fund^tm1 (Ticker Symbol: SWHFX)			20.10%


Dow Jones Global Health Care Index			19.81%
Fund Category: Morningstar Health Care			21.91%


Performance Details			pages 18-19




Schwab^® International Core Equity Fund¹ (Ticker Symbol: SICNX)			11.17%


MSCI EAFE Index^®*			5.15%
Fund Category: Morningstar Foreign Large-Cap Blend			6.15%


Performance Details			pages 20-21


Minimum Initial Investment²	$	100

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 MSCI 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 the funds’ prospectus for further detail and eligibility requirements.

2 Schwab Active Equity 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,

As President and CEO of Charles Schwab Investment Management, Inc., I’d like to thank you for trusting us to help you meet your investment objectives, and for reading this important report concerning the Schwab Active Equity Funds. Each Schwab Active Equity Fund employs a process to build a portfolio that seeks to provide a balance between risk and expected returns. To aid in its stock selection process, each fund utilizes Schwab Equity Ratings^®, which represents Schwab’s proprietary approach to evaluating equity securities.

For the 12 months ended October 31, 2012, all but one of the Schwab Active Equity Funds generated double-digit returns, as U.S. stocks solidly outperformed international equities. Low interest rates and governmental efforts to encourage faster economic growth helped U.S. stocks generate positive returns, even as corporate earnings growth generally decelerated. The Federal Reserve extended its forecast for keeping short-term interest rates at 0-0.25% from late 2014 to mid-2015, extended “Operation Twist”—a policy of buying long-term securities and selling short-term Treasuries—and announced plans to purchase additional agency mortgage-backed securities. Value stocks generally outperformed growth stocks, while large-cap stocks posted bigger gains than small-caps. Health Care and Financials were some of the better performing sectors, while Energy and Materials comparatively underperformed.

Internationally, the euro zone’s sovereign debt crisis represented an ongoing challenge. With concerns regarding elections in Greece and worries that the crisis might spread, international equities endured sharp losses in May. Subsequently, European leaders achieved meaningful progress, and overseas stocks

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.



		15.21%		S&P 500^® Index: measures U.S. large-cap stocks

		12.08%		Russell 2000^® Index: measures U.S. small-cap stocks

		5.15%		MSCI EAFE^® Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		5.25%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.06%		Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations

Data source: Index provider websites and CSIM.

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

Management’s views and portfolio holdings may have changed since the report date.

Schwab Active Equity Funds 3

From the President continued

For the 12 months ended October 31, 2012, all but one of the Schwab Active Equity Funds generated double-digit returns, as U.S. stocks solidly outperformed international equities.

began to recover, while the U.S. dollar finished mixed versus major international currencies, correspondingly affecting international stock returns for U.S. investors.

Translating the solid performance of U.S. stocks and comparatively modest performance of overseas equities into quantifiable terms, the S&P 500 Index returned 15.2%, the Russell 2000 Index returned 12.1%, and in U.S. dollar terms, the MSCI EAFE Index returned 5.2%.

Thank you for investing in the Schwab Active Equity Funds. For former Schwab Premier Equity Fund shareholders, please remember that the fund was reorganized into the Schwab Core Equity Fund in September 2012, and this report contains important information about your new fund.

We encourage you to review your investment portfolio regularly to ensure that it meets your current financial plan. For answers to frequently asked questions or for more information about the Schwab Active Equity Funds, please visit www.schwabfunds.com. We are also happy to hear from you at 1-800-435-4000.

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 Active Equity Funds

Fund Management



		Jonas Svallin, CFA Managing Director and Head of Disciplined Active Equity Strategies, leads the portfolio management team of Schwab’s disciplined active equity funds. He also has overall responsibility for all aspects of the management of the funds. Prior to joining CSIM in 2012, Mr. Svallin spent nearly three years as a partner and a director of quantitative analytics and research at Fiduciary Research & Consulting, where he provided oversight of quantitative analytics and risk management efforts. From 2003 until 2009, Mr. Svallin was a principal and head portfolio manager at Algert Coldiron Investors (ACI). Prior to joining ACI, Mr. Svallin worked as a quantitative research associate at RCM Capital Management and a senior consultant at FactSet Research Systems.

		Larry Mano, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of each of the funds, except for the Schwab International Core Equity Fund. Prior to joining CSIM in 1998, Mr. Mano was a vice president and principal in the Institutional Services Group at Wilshire Associates, Inc., where he directed the product development and client servicing of analytical tools to aid in the management of structured equity and indexed portfolios. He has over 20 years of experience in asset management.

		Paul Alan Davis, CFA Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the funds. Mr. Davis has been a portfolio manager with CSIM since 2004, and also worked in performance management, competitive analysis and fund administration since beginning his tenure at the firm in 2003. Prior to joining CSIM, Mr. Davis worked for several investment advisory firms in different capacities. His roles included portfolio management, trading and compliance. He has more than 12 years of experience in portfolio management.

Schwab Active Equity Funds 5

Schwab Core Equity Fund™

The Schwab Core Equity Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund primarily invests in U.S. stocks. The fund expects to hold the common stocks of U.S companies that have market capitalizations of approximately $500 million or more. To aid its stock selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 13.99% for the 12 months ended October 31, 2012, underperforming the S&P 500 Index (the index), which the fund uses for performance comparisons. The index returned 15.21% for the report period.

Market Highlights. All sectors within the index generated positive returns for the 12 months, as equities benefitted from the low-rate environment and governmental efforts to speed up economic growth. The Telecommunication Services and Health Care sectors performed particularly well, while the Energy and Materials sectors generated positive returns but underperformed other sectors. Stocks with mid- to low price-to-earnings ratios generally returned more than stocks with high price-to-earnings ratios, while shares of companies with low price-to-book ratios generally provided more substantial returns than shares of companies with high price-to-book ratios.

Positioning and Strategies. The fund’s strategic over- and underweights among various market-capitalization groups generally reduced the fund’s performance relative to the index, but solid stock selection within these groups provided an effective performance counterbalance. One example was the fund’s underweight compared with the index in companies with market capitalizations greater than $50 billion, which detracted from the fund’s performance compared with the index as large-cap stocks outperformed small-cap shares. However, the fund’s stock choices among market-capitalization ranges, particularly in stocks of companies with market capitalizations of $10 billion or less, enhanced the fund’s relative performance.

The fund held generally in-line sector weightings compared with the index, while stock selection results within these sectors varied. For example, holdings in the Consumer Discretionary sector enhanced the fund’s performance. One significant contributor in this sector was PetSmart, Inc., a specialty retailer of pet products and services. The fund’s PetSmart, Inc. holdings returned approximately 43% for the fund for the 12-month report period, and the fund’s overweight in this company compared with the index enhanced performance. Stock selection within the Information Technology sector generated less favorable results, with Dell Inc—a computer hardware manufacturer—representing a significant detractor. The fund’s Dell Inc. holdings returned approximately -31% for the period. When combined with the fund’s overweight in the company compared with the index, this position detracted from the fund’s relative performance.

The results of the fund’s over- and underweights among valuation groups relative to the index, and stock selection within these groups, varied. Weightings within price-to-book groups generated positive overall results compared with the index, although stock choices among these groups almost equally detracted from the fund’s relative performance. Among price-to-earnings groups, stock selection generated positive overall results, while weightings within these groups reduced performance.

As of 10/31/12:

Statistics


Number of Holdings			152
Weighted Average Market Cap ($ x 1,000,000)			$100,963
Price/Earnings Ratio (P/E)			15.7
Price/Book Ratio (P/B)			2.1
Portfolio Turnover Rate¹			45%

Sector Weightings % of Investments


Information Technology			19.4%
Financials			13.6%
Health Care			12.5%
Energy			11.8%
Consumer Discretionary			11.2%
Consumer Staples			10.5%
Industrials			8.4%
Utilities			3.9%
Materials			3.9%
Telecommunication Services			3.8%
Other			1.0%
Total			100.0%

Top Equity Holdings % of Net Assets²


Apple, Inc.			3.9%
Wells Fargo & Co.			3.1%
Exxon Mobil Corp.			3.1%
Chevron Corp.			3.1%
JPMorgan Chase & Co.			3.0%
Pfizer, Inc.			2.9%
The Coca-Cola Co.			2.7%
General Electric Co.			2.5%
Verizon Communications, Inc.			2.4%
Merck & Co., Inc.			2.2%
Total			28.9%

Management’s views and portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.


¹		Portfolio turnover excludes the impact of investment activity from a merger with another fund.
²		This list is not a recommendation of any security by the investment adviser.

6 Schwab Active Equity Funds

Schwab Core Equity Fund^tm

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Core Equity Fund^tm (7/1/96)		13.99	%		-0.35	%		6.91	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Large-Cap Blend		12.55	%		-0.71	%		6.42	%

Fund Expense Ratio⁴: 0.73%


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		On May 21, 2009, the Laudus U.S. MarketMasters Fund merged into the fund. And, on September 7, 2012, the Schwab Premier Equity Fund merged into the fund (see financial note 13).
⁴		As stated in the prospectus. Reflects the total annual operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab Active Equity Funds 7

Schwab Dividend Equity Fund™

The Schwab Dividend Equity Fund (the fund) seeks current income and capital appreciation. Under normal circumstances, the fund invests at least 80% of its net assets in dividend-paying common and preferred stocks. To aid its stock selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 12.65% for the 12 months ended October 31, 2012, underperforming the S&P 500 Index (the index), which the fund uses for performance comparisons. The index returned 15.21% for the report period. As of October 31, 2012, the fund’s dividend yield was 2.84%, higher than the 2.24% dividend yield of the index. As of October 31, 2012, the fund’s 30-Day SEC yield was 1.80%.

Market Highlights. The low-rate backdrop and governmental efforts to quicken the pace of economic growth helped U.S. stocks generate solid returns for the 12-month report period, enabling all sectors in the index to provide positive returns. Telecommunication Services and Health Care stocks performed particularly well, generating returns of more than 20%, while Energy and Materials stocks provided positive returns, but underperformed equities in other sectors. Stocks with mid- to lower P/E ratios generated mixed performances compared with stocks with higher P/E ratios, while shares of companies with the lowest price-to-book ratios generally provided larger returns than shares of companies with higher price-to-book ratios.

Positioning and Strategies. The outperformance of stocks in the index that do not pay dividends represented a significant catalyst for the fund’s underperformance of the index, while stock selection within sectors and market-capitalization groups also limited the fund’s relative performance.

Stock selection within the Information Technology sector provided an example. Apple Inc.—a company that designs, manufactures, and markets communications equipment—generated returns of approximately 48% for the index during the 12-month report period, and these holdings represented a meaningful position within the index’s Information Technology position. However, the fund did not hold Apple Inc. shares as the valuation models employed by the fund steered the investment adviser away from this company, and therefore was unable to benefit directly from the stock’s rally.

The fund’s choices among Consumer Discretionary stocks were more effective. For example, the fund’s holdings of Home Depot, Inc.—a home improvement retailer—returned approximately 76% for the 12-month period. As a result, the fund’s overweight in this company enhanced performance compared with the index.

Weightings within price-to-book groups generated positive overall results compared with the index, although underperforming stock selections among these categories resulted in a negative overall performance impact. Stock selection among price-to-earnings groups also reduced the fund’s relative performance, as did stock choices among market-capitalization groups.

As of 10/31/12:

Statistics


Number of Holdings			107
Weighted Average Market Cap ($ x 1,000,000)			$93,862
Price/Earnings Ratio (P/E)			14.7
Price/Book Ratio (P/B)			2.1
Portfolio Turnover Rate			55%

Sector Weightings % of Investments


Information Technology			16.5%
Financials			13.2%
Energy			12.1%
Consumer Staples			10.6%
Industrials			10.5%
Health Care			10.0%
Consumer Discretionary			9.4%
Utilities			6.7%
Telecommunication Services			5.3%
Materials			4.5%
Other			1.2%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Exxon Mobil Corp.			4.4%
Chevron Corp.			3.6%
General Electric Co.			3.2%
JPMorgan Chase & Co.			3.1%
Pfizer, Inc.			3.1%
Merck & Co., Inc.			3.1%
Verizon Communications, Inc.			2.8%
AT&T, Inc.			2.5%
Wal-Mart Stores, Inc.			2.2%
Costco Wholesale Corp.			2.1%
Total			30.1%

Management’s 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 Active Equity Funds

Schwab Dividend Equity Fund^tm

Performance and Fund Facts as of 10/31/12

September 2, 2003 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			5 Years			Since Inception


Fund: Schwab Dividend Equity Fund^tm (9/2/03)		12.65	%		0.66	%		6.98	%
S&P 500^® Index		15.21	%		0.36	%		5.86	%
Fund Category: Morningstar Large-Cap Value		13.70	%		-1.15	%		5.57	%

Fund Expense Ratio⁴: 0.89%

Yields¹


30-Day SEC Yield			1.80%


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		On October 7, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		As stated in the prospectus. Reflects the total annual operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab Active Equity Funds 9

Schwab Large-Cap Growth Fund™

The Schwab Large-Cap Growth Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund primarily invests in U.S. common stocks. Under normal circumstances, the fund invests at least 80% of its net assets in large-cap stocks of U.S. companies. To aid its stock selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 12.18% for the 12 months ended October 31, 2012, underperforming the Russell 1000 Growth Index (the index), which the fund uses for performance comparisons. The index returned 13.02% for the report period.

Market Highlights. All sectors within the index generated positive returns for the 12 months, as large-cap U.S. stocks benefitted from the low-rate environment and governmental efforts to speed up economic growth. The Telecommunication Services and Health Care sectors performed particularly well, while the Utilities and Materials sectors generated positive returns but underperformed other sectors. Stocks with mid- to low price-to-earnings ratios generally returned more than stocks with the highest price-to-earnings ratios, while shares of companies with the highest price-to-book ratios generally provided more substantial returns than shares of companies with low price-to-book ratios.

Positioning and Strategies. Stock selection among the various sectors generally detracted from the fund’s performance compared with the index. Stock selection within the Information Technology sector generated particularly unfavorable results, with Western Union Company—a global money transfer services corporation—representing a significant detractor. The fund’s Western Union Company holdings returned approximately -27% for the period, and when combined with the fund’s overweight compared with the index, reduced the fund’s relative performance. Stock selection among Health Care companies also limited the fund’s relative return, while overweights in the Energy and Telecommunication Services sectors relative to the index modestly benefitted the fund.

Stock selection among the various market-capitalization groups enhanced the fund’s overall performance relative to the index, while the fund’s comparative weightings of these groups helped modestly. The fund’s stock choices among companies with market capitalizations of $5 billion or less were particularly effective, adding to the fund’s performance compared with the index. However, stock choices in companies with market capitalizations of $10 to $50 billion represented notable performance detractors.

The results of the fund’s over- and underweights among valuation groups relative to the index, and stock selection within these groups, varied. Among price-to-earnings groups, stock selection comfortably outweighed the negative impact of the fund’s allocations relative to the index. Weightings within price-to-book groups generated negative overall results compared with the index, although stock choices among these groups more than compensated for this performance.

As of 10/31/12:

Statistics


Number of Holdings			100
Weighted Average Market Cap ($ x 1,000,000)			$110,938
Price/Earnings Ratio (P/E)			16.0
Price/Book Ratio (P/B)			3.2
Portfolio Turnover Rate			79%

Sector Weightings % of Investments


Information Technology			30.4%
Consumer Discretionary			15.3%
Consumer Staples			12.4%
Health Care			10.7%
Industrials			10.0%
Materials			6.3%
Energy			5.6%
Financials			4.6%
Telecommunication Services			3.4%
Utilities			0.3%
Other			1.0%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Apple, Inc.			7.7%
Microsoft Corp.			3.6%
Oracle Corp.			3.3%
The Coca-Cola Co.			3.2%
Verizon Communications, Inc.			2.6%
Philip Morris International, Inc.			2.5%
PPG Industries, Inc.			2.3%
Simon Property Group, Inc.			2.1%
Amgen, Inc.			2.1%
Costco Wholesale Corp.			2.1%
Total			31.5%

Management’s 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.

10 Schwab Active Equity Funds

Schwab Large-Cap Growth Fund^tm

Performance and Fund Facts as of 10/31/12

October 3, 2005 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			5 Years			Since Inception


Fund: Schwab Large-Cap Growth Fund^tm (10/3/05)		12.18	%		0.07	%		3.61	%
Russell 1000 Growth Index		13.02	%		1.95	%		5.30	%
Fund Category: Morningstar Large-Cap Growth		10.10	%		-0.28	%		3.91	%

Fund Expense Ratios⁴: Net 0.99%; Gross 1.05%


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		On October 7, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		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 Active Equity Funds 11

Schwab Small-Cap Equity Fund™

The Schwab Small-Cap Equity Fund (the fund) seeks long-term capital growth. Under normal circumstances, the fund invests at least 80% of its net assets in small-cap equity securities. To aid its stock selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 13.57% for the 12 months ended October 31, 2012, comfortably outperforming the Russell 2000 Index (the index), which the fund uses for performance comparisons. The index returned 12.08% for the report period.

Market Highlights. Nearly all sectors within the index generated positive returns for the 12 months, as small-cap U.S. stocks benefitted from the low-rate environment and governmental efforts to speed up economic growth. Large-cap companies were perceived as greater beneficiaries from the low-rate environment than small-cap companies, while shares of small-cap companies generally endured higher overall market volatility compared with large-cap stocks. Small-cap U.S. stocks generally underperformed large-cap shares amid this backdrop. From a sector standpoint, Financials stocks performed particularly well in spite of intermittent bouts of volatility, rebounding from 2011 lows. By comparison, the Energy sector generated negative returns, hurt by worries about lackluster global growth, even as increased supplies from U.S. oil and shale gas exploration weighed on prices.

Positioning and Strategies. Effective stock selections across market sectors, market-capitalization groups, and valuation measures compared with the index enabled the fund’s outperformance of the index. For example, the Consumer Discretionary sector generated double-digit returns for the 12 months, and Charming Shoppes, Inc.—a women’s specialty apparel retailer—was a significant contributor. The fund’s Charming Shoppes, Inc. holdings returned approximately 111% for the fund for the 12-month report period, benefitting from the company’s acquisition by the Ascena Retail Group. When combined with the fund’s overweight in this company compared with the index, this position enhanced the fund’s performance compared with the index. Not all stock selections worked out as favorably, with holdings in the economically sensitive Industrials sector illustrating this point. EnergySolutions, Inc.—a technical service provider to the nuclear industry—was a significant detractor in this sector, with the fund’s holdings returning approximately -44% and detracting from the fund’s relative performance.

Stock selections in the various market-capitalization groups enhanced the fund’s overall performance relative to the index, with holdings performing particularly well among companies with market capitalizations of $500 million to $2 billion. From a valuation standpoint, the fund generally emphasized less expensive stocks compared with the index, benefitting the fund’s relative performance. Specifically, weightings in price-to-earnings groups and in price-to-book groups enhanced relative performance, while overall stock choices among these groups generated even greater performance benefits for the fund.

As of 10/31/12:

Statistics


Number of Holdings			423
Weighted Average Market Cap ($ x 1,000,000)			$1,243
Price/Earnings Ratio (P/E)			30.7
Price/Book Ratio (P/B)			1.5
Portfolio Turnover Rate			101%

Sector Weightings % of Investments


Financials			21.5%
Information Technology			19.6%
Consumer Discretionary			14.4%
Industrials			12.8%
Health Care			10.8%
Energy			7.4%
Materials			5.8%
Utilities			3.9%
Consumer Staples			2.4%
Telecommunication Services			0.8%
Other			0.6%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Acxiom Corp.			1.0%
SemGroup Corp., Class A			1.0%
PHH Corp.			1.0%
PAREXEL International Corp.			0.9%
CBL & Associates Properties, Inc.			0.9%
First American Financial Corp.			0.9%
Coeur d’Alene Mines Corp.			0.9%
Portland General Electric Co.			0.9%
Convergys Corp.			0.9%
DCT Industrial Trust, Inc.			0.9%
Total			9.3%

Management’s 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.

12 Schwab Active Equity Funds

Schwab Small-Cap Equity Fund^tm

Performance and Fund Facts as of 10/31/12

July 1, 2003 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			5 Years			Since Inception


Fund: Schwab Small-Cap Equity Fund^tm (7/1/03)		13.57	%		0.78	%		8.86	%
Russell 2000^® Index		12.08	%		1.19	%		8.04	%
Fund Category: Morningstar Small-Cap Blend		10.82	%		0.75	%		7.82	%

Fund Expense Ratio⁴: 1.12%


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		On September 28, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		As stated in the prospectus. Reflects the total annual operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

Schwab Active Equity Funds 13

Schwab Hedged Equity Fund™

The Schwab Hedged Equity Fund (the fund) seeks long-term capital appreciation over market cycles with lower volatility than the broad equity market. To pursue its investment objective, the fund will establish long and short positions in equity securities issued by U.S. companies. The fund typically purchases or sells short stocks of companies that have market capitalizations of $1 billion or more at the time the stock is purchased or sold short. To aid its stocks selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 6.79% for the 12 months ended October 31, 2012, significantly underperforming the S&P 500 Index (the index), which the fund uses for performance comparisons. The index returned 15.21% for the report period.

Market Highlights. U.S. equities generated impressive returns amid the low-rate environment and governmental efforts to quicken the pace of economic growth. Stocks started out on rocky footing, as the euro zone’s sovereign debt crisis and a subsequent sharp increase in financial market volatility pushed investors toward perceived safe havens. As meaningful progress in Europe emerged, and as the Federal Reserve continued to support an economic recovery in the U.S., investors shifted back into stocks. From a sector perspective, Telecommunication Services stocks outperformed equities in other sectors, while stocks of Energy companies comparatively underperformed.

Positioning and Strategies. Throughout the 12-month report period, the fund held short positions of approximately 39% of net assets on average. Given the substantial rally by stocks, most of these short positions significantly detracted from the fund’s return compared with that of the index, and provided a key reason for the performance disparity between the two.

The fund’s allocations across market sectors also weighed on performance compared with the index, particularly among the Energy and Health Care sectors, although stock selection strategies generally enhanced the fund’s performance. Not all sector strategies generated negative results, with the fund’s positions in Information Technology stocks providing one example. The fund’s overweight in this sector compared with the index benefited relative performance as the fund’s long positions returned approximately 12%, outperforming those of the index. The fund’s short positions in this sector also enhanced the fund’s relative performance. For example, the fund shorted the stock of ADTRAN, Inc.—a communications equipment servicer—which enhanced relative returns as the fund’s shares of this company fell by roughly 42% during the period.

From a valuation standpoint, stock selection in price-to-book and price-to-earnings groups yielded disappointing results. The fund’s stock choices among small-cap stocks generally benefitted the fund by comparison, as did a relative overweighting in this market-capitalization group, while allocations and stock selections among other market-capitalization ranges generally detracted from the fund’s performance.

As of 10/31/12:

Statistics


Number of Holdings
Long Holdings			137
Short Holdings			134
Weighted Average Market Cap ($ x 1,000,000)
Long Holdings			$63,580
Short Holdings			$5,432
Price/Earnings Ratio (P/E)
Long Holdings			15.9
Short Holdings			31.5
Price/Book Ratio (P/B)
Long Holdings			1.8
Short Holdings			2.3
Portfolio Turnover Rate			109%
Portfolio Turnover Rate excluding short sales			53%

Top Equity Long Holdings

% of Net Assets¹


Apple, Inc.			3.0%
Exxon Mobil Corp.			2.9%
Pfizer, Inc.			2.8%
JPMorgan Chase & Co.			2.0%
Wells Fargo & Co.			2.0%
Total			12.7%

Top Equity Short Holdings

% of Net Assets¹


MasTec, Inc.			0.7%
NetSuite, Inc.			0.7%
DreamWorks Animation SKG, Inc., Class A			0.7%
DexCom, Inc.			0.6%
Pall Corp.			0.6%
Total			3.3%

Management’s 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.

14 Schwab Active Equity Funds

Schwab Hedged Equity Fund^tm

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Hedged Equity Fund^tm (9/3/02)		6.79	%		0.19	%		6.11	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Long-Short		3.22	%		-0.49	%		5.82	%

Fund Expense Ratios⁴: Net 1.87%; Gross 1.89%

The Hedged Equity Fund’s long positions can decline in value at the same time the value of its shorted stocks increases, thereby increasing the potential for loss. The potential loss associated with short positions is much greater than the original value of the securities sold. The use of borrowing and short sales may cause the fund to have higher expenses than those of equity funds that do not use such techniques.


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		On September 28, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Select Shares.
⁴		As stated in the prospectus. Includes acquired fund fees and expenses incurred indirectly by the fund through its investments in other investment companies. The annualized weighted average expense ratio of these investment companies was 0.01%. 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 Active Equity Funds 15

Schwab Financial Services Fund™

The Schwab Financial Services Fund (the fund) seeks long-term capital growth. To pursue its goal, the fund primarily invests in equity securities issued by companies in the financial services sector. To aid its stock selection, the fund uses Schwab Equity Ratings. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 16.92% for the 12 months ended October 31, 2012, underperforming the S&P 1500 SuperComposite Financials Sector Index (the index), which the fund uses for performance comparisons. The index returned 19.67% for the report period.

Market Highlights. U.S. stocks generated impressive returns for the 12 months, benefitting from the low-rate environment and governmental efforts to support economic growth. Diversified Financials, Regional Banks, and Life & Health Insurance stocks comprise a meaningful percentage of the index, and each of these industries generated double-digit returns for the 12 months, returning approximately 25%, 22%, and 10%, respectively. Banks and companies offering diversified financial services in particular benefitted from the low interest-rate environment, which made their products potentially more affordable for borrowers. From a market-capitalization standpoint, the largest financial firms generally outperformed the smallest financial firms, while stocks with the highest price-to-earnings ratios and shares of companies with the lowest price-to-book ratios generally produced the highest returns.

Positioning and Strategies. The fund’s overall stock selections detracted from performance compared with the index, while over- and underweights within industries weighed even more heavily on the fund’s relative performance. For example, stock selection in Diversified Financials subtracted meaningfully from the fund’s performance, with an underweight in holdings of Citigroup, Inc.—a diversified financial services company—providing one example, as Citigroup, Inc. stock returned almost 19% for the index. The fund’s weighting compared with the index in the Specialized Finance industry, as well as stock choices therein, detracted from the fund’s performance as well.

An overweight in Regional Banks and stock selections within this industry generated far more beneficial results. Given the double-digit returns of Regional Banks and relative outperformance compared with many other areas in the broader sector, the fund’s relative overweight enhanced performance. Diminishing concerns over foreclosures provided an important support for this industry, while the fund’s holdings of Regions Financial Corporation—a regional, multi-bank holding company—provided an example of solid stock selection by the fund. Holdings of this company returned approximately 67% for the report period, and when combined with the fund’s overweight of these holdings compared with the index, enhanced the fund’s relative performance.

From a valuation standpoint, overall weightings compared with the index in both price-to-book and price-to-earnings groups were beneficial, although stock selection in these areas yielded disappointing results that more than erased these benefits. The fund’s stock choices among shares of companies with market capitalizations of $5 to $10 billion generally helped the fund, although stock choices in most other market-capitalization groups detracted.

As of 10/31/12:

Statistics


Number of Holdings			64
Weighted Average Market Cap ($ x 1,000,000)			$52,735
Price/Earnings Ratio (P/E)			13.8
Price/Book Ratio (P/B)			1.1
Portfolio Turnover Rate			84%

Industry Weightings % of Investments


Diversified Financials			32.7%
Insurance			27.8%
Banks			22.4%
Real Estate			14.6%
Commercial & Professional Services			0.1%
Other			2.4%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Wells Fargo & Co.			8.9%
JPMorgan Chase & Co.			8.5%
Bank of America Corp.			5.7%
American Express Co.			3.9%
Simon Property Group, Inc.			3.5%
MetLife, Inc.			3.3%
Capital One Financial Corp.			3.2%
The Travelers Cos., Inc.			3.0%
Aflac, Inc.			2.8%
State Street Corp.			2.7%
Total			45.5%

Management’s 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.

16 Schwab Active Equity Funds

Schwab Financial Services Fund^tm

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Financial Services Fund^tm (7/3/00)		16.92	%		-6.70	%		3.49	%
S&P 1500 SuperComposite Financials Sector Index		19.67	%		-10.64	%		-0.24	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Financial Services		17.67	%		-6.40	%		2.23	%

Fund Expense Ratios³: Net 0.94%; Gross 1.06%

Since the Financial Services Fund focuses its investments on companies involved in specific sectors, this fund may involve a greater degree of risk than an investment in mutual funds that do not concentrate their investments.


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.

Schwab Active Equity Funds 17

Schwab Health Care Fund™

The Schwab Health Care Fund (the fund) seeks long-term capital growth. To pursue its goal, the fund primarily invests in equity securities issued by companies in the Health Care sector. The fund uses Schwab Equity Ratings to aid its U.S. stock selection and Schwab’s proprietary international stock research to aid its international stock selection. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 20.10% for the 12 months ended October 31, 2012, outperforming the Dow Jones Global Health Care Index (the index), which the fund uses for performance comparisons. The index returned 19.81% for the report period.

Market Highlights. U.S. stocks rallied amid the low-rate environment and governmental efforts to quicken the pace of economic growth during the 12 months, while the euro zone’s sovereign debt crisis represented an ongoing challenge for international equities. Within U.S. markets, Health Care stocks were some of the better performers, generating double-digit returns. By comparison, overseas stocks endured particularly sharp losses in May amid concerns regarding Greek elections and worries that the crisis might spread. However, meaningful subsequent progress by European leaders helped international equities begin to recover. Biotechnology, Pharmaceuticals, and Health Care Equipment stocks—collectively representing nearly 80% of the index—each generated double-digit returns amid that environment. In addition, the low interest rate environment likely made corporate acquisitions more affordable. Looking to replace revenue streams from medications with expiring patent protections and expand product lines, big pharmaceutical companies actively examined potential acquisition targets within the Biotechnology industry in particular, propping up returns in the process.

Positioning and Strategies. The fund’s market-capitalization strategies, and stock selection within the various groups, contributed to the fund’s outperformance of the index. Stock selection of companies with market capitalizations of $10 billion and up performed particularly well, enhancing the fund’s relative performance.

The investment adviser limited the fund’s holdings of Health Care stocks from European countries, including those from Switzerland and the U.K. Instead, Health Care companies based in the U.S. were more heavily weighted than those in the index, an allocation that improved the fund’s relative performance, although the fund’s stock selections within the U.S. generated the opposite results.

From an industry standpoint, an overweight in Biotechnology stocks—which returned more than 35% for the fund, and benefitted from the low-rate environment—enhanced relative performance. Unfortunately, stock selections within this industry reduced the fund’s performance compared with the index. Pharmaceuticals stocks contributed meaningfully to the fund’s outperformance of the index, as did stock selection within this industry. For example, the fund’s holdings of Par Pharmaceutical Cos Inc.—a distributor and manufacturer of generic drugs that was acquired and taken private by TPG Capital during the period—performed particularly well, returning more than 63%. Within the Health Care Equipment industry, the fund’s stock selections and weighting reduced relative performance.

In addition, the fund’s overall strategies compared with the index in both price-to-book and price-to-earnings groups were beneficial for performance, with stock selections in both of these areas also enhancing the fund’s relative return.

As of 10/31/12:

Statistics


Number of Holdings			92
Weighted Average Market Cap ($ x 1,000,000)			$68,154
Price/Earnings Ratio (P/E)			22.4
Price/Book Ratio (P/B)			2.6
Portfolio Turnover Rate			60%

Industry Weightings % of Investments


Pharmaceuticals, Biotechnology & Life Sciences			71.7%
Healthcare – Services			25.2%
Materials			0.4%
Capital Goods			0.3%
Other			2.4%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Merck & Co., Inc.			6.9%
Pfizer, Inc.			6.6%
Amgen, Inc.			5.3%
Johnson & Johnson			5.3%
Medtronic, Inc.			3.1%
Abbott Laboratories			2.9%
UnitedHealth Group, Inc.			2.9%
Eli Lilly & Co.			2.9%
Biogen Idec, Inc.			2.8%
Roche Holding AG			2.8%
Total			41.5%

Management’s 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.

18 Schwab Active Equity Funds

Schwab Health Care Fund^tm

Performance and Fund Facts as of 10/31/12

October 31, 2002 – October 31, 2012
Performance of Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			5 Years			10 Years


Fund: Schwab Health Care Fund^tm (7/3/00)		20.10	%		4.76	%		11.86	%
Dow Jones Global Health Care Index		19.81	%		4.41	%		7.79	%
S&P 500^® Index		15.21	%		0.36	%		6.91	%
Fund Category: Morningstar Health Care		21.91	%		5.39	%		9.23	%

Fund Expense Ratios³: Net 0.82%; Gross 0.85%

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

Since the Health Care Fund focuses its investments on companies involved in specific sectors, this fund may involve a greater degree of risk than an investment in mutual funds that do not concentrate their investments.


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.

Schwab Active Equity Funds 19

Schwab^® International Core Equity Fund

The Schwab International Core Equity Fund (the fund) seeks long-term capital growth. To pursue its goal, the fund primarily invests in stocks of publicly traded companies located in developed countries, excluding the U.S. To aid its stock selection, the fund uses Schwab’s proprietary international stock research. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 11.17% for the 12 months ended October 31, 2012, solidly outperforming the MSCI EAFE Index (the index), which the fund uses for performance comparisons. The index returned 5.15% for the report period. Timing differences in foreign exchange calculations and fair valuation of the fund’s holdings contributed positively to the fund’s performance compared with the index.*

Market Highlights. International equities faced myriad headwinds during the 12 months. Stocks started out on rocky footing as the euro zone’s sovereign debt crisis and a correspondingly sharp increase in financial market volatility pushed investors toward perceived safe havens. As meaningful progress in Europe emerged, and central banks around the world continued trying to support economic growth, investors began migrating back into stocks, propping up the market’s performance. Meanwhile, major currencies finished mixed versus the U.S. dollar, correspondingly affecting returns in U.S. dollar terms.

Positioning and Strategies. Multiple strategies helped the fund outperform, but effective stock selection was one of the most important overall contributors. Of the 10 primary economic sectors within the index, the fund’s stock selection enhanced performance in eight sectors, with particularly beneficial results among the Information Technology and Consumer Discretionary sectors.

Stock selection within the $5 billion and under market-capitalization group generated solid returns, as did strategies concerning the fund’s country allocations and corresponding stock selections. Stock choices among U.K. holdings, particularly in small-cap shares, generated performance-enhancing results. A key contributor to this result within the Information Technology sector was Micro Focus International PLC, an enterprise application management solutions provider. The fund’s holdings of this company returned more than 69%.

In contrast, strategies in Australia detracted from the fund’s relative performance. Stock selection within Australia’s small-capitalization market was particularly disappointing, with the fund’s holdings of St. Barbara Limited—a gold exploration and production company—providing an illustration and falling sharply, returning approximately -22%. From a valuation standpoint, the fund’s overall strategies compared with the index in both price-to-book and price-to-earnings groups enhanced performance, while stock selections in both of these areas performed well.

As of 10/31/12:

Statistics


Number of Holdings			185
Weighted Average Market Cap ($ x 1,000,000)			$47,921
Price/Earnings Ratio (P/E)			12.5
Price/Book Ratio (P/B)			0.5
Portfolio Turnover Rate			112%

Sector Weightings % of Investments


Financials			22.9%
Industrials			15.2%
Health Care			12.9%
Consumer Discretionary			10.1%
Consumer Staples			10.1%
Energy			9.3%
Materials			7.4%
Information Technology			5.0%
Utilities			2.8%
Telecommunication Services			2.2%
Other			2.1%
Total			100.0%

Top Equity Holdings % of Net Assets¹


Nestle S.A. – Reg’d			2.4%
HSBC Holdings plc			1.9%
BP plc			1.8%
Total S.A.			1.7%
Anheuser-Busch InBev N.V.			1.7%
Sanofi			1.7%
GlaxoSmithKline plc			1.7%
Mitsubishi UFJ Financial Group, Inc.			1.6%
Rio Tinto plc			1.6%
Koninklijke Philips Electronics N.V.			1.5%
Total			17.6%

Management’s 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.


*		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). 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.

20 Schwab Active Equity Funds

Schwab^® International Core Equity Fund

Performance and Fund Facts as of 10/31/12

May 30, 2008 – October 31, 2012
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year			3 Years			Since Inception


Fund: Schwab^® International Core Equity Fund (5/30/08)		11.17	%		5.56	%		-3.18	%
MSCI EAFE Index^®*		5.15	%		3.31	%		-4.13	%
Fund Category: Morningstar Foreign Large-Cap Blend		6.15	%		3.75	%		-4.70	%

Fund Expense Ratios⁴: Net 0.87%; Gross 1.23%

Country Weightings % of Equity Investments


United Kingdom			21.1%
Japan			18.9%
France			9.3%
Australia			8.1%
Switzerland			7.8%
Germany			7.4%
Netherlands			4.0%
Sweden			3.6%
Hong Kong			2.8%
Spain			2.7%
Other Countries			14.3%
Total			100.0%

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


*		The 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		On October 7, 2009, the Investor Share class, Select Share class and Institutional Share class were combined into a single class of shares of the fund. The past performance and financial history of the fund are that of the fund’s former Institutional Shares. On December 3, 2009, the Laudus Rosenberg International Equity Fund merged into the fund.
⁴		As stated in the prospectus. Includes acquired fund fees and expenses incurred indirectly by the fund through its investments in other investment companies. The annualized weighted average expense ratio of these investment companies was 0.01%. 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 Active Equity Funds 21

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 5/1/12		at 10/31/12		5/1/12–10/31/12

Schwab Core Equity Fund^tm
Actual Return		0.72%	$	1,000	$	1,015.50	$	3.65
Hypothetical 5% Return		0.72%	$	1,000	$	1,021.52	$	3.66


Schwab Dividend Equity Fund^tm
Actual Return		0.89%	$	1,000	$	1,017.50	$	4.51
Hypothetical 5% Return		0.89%	$	1,000	$	1,020.66	$	4.52


Schwab Large-Cap Growth Fund^tm
Actual Return		0.99%	$	1,000	$	980.40	$	4.93
Hypothetical 5% Return		0.99%	$	1,000	$	1,020.16	$	5.03


Schwab Small-Cap Equity Fund^tm
Actual Return		1.12%	$	1,000	$	1,029.60	$	5.71
Hypothetical 5% Return		1.12%	$	1,000	$	1,019.51	$	5.69


Schwab Hedged Equity Fund^tm
Actual Return		2.18%	$	1,000	$	1,013.60	$	11.03
Hypothetical 5% Return		2.18%	$	1,000	$	1,014.18	$	11.04


Schwab Financial Services Fund^tm
Actual Return		0.94%	$	1,000	$	1,020.10	$	4.77
Hypothetical 5% Return		0.94%	$	1,000	$	1,020.41	$	4.77


Schwab Health Care Fund^tm
Actual Return		0.82%	$	1,000	$	1,069.10	$	4.26
Hypothetical 5% Return		0.82%	$	1,000	$	1,021.01	$	4.17


Schwab^® International Core Equity Fund
Actual Return		0.86%	$	1,000	$	1,040.80	$	4.41
Hypothetical 5% Return		0.86%	$	1,000	$	1,020.81	$	4.37


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²		Expenses for 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 366 days of the fiscal year.

22 Schwab Active Equity Funds

Schwab Core Equity Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		16.81			15.78			14.26			13.43			20.49

Income (loss) from investment operations:
Net investment income (loss)		0.26			0.19			0.17			0.17			0.23
Net realized and unrealized gains (losses)		2.07			1.01			1.50			0.88			(7.06	)

Total from investment operations		2.33			1.20			1.67			1.05			(6.83	)
Less distributions:
Distributions from net investment income		(0.34	)		(0.17	)		(0.15	)		(0.22	)		(0.18	)
Distributions from net realized gains		—			—			—			—			(0.05	)

Total distributions		(0.34	)		(0.17	)		(0.15	)		(0.22	)		(0.23	)

Net asset value at end of period		18.80			16.81			15.78			14.26			13.43

Total return (%)		13.99			7.60			11.77			8.11			(33.71	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.72			0.73			0.73			0.75			0.75
Gross operating expenses		0.73			0.73			0.74			0.78			0.78
Net investment income (loss)		1.37			1.06			1.05			1.39			1.28
Portfolio turnover rate		45	¹		35			49			41	¹		35
Net assets, end of period ($ x 1,000,000)		1,880			1,719			1,792			1,770			1,449

¹ Portfolio turnover excludes the impact of investment activity from a merger with another fund. See financial note 13 for additional information.

See financial notes 23

Schwab Core Equity Fund

Portfolio Holdings as of October 31, 2012

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.schwabfunds.com/prospectus.


				Cost		Value
Holdings by Category				($)		($)

	98	.8%	Common Stock		1,606,418,332		1,857,715,864
	0	.9%	Other Investment Company		17,558,841		17,558,841
	0	.1%	Short-Term Investment		692,901		692,901


	99	.8%	Total Investments		1,624,670,074		1,875,967,606
	0	.2%	Other Assets and Liabilities, Net				4,108,064


	100	.0%	Total Net Assets				1,880,075,670


	Number		Value
Security	of Shares		($)

Common Stock 98.8% of net assets

Automobiles & Components 0.4%
Ford Motor Co.		550,000		6,138,000
TRW Automotive Holdings Corp. *		31,000		1,441,810

				7,579,810

Banks 3.9%
BB&T Corp.		65,000		1,881,750
Huntington Bancshares, Inc.		313,200		2,001,348
KeyCorp		900,000		7,578,000
SunTrust Banks, Inc.		82,000		2,230,400
Wells Fargo & Co.		1,745,000		58,789,050

				72,480,548

Capital Goods 6.8%
3M Co.		17,000		1,489,200
AGCO Corp. *		77,400		3,522,474
Dover Corp.		24,000		1,397,280
Fluor Corp.		399,000		22,284,150
General Dynamics Corp.		84,500		5,752,760
General Electric Co.		2,208,500		46,511,010
Northrop Grumman Corp.		65,000		4,464,850
PACCAR, Inc.		100,000		4,334,000
Roper Industries, Inc.		20,500		2,237,985
Textron, Inc.		535,000		13,487,350
The Boeing Co.		269,500		18,983,580
Valmont Industries, Inc.		13,000		1,756,300
Wabtec Corp.		29,000		2,375,100

				128,596,039

Commercial & Professional Supplies 0.4%
Equifax, Inc.		134,000		6,705,360

Consumer Durables & Apparel 0.8%
Jarden Corp.		221,500		11,030,700
Mohawk Industries, Inc. *		52,000		4,340,440

				15,371,140

Consumer Services 0.5%
Hyatt Hotels Corp., Class A *		144,500		5,274,250
Starwood Hotels & Resorts Worldwide, Inc.		67,000		3,473,950

				8,748,200

Diversified Financials 7.0%
American Express Co.		260,500		14,580,185
Bank of America Corp.		35,000		326,200
Capital One Financial Corp.		145,500		8,754,735
Discover Financial Services		395,050		16,197,050
JPMorgan Chase & Co.		1,357,140		56,565,595
SLM Corp.		1,260,000		22,150,800
State Street Corp.		200,000		8,914,000
The Bank of New York Mellon Corp.		200,000		4,942,000

				132,430,565

Energy 11.7%
Anadarko Petroleum Corp.		70,000		4,816,700
Apache Corp.		50,000		4,137,500
Chevron Corp.		529,000		58,301,090
EOG Resources, Inc.		58,000		6,756,420
Exxon Mobil Corp.		649,500		59,214,915
HollyFrontier Corp.		43,000		1,661,090
Marathon Oil Corp.		81,000		2,434,860
Marathon Petroleum Corp.		45,000		2,471,850
Murphy Oil Corp.		393,365		23,601,900
National Oilwell Varco, Inc.		148,950		10,977,615
Occidental Petroleum Corp.		356,690		28,164,242
Phillips 66		49,000		2,310,840
Tesoro Corp.		61,000		2,300,310
Valero Energy Corp.		458,500		13,342,350

				220,491,682

Food & Staples Retailing 3.2%
Costco Wholesale Corp.		260,000		25,591,800
CVS Caremark Corp.		165,000		7,656,000
The Kroger Co.		796,400		20,085,208
Wal-Mart Stores, Inc.		86,800		6,511,736

				59,844,744

Food, Beverage & Tobacco 7.1%
Archer-Daniels-Midland Co.		710,000		19,056,400
Bunge Ltd.		188,400		13,382,052
Constellation Brands, Inc., Class A *		284,000		10,036,560
Ingredion, Inc.		200,000		12,292,000

24 See financial notes

Schwab Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
PepsiCo, Inc.		70,000		4,846,800
Philip Morris International, Inc.		264,700		23,441,832
The Coca-Cola Co.		1,365,000		50,750,700

				133,806,344

Health Care Equipment & Services 1.9%
Aetna, Inc.		100,000		4,370,000
Baxter International, Inc.		35,000		2,192,050
Boston Scientific Corp. *		272,500		1,400,650
Covidien plc		147,000		8,077,650
Henry Schein, Inc. *		78,000		5,754,840
Medtronic, Inc.		35,000		1,455,300
UnitedHealth Group, Inc.		214,000		11,984,000

				35,234,490

Household & Personal Products 0.2%
Colgate-Palmolive Co.		20,000		2,099,200
Kimberly-Clark Corp.		25,000		2,086,250

				4,185,450

Insurance 1.7%
Aflac, Inc.		193,500		9,632,430
American Financial Group, Inc.		29,290		1,136,452
HCC Insurance Holdings, Inc.		43,000		1,532,520
MetLife, Inc.		55,000		1,951,950
Prudential Financial, Inc.		27,000		1,540,350
Reinsurance Group of America, Inc.		76,500		4,048,380
The Travelers Cos., Inc.		109,300		7,753,742
Torchmark Corp.		74,000		3,743,660

				31,339,484

Materials 3.9%
Alcoa, Inc.		348,600		2,987,502
Ashland, Inc.		28,000		1,992,200
CF Industries Holdings, Inc.		9,000		1,846,710
International Paper Co.		824,000		29,523,920
MeadWestvaco Corp.		115,000		3,414,350
PPG Industries, Inc.		287,200		33,625,376

				73,390,058

Media 3.2%
CBS Corp., Class B - Non Voting Shares		55,500		1,798,200
Comcast Corp., Class A		455,000		17,067,050
Discovery Communications, Inc., Class A *		123,500		7,288,970
Liberty Global, Inc., Class A *		292,000		17,528,760
Omnicom Group, Inc.		45,000		2,155,950
The Walt Disney Co.		90,000		4,416,300
Time Warner Cable, Inc.		74,000		7,334,140
Time Warner, Inc.		57,000		2,476,650

				60,066,020

Pharmaceuticals, Biotechnology & Life Sciences 10.6%
Amgen, Inc.		361,052		31,247,245
Biogen Idec, Inc. *		98,000		13,545,560
Celgene Corp. *		21,000		1,539,720
Life Technologies Corp. *		347,137		16,978,471
Merck & Co., Inc.		922,080		42,074,511
Mylan, Inc. *		162,000		4,105,080
Pfizer, Inc.		2,184,000		54,316,080
Thermo Fisher Scientific, Inc.		504,000		30,774,240
Warner Chilcott plc, Class A		451,000		5,222,580

				199,803,487

Real Estate 1.0%
Simon Property Group, Inc.		121,000		18,417,410

Retailing 6.2%
Foot Locker, Inc.		482,900		16,177,150
Macy’s, Inc.		531,500		20,234,205
PetSmart, Inc.		186,000		12,348,540
Target Corp.		416,000		26,520,000
The Gap, Inc.		289,000		10,323,080
The Home Depot, Inc.		100,000		6,138,000
The TJX Cos., Inc.		616,800		25,677,384

				117,418,359

Semiconductors & Semiconductor Equipment 1.8%
Applied Materials, Inc.		1,000,000		10,600,000
LSI Corp. *		2,786,000		19,084,100
NVIDIA Corp.		266,000		3,184,020

				32,868,120

Software & Services 11.1%
Accenture plc, Class A		143,000		9,639,630
Alliance Data Systems Corp. *		151,500		21,672,075
BMC Software, Inc. *		369,140		15,023,998
CA, Inc.		862,000		19,412,240
Computer Sciences Corp.		440,500		13,413,225
Fidelity National Information Services, Inc.		67,000		2,202,290
IAC/InterActiveCorp		39,000		1,885,650
International Business Machines Corp.		81,100		15,776,383
Microsoft Corp.		780,000		22,257,300
Oracle Corp.		1,309,800		40,669,290
Symantec Corp. *		1,762,000		32,050,780
Synopsys, Inc. *		357,342		11,506,412
The Western Union Co.		84,000		1,066,800
Total System Services, Inc.		98,000		2,204,020

				208,780,093

Technology Hardware & Equipment 6.5%
Apple, Inc.		123,000		73,197,300
Avnet, Inc. *		63,000		1,804,950
Cisco Systems, Inc.		621,000		10,643,940
EMC Corp. *		457,400		11,169,708
Molex, Inc.		52,000		1,350,440
Motorola Solutions, Inc.		44,000		2,273,920
NCR Corp. *		97,000		2,064,160
Western Digital Corp.		366,000		12,528,180
Xerox Corp.		1,169,533		7,531,793

				122,564,391

See financial notes 25

Schwab Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Telecommunication Services 3.8%
AT&T, Inc.		189,100		6,540,969
Crown Castle International Corp. *		225,500		15,052,125
Sprint Nextel Corp. *		991,800		5,494,572
Telephone & Data Systems, Inc.		35,671		887,138
Verizon Communications, Inc.		990,400		44,211,456

				72,186,260

Transportation 1.2%
FedEx Corp.		191,000		17,570,090
Hertz Global Holdings, Inc. *		180,000		2,388,600
United Parcel Service, Inc., Class B		27,000		1,977,750

				21,936,440

Utilities 3.9%
Ameren Corp.		402,000		13,217,760
American Water Works Co., Inc.		23,000		845,020
CenterPoint Energy, Inc.		375,000		8,126,250
CMS Energy Corp.		183,000		4,450,560
DTE Energy Co.		145,900		9,060,390
Edison International		51,000		2,393,940
NV Energy, Inc.		88,000		1,672,880
PG&E Corp.		311,000		13,223,720
Pinnacle West Capital Corp.		100,000		5,297,000
The AES Corp.		1,453,000		15,183,850

				73,471,370

Total Common Stock
(Cost $1,606,418,332)				1,857,715,864




Other Investment Company 0.9% of net assets

Money Market Fund 0.9%
State Street Institutional U.S. Government Money Market Fund		17,558,841		17,558,841

Total Other Investment Company
(Cost $17,558,841)				17,558,841



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

Short-Term Investment 0.1% of net assets

U.S. Treasury Obligation 0.1%
U.S. Treasury Bill
0.11%, 12/20/12 (a)(b)		693,000		692,901

Total Short-Term Investment
(Cost $692,901)				692,901



End of Investments.

At 10/31/12, the tax basis cost of the fund’s investments was $1,626,886,889 and the unrealized appreciation and depreciation were $291,663,236 and ($42,582,519), respectively, with a net unrealized appreciation of $249,080,717.


*		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.

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

180

12,661,200

(426,915

)

26 See financial notes

Schwab Core Equity Fund

Portfolio Holdings continued

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$1,857,715,864			$—		$—		$1,857,715,864
Other Investment Company¹		17,558,841			—		—		17,558,841
Short-Term Investment¹		—			692,901		—		692,901

Total		$1,875,274,705			$692,901		$—		$1,875,967,606



Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($426,915	)		$—		$—		($426,915	)


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

See financial notes 27

Schwab Core Equity Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$36,145,283
Interest		6,784
Securities on loan	+	163

Total investment income		36,152,230

Expenses

Investment adviser and administrator fees		8,097,460
Shareholder service fees		4,039,253
Shareholder reports		90,728
Transfer agent fees		86,864
Portfolio accounting fees		71,589
Registration fees		43,215
Professional fees		37,597
Custodian fees		34,704
Trustees’ fees		17,434
Interest expense		165
State filing fee reimbursement (Note 4)		(32,770	)
Other expenses	+	44,733

Total expenses		12,530,972
Expense reduction by CSIM and its affiliates¹	−	54,094
Custody credits	−	57

Net expenses	−	12,476,821

Net investment income		23,675,409

Realized and Unrealized Gains (Losses)

Net realized gains on investments		139,147,493
Net realized gains on futures contracts	+	2,604,435

Net realized gains		141,751,928
Net unrealized gains on investments		53,752,200
Net unrealized losses on futures contracts	+	(1,445,573	)

Net unrealized gains	+	52,306,627

Net realized and unrealized gains		194,058,555

Increase in net assets resulting from operations		$217,733,964


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $32,770. See financial note 4 for additional information.

See financial notes 29

Schwab Core Equity Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$23,675,409			$19,259,987
Net realized gains		141,751,928			112,592,315
Net unrealized gains	+	52,306,627			7,883,076

Increase in net assets from operations		217,733,964			139,735,378

Distributions to Shareholders

Distributions from net investment income		($32,156,180	)		($18,535,012	)

Transactions in Fund Shares¹


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			6,062,795		$109,887,310			12,323,341		$209,712,682
Issued in connection with merger			11,283,566		216,114,348			—		—
Shares reinvested			836,086		14,755,613			518,572		8,706,829
Shares redeemed	+		(20,453,309	)	(365,280,788	)		(24,183,912	)	(413,021,730	)

Net transactions in fund shares			(2,270,862	)	($24,523,517	)		(11,341,999	)	($194,602,219	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			102,249,740		$1,719,021,403			113,591,739		$1,792,423,256
Total increase or decrease	+		(2,270,862	)	161,054,267			(11,341,999	)	(73,401,853	)

End of period			99,978,878		$1,880,075,670			102,249,740		$1,719,021,403


Net investment income not yet distributed					$3,792,266					$12,260,865


¹		Effective September 7, 2012, all of the assets and liabilities of the Schwab Premier Equity Fund were transferred to the Schwab Core Equity Fund. (See financial note 13)

30 See financial notes

Schwab Dividend Equity Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		13.15			12.08			10.94			10.63			15.66

Income (loss) from investment operations:
Net investment income (loss)		0.27			0.23			0.21			0.25			0.32
Net realized and unrealized gains (losses)		1.38			1.06			1.14			0.31			(4.97	)

Total from investment operations		1.65			1.29			1.35			0.56			(4.65	)
Less distributions:
Distributions from net investment income		(0.28	)		(0.22	)		(0.21	)		(0.25	)		(0.33	)
Distributions from net realized gains		—			—			—			—			(0.05	)

Total distributions		(0.28	)		(0.22	)		(0.21	)		(0.25	)		(0.38	)

Net asset value at end of period		14.52			13.15			12.08			10.94			10.63

Total return (%)		12.65			10.73			12.42			5.62			(30.23	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.89			0.89			0.89			0.90	²		0.89
Gross operating expenses		0.89			0.89			0.89			0.91			0.89
Net investment income (loss)		1.89			1.77			1.74			2.40			2.33
Portfolio turnover rate		55			31			37			39			22
Net assets, end of period ($ x 1,000,000)		1,390			1,325			1,322			1,297			824

¹ Effective October 7, 2009, the Investor Shares class and the Select Shares 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.

See financial notes 31

Schwab Dividend Equity Fund

Portfolio Holdings as of October 31, 2012

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

Cost

Value

Holdings by Category

($)

.8%

Common Stock

1,156,012,471

1,373,932,166

.2%

Short-Term Investments

15,976,019

100

.0%

Total Investments

1,171,988,490

1,389,908,185

.0%

Other Assets and Liabilities, Net

373,481

100

.0%

Total Net Assets

1,390,281,666


	Number		Value
Security	of Shares		($)

Common Stock 98.8% of net assets

Banks 2.3%
Commerce Bancshares, Inc.		178,237		6,787,265
KeyCorp		290,000		2,441,800
Regions Financial Corp.		156,100		1,017,772
Wells Fargo & Co.		650,000		21,898,500

				32,145,337

Capital Goods 10.0%
3M Co.		128,000		11,212,800
Fluor Corp.		159,200		8,891,320
General Dynamics Corp.		55,500		3,778,440
General Electric Co.		2,086,100		43,933,266
L-3 Communications Holdings, Inc.		37,000		2,730,600
Lockheed Martin Corp.		210,000		19,670,700
Masco Corp.		75,000		1,131,750
Northrop Grumman Corp.		82,200		5,646,318
PACCAR, Inc.		8,500		368,390
Roper Industries, Inc.		31,000		3,384,270
The Boeing Co.		325,000		22,893,000
United Technologies Corp.		192,200		15,022,352

				138,663,206

Consumer Durables & Apparel 1.4%
Whirlpool Corp.		198,600		19,399,248

Consumer Services 0.5%
H&R Block, Inc.		407,200		7,207,440

Diversified Financials 7.5%
American Express Co.		310,700		17,389,879
JPMorgan Chase & Co.		1,046,984		43,638,293
Northern Trust Corp.		39,500		1,887,310
SLM Corp.		1,225,600		21,546,048
State Street Corp.		228,500		10,184,245
The Bank of New York Mellon Corp.		367,800		9,088,338

				103,734,113

Energy 12.1%
Apache Corp.		50,000		4,137,500
Chevron Corp.		452,500		49,870,025
EOG Resources, Inc.		26,500		3,086,985
Exxon Mobil Corp.		664,800		60,609,816
Marathon Petroleum Corp.		38,200		2,098,326
Murphy Oil Corp.		175,000		10,500,000
Occidental Petroleum Corp.		200,000		15,792,000
The Williams Cos., Inc.		70,000		2,449,300
Valero Energy Corp.		675,000		19,642,500

				168,186,452

Food & Staples Retailing 4.8%
Costco Wholesale Corp.		294,600		28,997,478
CVS Caremark Corp.		149,000		6,913,600
Wal-Mart Stores, Inc.		412,000		30,908,240

				66,819,318

Food, Beverage & Tobacco 4.5%
Archer-Daniels-Midland Co.		757,000		20,317,880
Ingredion, Inc.		190,000		11,677,400
Philip Morris International, Inc.		188,000		16,649,280
The Coca-Cola Co.		377,900		14,050,322

				62,694,882

Health Care Equipment & Services 1.5%
Baxter International, Inc.		48,500		3,037,555
Covidien plc		33,000		1,813,350
McKesson Corp.		78,500		7,324,835
Medtronic, Inc.		150,000		6,237,000
UnitedHealth Group, Inc.		50,000		2,800,000

				21,212,740

Household & Personal Products 1.2%
Colgate-Palmolive Co.		65,000		6,822,400
Kimberly-Clark Corp.		126,000		10,514,700

				17,337,100

Insurance 1.4%
MetLife, Inc.		65,000		2,306,850
The Travelers Cos., Inc.		243,000		17,238,420

				19,545,270

Materials 4.5%
CF Industries Holdings, Inc.		37,000		7,592,030
Eastman Chemical Co.		91,900		5,444,156
International Paper Co.		212,000		7,595,960
MeadWestvaco Corp.		452,100		13,422,849

32 See financial notes

Schwab Dividend Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
PPG Industries, Inc.		244,300		28,602,644

				62,657,639

Media 2.0%
Comcast Corp., Class A		135,000		5,063,850
The Interpublic Group of Cos., Inc.		185,200		1,870,520
The Walt Disney Co.		140,000		6,869,800
Time Warner Cable, Inc.		30,000		2,973,300
Time Warner, Inc.		240,500		10,449,725

				27,227,195

Pharmaceuticals, Biotechnology & Life Sciences 8.5%
Amgen, Inc.		260,452		22,540,818
Eli Lilly & Co.		192,900		9,380,727
Merck & Co., Inc.		933,100		42,577,353
Pfizer, Inc.		1,731,500		43,062,405

				117,561,303

Real Estate 2.0%
Kimco Realty Corp.		280,000		5,465,600
Liberty Property Trust		45,000		1,580,400
Simon Property Group, Inc.		140,800		21,431,168

				28,477,168

Retailing 5.6%
Foot Locker, Inc.		403,000		13,500,500
Macy’s, Inc.		548,500		20,881,395
Target Corp.		210,000		13,387,500
The Gap, Inc.		18,900		675,108
The Home Depot, Inc.		319,000		19,580,220
The TJX Cos., Inc.		222,400		9,258,512

				77,283,235

Semiconductors & Semiconductor Equipment 3.3%
Applied Materials, Inc.		1,798,500		19,064,100
KLA-Tencor Corp.		483,000		22,469,160
Maxim Integrated Products, Inc.		170,000		4,679,250

				46,212,510

Software & Services 8.1%
Accenture plc, Class A		135,000		9,100,350
CA, Inc.		840,500		18,928,060
Computer Sciences Corp.		304,000		9,256,800
Fidelity National Information Services, Inc.		485,000		15,941,950
International Business Machines Corp.		66,400		12,916,792
Microsoft Corp.		670,000		19,118,450
Oracle Corp.		350,300		10,876,815
The Western Union Co.		520,000		6,604,000
Total System Services, Inc.		454,500		10,221,705

				112,964,922

Technology Hardware & Equipment 5.1%
Amphenol Corp., Class A		105,000		6,313,650
Cisco Systems, Inc.		980,000		16,797,200
Jabil Circuit, Inc.		595,500		10,325,970
Molex, Inc.		368,000		9,556,960
Seagate Technology plc		399,200		10,906,144
TE Connectivity Ltd.		276,000		8,881,680
Xerox Corp.		1,211,000		7,798,840

				70,580,444

Telecommunication Services 5.3%
AT&T, Inc.		1,000,307		34,600,619
Verizon Communications, Inc.		879,500		39,260,880

				73,861,499

Transportation 0.5%
FedEx Corp.		6,500		597,935
United Parcel Service, Inc., Class B		90,000		6,592,500

				7,190,435

Utilities 6.7%
Ameren Corp.		525,500		17,278,440
American Electric Power Co., Inc.		17,000		755,480
CenterPoint Energy, Inc.		75,000		1,625,250
CMS Energy Corp.		185,000		4,499,200
DTE Energy Co.		443,100		27,516,510
Edison International		175,000		8,214,500
PG&E Corp.		237,000		10,077,240
Pinnacle West Capital Corp.		225,000		11,918,250
Public Service Enterprise Group, Inc.		346,000		11,085,840

				92,970,710

Total Common Stock
(Cost $1,156,012,471)				1,373,932,166



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

Short-Term Investments 1.2% of net assets

Time Deposits 1.2%
Bank of Montreal
0.03%, 11/01/12		4,931,604		4,931,604
Royal Bank of Canada
0.03%, 11/01/12		10,755,456		10,755,456

				15,687,060

U.S. Treasury Obligation 0.0%
U.S. Treasury Bill
0.11%, 12/20/12 (a)(b)		289,000		288,959

Total Short-Term Investments
(Cost $15,976,019)				15,976,019



End of Investments.

See financial notes 33

Schwab Dividend Equity Fund

Portfolio Holdings continued

At 10/31/12, the tax basis cost of the fund’s investments was $1,171,988,490 and the unrealized appreciation and depreciation were $240,407,636 and ($22,487,941), respectively, with a net unrealized appreciation of $217,919,695.


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

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

5,275,500

(177,881

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$1,373,932,166			$—		$—		$1,373,932,166
Short-Term Investments¹		—			15,976,019		—		15,976,019

Total		$1,373,932,166			$15,976,019		$—		$1,389,908,185



Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($177,881	)		$—		$—		($177,881	)


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

34 See financial notes

Schwab Dividend Equity Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$39,018,315
Interest	+	7,941

Total investment income		39,026,256

Expenses

Investment adviser and administrator fees		8,716,628
Shareholder service fees		3,442,920
Shareholder reports		73,722
Portfolio accounting fees		67,958
Transfer agent fees		53,833
Registration fees		45,931
Professional fees		40,073
Custodian fees		33,519
Trustees’ fees		15,146
Interest expense		45
State filing fee reimbursement (Note 4)		(13,172	)
Other expenses	+	35,530

Total expenses		12,512,133
Expense reduction by CSIM and its affiliates¹	−	40,775

Net expenses	−	12,471,358

Net investment income		26,554,898

Realized and Unrealized Gains (Losses)

Net realized gains on investments		104,234,791
Net realized gains on futures contracts	+	5,102,934

Net realized gains		109,337,725
Net unrealized gains on investments		32,057,949
Net unrealized losses on futures contracts	+	(1,948,405	)

Net unrealized gains	+	30,109,544

Net realized and unrealized gains		139,447,269

Increase in net assets resulting from operations		$166,002,167


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $13,172. See financial note 4 for additional information.

36 See financial notes

Schwab Dividend Equity Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$26,554,898			$24,245,439
Net realized gains		109,337,725			43,566,448
Net unrealized gains	+	30,109,544			71,468,313

Increase in net assets from operations		166,002,167			139,280,200

Distributions to Shareholders

Distributions from net investment income		($28,261,739	)		($23,212,957	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			16,849,993		$235,314,886			13,544,141		$176,264,263
Shares reinvested			1,092,546		15,437,629			949,738		12,332,976
Shares redeemed	+		(22,962,741	)	(322,803,726	)		(23,171,863	)	(301,886,000	)

Net transactions in fund shares			(5,020,202	)	($72,051,211	)		(8,677,984	)	($113,288,761	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			100,761,656		$1,324,592,449			109,439,640		$1,321,813,967
Total increase or decrease	+		(5,020,202	)	65,689,217			(8,677,984	)	2,778,482

End of period			95,741,454		$1,390,281,666			100,761,656		$1,324,592,449


Net investment income not yet distributed					$832,279					$2,539,120

See financial notes 37

Schwab Large-Cap Growth Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		11.18			10.48			9.10			8.22			12.77

Income (loss) from investment operations:
Net investment income (loss)		0.07			0.07			0.05			0.05			0.06
Net realized and unrealized gains (losses)		1.29			0.69			1.39			0.87			(4.56	)

Total from investment operations		1.36			0.76			1.44			0.92			(4.50	)
Less distributions:
Distributions from net investment income		(0.06	)		(0.06	)		(0.06	)		(0.04	)		(0.05	)

Net asset value at end of period		12.48			11.18			10.48			9.10			8.22

Total return (%)		12.18			7.25			15.83			11.36			(35.36	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.99			0.99			1.00	²		0.99			0.99
Gross operating expenses		1.05			1.05			1.04			1.03			1.01
Net investment income (loss)		0.53			0.56			0.39			0.65			0.53
Portfolio turnover rate		79			62			57			63			49
Net assets, end of period ($ x 1,000,000)		217			213			219			360			332

² The ratio of net operating expenses would have been 0.99%, if certain non-routine expenses had not been incurred.

38 See financial notes

Schwab Large-Cap Growth Fund

Portfolio Holdings as of October 31, 2012

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


				Cost		Value
Holdings by Category				($)		($)

	98	.9%	Common Stock		188,602,224		214,622,286
	1	.0%	Short-Term Investments		2,172,819		2,172,819


	99	.9%	Total Investments		190,775,043		216,795,105
	0	.4%	Collateral Invested for Securities on Loan		816,098		816,098
	(0	.3)%	Other Assets and Liabilities, Net				(513,481	)


	100	.0%	Total Net Assets				217,097,722


	Number		Value
Security	of Shares		($)

Common Stock 98.9% of net assets

Automobiles & Components 0.7%
Delphi Automotive plc *		24,500		770,280
Ford Motor Co.		66,000		736,560

				1,506,840

Banks 0.4%
Wells Fargo & Co.		26,900		906,261

Capital Goods 7.6%
3M Co.		4,500		394,200
AGCO Corp. *		32,400		1,474,524
Fluor Corp.		37,000		2,066,450
General Electric Co.		75,000		1,579,500
Lockheed Martin Corp.		24,300		2,276,181
PACCAR, Inc.		7,500		325,050
Roper Industries, Inc.		11,800		1,288,206
Textron, Inc.		95,000		2,394,950
The Boeing Co.		51,500		3,627,660
United Technologies Corp.		12,500		977,000

				16,403,721

Commercial & Professional Supplies 1.2%
Equifax, Inc.		50,000		2,502,000

Consumer Durables & Apparel 0.6%
NIKE, Inc., Class B		11,600		1,060,008
Whirlpool Corp.		2,500		244,200

				1,304,208

Consumer Services 1.4%
H&R Block, Inc.		35,400		626,580
Hyatt Hotels Corp., Class A *		13,000		474,500
Starwood Hotels & Resorts Worldwide, Inc.		35,300		1,830,305

				2,931,385

Diversified Financials 1.3%
Affiliated Managers Group, Inc. *		12,000		1,518,000
American Express Co.		10,800		604,476
JPMorgan Chase & Co.		11,500		479,320
SLM Corp.		14,000		246,120

				2,847,916

Energy 5.6%
Chevron Corp.		25,000		2,755,250
EOG Resources, Inc.		30,000		3,494,700
Exxon Mobil Corp.		24,000		2,188,080
Murphy Oil Corp.		28,000		1,680,000
National Oilwell Varco, Inc.		2,000		147,400
Occidental Petroleum Corp.		19,500		1,539,720
Valero Energy Corp.		11,500		334,650

				12,139,800

Food & Staples Retailing 4.2%
Costco Wholesale Corp.		46,000		4,527,780
CVS Caremark Corp.		30,000		1,392,000
Wal-Mart Stores, Inc.		42,500		3,188,350

				9,108,130

Food, Beverage & Tobacco 7.8%
Archer-Daniels-Midland Co.		36,600		982,344
Coca-Cola Enterprises, Inc.		101,200		3,181,728
PepsiCo, Inc.		5,000		346,200
Philip Morris International, Inc.		62,000		5,490,720
The Coca-Cola Co.		188,700		7,015,866

				17,016,858

Health Care Equipment & Services 1.9%
Baxter International, Inc.		10,000		626,300
Becton, Dickinson & Co.		5,000		378,400
Covidien plc		25,000		1,373,750
Henry Schein, Inc. *		24,600		1,814,988

				4,193,438

Household & Personal Products 0.4%
Herbalife Ltd. (a)		16,600		852,410

Insurance 0.7%
Aflac, Inc.		30,800		1,533,224

Materials 6.3%
Ashland, Inc.		43,500		3,095,025
CF Industries Holdings, Inc.		6,000		1,231,140

See financial notes 39

Schwab Large-Cap Growth Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
International Paper Co.		80,000		2,866,400
MeadWestvaco Corp.		45,000		1,336,050
PPG Industries, Inc.		43,000		5,034,440

				13,563,055

Media 4.5%
Comcast Corp., Class A		100,000		3,751,000
Liberty Global, Inc., Class A *		46,000		2,761,380
The Walt Disney Co.		15,000		736,050
Time Warner Cable, Inc.		26,000		2,576,860

				9,825,290

Pharmaceuticals, Biotechnology & Life Sciences 8.8%
Agilent Technologies, Inc.		3,300		118,767
Amgen, Inc.		52,500		4,543,612
Biogen Idec, Inc. *		21,800		3,013,196
Celgene Corp. *		36,800		2,698,176
Eli Lilly & Co.		12,600		612,738
Life Technologies Corp. *		16,000		782,560
Mylan, Inc. *		88,500		2,242,590
Pfizer, Inc.		134,000		3,332,580
Thermo Fisher Scientific, Inc.		27,700		1,691,362

				19,035,581

Real Estate 2.1%
Simon Property Group, Inc.		30,000		4,566,300

Retailing 8.1%
Foot Locker, Inc.		67,500		2,261,250
Macy’s, Inc.		105,000		3,997,350
PetSmart, Inc.		26,300		1,746,057
Target Corp.		32,500		2,071,875
The Gap, Inc.		69,000		2,464,680
The Home Depot, Inc.		20,000		1,227,600
The TJX Cos., Inc.		93,500		3,892,405

				17,661,217

Semiconductors & Semiconductor Equipment 2.1%
Applied Materials, Inc.		109,500		1,160,700
LSI Corp. *		350,000		2,397,500
NVIDIA Corp.		87,000		1,041,390

				4,599,590

Software & Services 17.6%
Alliance Data Systems Corp. *		20,000		2,861,000
BMC Software, Inc. *		100,000		4,070,000
CA, Inc.		100,000		2,252,000
Citrix Systems, Inc. *		10,000		618,100
Google, Inc., Class A *		5,500		3,738,735
International Business Machines Corp.		19,600		3,812,788
Microsoft Corp.		273,000		7,790,055
Oracle Corp.		230,100		7,144,605
Symantec Corp. *		130,000		2,364,700
Synopsys, Inc. *		28,000		901,600
Teradata Corp. *		5,000		341,550
The Western Union Co.		188,900		2,399,030

				38,294,163

Technology Hardware & Equipment 10.6%
Amphenol Corp., Class A		11,200		673,456
Apple, Inc.		28,000		16,662,800
Dell, Inc.		66,000		609,180
EMC Corp. *		95,000		2,319,900
TE Connectivity Ltd.		49,000		1,576,820
Western Digital Corp.		31,000		1,061,130

				22,903,286

Telecommunication Services 3.4%
Crown Castle International Corp. *		25,800		1,722,150
Verizon Communications, Inc.		126,700		5,655,888

				7,378,038

Transportation 1.3%
Delta Air Lines, Inc. *		47,000		452,610
Hertz Global Holdings, Inc. *		90,500		1,200,935
United Parcel Service, Inc., Class B		16,100		1,179,325

				2,832,870

Utilities 0.3%
CenterPoint Energy, Inc.		21,500		465,905
The AES Corp.		24,000		250,800

				716,705

Total Common Stock
(Cost $188,602,224)				214,622,286



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

Short-Term Investments 1.0% of net assets

Time Deposit 1.0%
Societe Generale
0.03%, 11/01/12		2,095,830		2,095,830

U.S. Treasury Obligation 0.0%
U.S. Treasury Bill
0.11%, 12/20/12 (b)(c)		77,000		76,989

Total Short-Term Investments
(Cost $2,172,819)				2,172,819



End of Investments.

40 See financial notes

Schwab Large-Cap Growth Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Collateral Invested for Securities on Loan 0.4% of net assets


Wells Fargo Advantage Government Money Market Fund		816,098		816,098

Total Collateral Invested for Securities on Loan
(Cost $816,098)				816,098



End of Collateral Invested for Securities on Loan

At 10/31/12, the tax basis cost of the fund’s investments was $190,891,232 and the unrealized appreciation and depreciation were $30,205,312 and ($4,301,439), respectively, with a net unrealized appreciation of $25,903,873.


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

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

1,406,800

(47,435

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$214,622,286			$—		$—		$214,622,286
Short-Term Investments¹		—			2,172,819		—		2,172,819

Total		$214,622,286			$2,172,819		$—		$216,795,105

Other Financial Instruments
Collateral Invested for Securities on Loan		$816,098			$—		$—		$816,098


Liabilities Valuation Input


Other Financial Instruments
Futures Contracts²		($47,435	)		$—		$—		($47,435	)


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

See financial notes 41

Schwab Large-Cap Growth Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$3,368,656
Interest		833
Securities on loan	+	178

Total investment income		3,369,667

Expenses

Investment adviser and administrator fees		1,591,582
Shareholder service fees		546,098
Portfolio accounting fees		40,805
Shareholder reports		36,984
Professional fees		33,290
Transfer agent fees		24,723
Registration fees		24,468
Custodian fees		8,783
Trustees’ fees		7,201
State filing fee reimbursement (Note 4)		(6,516	)
Other expenses	+	6,200

Total expenses		2,313,618
Expense reduction by CSIM and its affiliates¹	−	125,209

Net expenses	−	2,188,409

Net investment income		1,181,258

Realized and Unrealized Gains (Losses)

Net realized gains on investments		29,012,634
Net realized gains on futures contracts	+	406,387

Net realized gains		29,419,021
Net unrealized losses on investments		(5,386,747	)
Net unrealized losses on futures contracts	+	(120,196	)

Net unrealized losses	+	(5,506,943	)

Net realized and unrealized gains		23,912,078

Increase in net assets resulting from operations		$25,093,336


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $6,516. See financial note 4 for additional information.

See financial notes 43

Schwab Large-Cap Growth Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$1,181,258			$1,283,025
Net realized gains		29,419,021			22,676,262
Net unrealized losses	+	(5,506,943	)		(7,897,223	)

Increase in net assets from operations		25,093,336			16,062,064

Distributions to Shareholders

Distributions from net investment income		($1,032,046	)		($1,241,602	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			2,590,944		$31,765,041			3,665,376		$41,539,298
Shares reinvested			45,504		506,911			51,489		572,556
Shares redeemed	+		(4,310,391	)	(52,516,380	)		(5,580,743	)	(63,063,162	)

Net transactions in fund shares			(1,673,943	)	($20,244,428	)		(1,863,878	)	($20,951,308	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			19,071,970		$213,280,860			20,935,848		$219,411,706
Total increase or decrease	+		(1,673,943	)	3,816,862			(1,863,878	)	(6,130,846	)

End of period			17,398,027		$217,097,722			19,071,970		$213,280,860


Net investment income not yet distributed					$873,339					$724,127

44 See financial notes

Schwab Small-Cap Equity Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		15.61			13.96			11.14			10.55			18.22

Income (loss) from investment operations:
Net investment income (loss)		0.02			(0.01	)		(0.04	)		(0.02	)		(0.01	)
Net realized and unrealized gains (losses)		2.10			1.66			2.86			0.61			(6.59	)

Total from investment operations		2.12			1.65			2.82			0.59			(6.60	)
Less distributions:
Distributions from net investment income		(0.01	)		—			—			(0.00	)²		—
Distributions from net realized gains		—			—			—			—			(1.07	)

Total distributions		(0.01	)		—			—			(0.00	)²		(1.07	)

Net asset value at end of period		17.72			15.61			13.96			11.14			10.55

Total return (%)		13.57			11.82			25.31			5.65			(38.16	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.12			1.11			1.12			1.12			1.11
Gross operating expenses		1.12			1.12			1.14			1.17			1.12
Net investment income (loss)		0.11			(0.05	)		(0.26	)		(0.16	)		(0.09	)
Portfolio turnover rate		101			72			64			85			50
Net assets, end of period ($ x 1,000,000)		388			226			219			202			79

¹ Effective September 28, 2009, the Investor Shares class and the Select Shares 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 Amount is less than $0.01.

See financial notes 45

Schwab Small-Cap Equity Fund

Portfolio Holdings as of October 31, 2012

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


				Cost		Value
Holdings by Category				($)		($)

	99	.6%	Common Stock		348,294,937		386,006,596
	0	.4%	Short-Term Investments		1,713,518		1,713,518


	100	.0%	Total Investments		350,008,455		387,720,114
	1	.3%	Collateral Invested for Securities on Loan		4,939,227		4,939,227
	(1	.3)%	Other Assets and Liabilities, Net				(5,095,098	)


	100	.0%	Total Net Assets				387,564,243


	Number		Value
Security	of Shares		($)

Common Stock 99.6% of net assets

Automobiles & Components 0.4%
Cooper Tire & Rubber Co.		30,900		622,017
Dana Holding Corp.		36,458		479,787
Standard Motor Products, Inc.		10,400		195,312
Superior Industries International, Inc.		10,300		176,027

				1,473,143

Banks 6.7%
1st Source Corp.		25,600		568,576
BancFirst Corp.		21,700		953,932
BancorpSouth, Inc.		101,200		1,431,980
Bank of Kentucky Financial Corp.		7,400		186,036
Banner Corp.		111,571		3,234,443
Cathay General Bancorp		11,900		210,511
Columbia Banking System, Inc.		34,600		612,766
Community Trust Bancorp, Inc.		12,400		420,608
F.N.B. Corp.		77,700		833,721
First Citizens BancShares, Inc., Class A		9,100		1,535,625
First Defiance Financial Corp.		17,200		304,440
First Merchants Corp.		59,300		872,303
First Midwest Bancorp, Inc.		36,700		453,979
Heritage Commerce Corp. *		37,100		244,489
MainSource Financial Group, Inc.		19,800		247,896
MB Financial, Inc.		45,300		917,778
Metro Bancorp, Inc. *		21,500		279,070
Ocwen Financial Corp. *		29,000		1,118,530
PacWest Bancorp		109,500		2,463,750
Peoples Bancorp, Inc.		6,500		138,450
Pinnacle Financial Partners, Inc. *		44,900		877,795
PrivateBancorp, Inc.		141,600		2,288,256
Renasant Corp.		12,500		230,125
StellarOne Corp.		23,400		321,048
Sterling Financial Corp.		21,300		452,838
Synovus Financial Corp.		825,400		2,022,230
The Bancorp, Inc. *		9,700		110,289
Union First Market Bankshares Corp.		13,100		205,670
United Community Banks, Inc. *		78,100		679,470
Virginia Commerce Bancorp, Inc. *		22,900		209,764
WesBanco, Inc.		24,500		539,000
Western Alliance Bancorp *		96,600		991,116

				25,956,484

Capital Goods 8.7%
AAR Corp.		62,700		946,143
Aceto Corp.		94,600		947,892
Actuant Corp., Class A		49,400		1,395,056
Aegion Corp. *		34,400		635,368
Altra Holdings, Inc.		20,400		367,608
American Railcar Industries, Inc. *		28,700		843,206
American Woodmark Corp. *		14,700		338,100
Apogee Enterprises, Inc.		112,900		2,299,773
AZZ, Inc.		14,508		572,196
Columbus McKinnon Corp. *		11,600		173,652
Curtiss-Wright Corp.		50,200		1,549,674
EnerSys, Inc. *		91,700		3,161,816
Esterline Technologies Corp. *		15,100		872,629
Federal Signal Corp. *		165,500		954,935
Flow International Corp. *		158,700		526,884
FreightCar America, Inc.		57,700		1,110,725
Gibraltar Industries, Inc. *		64,900		808,654
Granite Construction, Inc.		100,600		3,039,126
Griffon Corp.		25,000		253,750
Harsco Corp.		100,900		2,016,991
Hurco Cos., Inc. *		9,200		211,416
Hyster-Yale Materials Handling, Inc., Class B (c)(d)*		19,300		792,844
Kadant, Inc. *		30,000		728,700
LSI Industries, Inc.		7,300		49,494
Lydall, Inc. *		70,400		908,864
Moog, Inc., Class A *		61,500		2,276,115
Mueller Water Products, Inc., Class A		133,700		696,577
Northwest Pipe Co. *		4,700		108,006
Pike Electric Corp. *		28,000		255,080
Powell Industries, Inc. *		4,400		175,032
Sauer-Danfoss, Inc.		52,100		2,087,126
Standex International Corp.		34,300		1,586,032
Sterling Construction Co., Inc. *		4,200		37,380
Sypris Solutions, Inc.		35,700		224,910
Taser International, Inc. *		30,000		234,300
Trex Co., Inc. *		10,900		380,846
Vicor Corp. *		9,500		60,610

				33,627,510

Commercial & Professional Supplies 1.9%
Courier Corp.		4,900		59,045
EnergySolutions, Inc. *		96,400		275,704
G&K Services, Inc., Class A		39,000		1,257,750
Heidrick & Struggles International, Inc.		10,700		126,688
Hudson Global, Inc. *		31,400		126,856
Intersections, Inc. (a)		33,300		309,357

46 See financial notes

Schwab Small-Cap Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Kelly Services, Inc., Class A		45,600		606,024
Kimball International, Inc., Class B		38,100		454,914
RPX Corp. *		80,400		846,612
Steelcase, Inc., Class A		119,000		1,191,190
Sykes Enterprises, Inc. *		47,100		641,502
The Brink’s Co.		30,100		791,931
The Corporate Executive Board Co.		17,000		764,320

				7,451,893

Consumer Durables & Apparel 3.1%
CSS Industries, Inc.		20,600		414,060
Culp, Inc.		12,400		156,736
Helen of Troy Ltd. *		11,200		338,464
Jarden Corp.		61,000		3,037,800
Johnson Outdoors, Inc., Class A *		5,100		99,501
La-Z-Boy, Inc. *		51,600		836,952
LeapFrog Enterprises, Inc. *		36,000		318,240
Movado Group, Inc.		41,100		1,302,459
NACCO Industries, Inc., Class A		15,600		789,984
Perry Ellis International, Inc. *		30,200		623,328
Skechers U.S.A., Inc., Class A *		30,400		504,640
Smith & Wesson Holding Corp. *		42,300		406,080
The Jones Group, Inc.		238,000		2,810,780
Unifi, Inc. *		22,400		314,272

				11,953,296

Consumer Services 3.9%
Ascent Capital Group, Inc., Class A *		6,800		404,260
Biglari Holdings, Inc. *		4,100		1,449,801
Career Education Corp. *		81,900		278,460
Coinstar, Inc. (a)*		36,700		1,722,698
Denny’s Corp. *		33,600		154,560
Jamba, Inc. *		213,900		468,441
Marriott Vacations Worldwide Corp. *		11,549		454,337
Multimedia Games Holding Co., Inc. *		92,100		1,464,390
Pinnacle Entertainment, Inc. *		39,400		502,744
Regis Corp.		13,000		216,580
Ruth’s Hospitality Group, Inc. *		36,995		246,017
Ryman Hospitality Properties *		9,900		386,199
Scientific Games Corp., Class A *		45,900		377,757
Service Corp. International		135,000		1,895,400
SHFL Entertainment, Inc. *		72,900		1,030,077
Six Flags Entertainment Corp.		17,500		999,425
Sonic Corp. *		37,500		373,875
Steiner Leisure Ltd. *		31,700		1,392,264
Town Sports International Holdings, Inc. *		93,083		1,172,846

				14,990,131

Diversified Financials 4.3%
Calamos Asset Management, Inc., Class A		96,200		1,038,960
Cowen Group, Inc., Class A *		167,500		425,450
FBR & Co. *		62,100		185,058
FXCM, Inc., Class A		133,200		1,198,800
Gain Capital Holdings, Inc.		47,000		216,200
Interactive Brokers Group, Inc., Class A		188,800		2,690,400
Investment Technology Group, Inc. *		290,000		2,447,600
MicroFinancial, Inc.		26,800		211,184
Oppenheimer Holdings, Inc., Class A		35,300		574,684
PHH Corp. *		176,700		3,677,127
Piper Jaffray Cos., Inc. *		100,900		2,709,165
SWS Group, Inc. *		94,400		537,136
Walter Investment Management Corp. *		14,200		686,286

				16,598,050

Energy 7.4%
Alon USA Energy, Inc.		79,700		1,046,461
Basic Energy Services, Inc. *		58,100		603,659
Bristow Group, Inc.		27,600		1,377,792
Contango Oil & Gas Co. *		21,500		1,056,940
Crosstex Energy, Inc.		76,900		1,051,992
CVR Energy, Inc. *		14,500		532,875
Dawson Geophysical Co. *		6,700		160,063
Delek US Holdings, Inc.		37,500		965,625
Energy XXI (Bermuda) Ltd.		39,400		1,304,140
EPL Oil & Gas, Inc. *		54,400		1,177,216
Global Geophysical Services, Inc. *		24,300		112,266
Helix Energy Solutions Group, Inc. *		157,200		2,717,988
Hercules Offshore, Inc. *		175,600		835,856
ION Geophysical Corp. *		17,600		113,696
Matrix Service Co. *		33,400		350,366
Natural Gas Services Group, Inc. *		10,900		172,874
Parker Drilling Co. *		395,500		1,712,515
Penn Virginia Corp.		26,100		117,972
Pioneer Energy Services Corp. *		130,600		861,960
REX American Resources Corp. *		15,400		271,194
SEACOR Holdings, Inc. *		7,400		649,054
SemGroup Corp., Class A *		96,000		3,709,440
Stone Energy Corp. *		32,600		769,034
Teekay Offshore Partners LP (a)		89,800		2,387,782
VAALCO Energy, Inc. *		122,200		998,374
Warren Resources, Inc. *		122,300		348,555
Western Refining, Inc.		94,800		2,357,676
Willbros Group, Inc. *		155,600		795,116

				28,558,481

Food & Staples Retailing 0.6%
The Pantry, Inc. *		157,700		2,091,891
Village Super Market, Inc., Class A		2,700		99,009

				2,190,900

Food, Beverage & Tobacco 1.8%
Alico, Inc.		1,800		56,502
Alliance One International, Inc. *		33,500		101,840
Chiquita Brands International, Inc. *		17,600		126,896
Coca-Cola Bottling Co. Consolidated		22,800		1,567,272
Darling International, Inc. *		22,274		368,189
Dean Foods Co. *		28,900		486,676
Farmer Brothers Co. *		45,300		440,769
Fresh Del Monte Produce, Inc.		10,900		274,353
Post Holdings, Inc. *		16,200		511,110
Universal Corp.		61,100		3,028,116

				6,961,723

See financial notes 47

Schwab Small-Cap Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Health Care Equipment & Services 4.3%
Air Methods Corp. *		5,300		581,039
Allscripts Healthcare Solutions, Inc. *		19,900		257,108
AMN Healthcare Services, Inc. *		42,500		421,600
Analogic Corp.		7,500		552,450
ArthroCare Corp. *		22,600		679,808
Bio-Reference Laboratories, Inc. (a)*		11,400		316,464
BioScrip, Inc. *		15,500		142,755
Cantel Medical Corp.		55,350		1,439,653
CONMED Corp.		44,400		1,228,104
Cross Country Healthcare, Inc. *		17,600		77,440
CryoLife, Inc.		46,100		285,359
Cynosure, Inc., Class A *		24,800		653,232
Greatbatch, Inc. *		28,300		622,034
Haemonetics Corp. *		15,200		1,241,840
Integra LifeSciences Holdings Corp. *		15,700		600,525
Invacare Corp.		18,000		245,700
Magellan Health Services, Inc. *		12,600		631,890
MedAssets, Inc. *		49,600		879,408
Molina Healthcare, Inc. *		33,900		849,873
National Healthcare Corp.		16,600		790,492
NuVasive, Inc. *		23,900		344,638
Rochester Medical Corp. *		7,500		78,675
RTI Biologics, Inc. *		192,700		782,362
STERIS Corp.		20,700		737,127
SurModics, Inc. *		10,600		190,588
Symmetry Medical, Inc. *		19,600		179,536
The Providence Service Corp. *		11,700		119,340
Thoratec Corp. *		22,700		810,390
Triple-S Management Corp., Class B *		14,000		252,560
West Pharmaceutical Services, Inc.		10,800		581,796

				16,573,786

Insurance 2.3%
American Equity Investment Life Holding Co.		90,900		1,046,259
American Financial Group, Inc.		39,100		1,517,080
CNO Financial Group, Inc.		22,400		214,592
First American Financial Corp.		155,700		3,542,175
Maiden Holdings Ltd.		77,900		658,255
Primerica, Inc.		48,100		1,359,306
ProAssurance Corp.		3,500		312,900
Stewart Information Services Corp.		12,200		284,504

				8,935,071

Materials 5.8%
AEP Industries, Inc. *		18,000		1,150,740
Buckeye Technologies, Inc.		17,600		461,120
Chemtura Corp. *		48,400		771,012
Coeur d’Alene Mines Corp. *		113,700		3,514,467
Commercial Metals Co.		159,600		2,196,096
Graphic Packaging Holding Co. *		196,100		1,160,912
Handy & Harman Ltd. *		16,500		245,355
Headwaters, Inc. *		33,300		239,427
Landec Corp. *		17,700		191,514
LSB Industries, Inc. *		7,244		291,716
Minerals Technologies, Inc.		44,600		3,196,036
Neenah Paper, Inc.		99,400		2,574,460
OM Group, Inc. *		56,400		1,140,972
Omnova Solutions, Inc. *		90,100		706,384
P.H. Glatfelter Co.		75,100		1,337,531
Rockwood Holdings, Inc.		18,000		826,200
Spartech Corp. *		27,900		238,824
Texas Industries, Inc. (a)*		8,900		383,857
Tredegar Corp.		53,500		907,895
Worthington Industries, Inc.		47,100		1,018,302

				22,552,820

Media 1.1%
AH Belo Corp., Class A		48,000		240,000
Journal Communications, Inc., Class A *		78,800		442,068
Scholastic Corp.		66,200		2,183,938
The E.W. Scripps Co., Class A *		74,600		791,506
The New York Times Co., Class A *		90,600		741,108

				4,398,620

Pharmaceuticals, Biotechnology & Life Sciences 6.5%
Acorda Therapeutics, Inc. *		120,900		2,895,555
Albany Molecular Research, Inc. *		48,400		171,336
AMAG Pharmaceuticals, Inc. *		23,200		359,136
Auxilium Pharmaceuticals, Inc. *		9,100		186,368
Bio-Rad Laboratories, Inc., Class A *		20,700		2,097,945
BioDelivery Sciences International, Inc. (a)*		114,800		586,628
Cambrex Corp. *		94,800		1,145,184
Charles River Laboratories International, Inc. *		79,800		2,978,136
Cornerstone Therapeutics, Inc. *		30,300		148,167
DUSA Pharmaceuticals, Inc. *		46,900		321,734
Enzo Biochem, Inc. *		126,700		253,400
Geron Corp. *		90,400		120,232
Harvard Bioscience, Inc. *		20,500		82,410
Isis Pharmaceuticals, Inc. *		35,100		303,615
Lexicon Pharmaceuticals, Inc. *		116,800		241,776
Maxygen, Inc.		288,300		703,452
Myriad Genetics, Inc. *		51,500		1,347,755
Obagi Medical Products, Inc. *		74,500		918,585
Orexigen Therapeutics, Inc. *		21,800		116,194
PAREXEL International Corp. *		117,900		3,618,351
PDL Biopharma, Inc.		418,500		3,117,825
PerkinElmer, Inc.		19,900		615,507
Santarus, Inc. *		69,600		635,448
SciClone Pharmaceuticals, Inc. *		192,600		1,061,226
ViroPharma, Inc. *		29,100		734,775
Xenoport, Inc. *		63,600		523,428

				25,284,168

Real Estate 8.2%
Acadia Realty Trust		20,700		531,576
Apartment Investment & Management Co., Class A		109,100		2,911,879
CapLease, Inc.		113,700		583,281
CBL & Associates Properties, Inc.		160,300		3,585,911
CommonWealth REIT		36,400		499,044
Coresite Realty Corp.		105,900		2,407,107
Cousins Properties, Inc.		75,900		638,319
DCT Industrial Trust, Inc.		512,000		3,302,400

48 See financial notes

Schwab Small-Cap Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Extra Space Storage, Inc.		82,100		2,831,629
FelCor Lodging Trust, Inc. *		191,200		841,280
First Industrial Realty Trust, Inc. *		241,500		3,224,025
Kite Realty Group Trust		169,600		927,712
Mission West Properties, Inc.		34,100		282,348
Pennsylvania Real Estate Investment Trust		161,400		2,667,942
RLJ Lodging Trust		11,300		201,366
Saul Centers, Inc.		33,500		1,449,545
Strategic Hotels & Resorts, Inc. *		470,300		2,581,947
Sunstone Hotel Investors, Inc. *		252,600		2,495,688

				31,962,999

Retailing 5.9%
1-800-FLOWERS.COM, Inc., Class A *		177,400		643,962
Aaron’s, Inc.		74,400		2,293,752
ANN, Inc. *		84,700		2,978,052
Ascena Retail Group, Inc. *		14,000		277,200
Brown Shoe Co., Inc.		119,400		1,884,132
Core-Mark Holding Co., Inc.		21,200		1,014,844
Dillard’s, Inc., Class A		32,700		2,517,900
Geeknet, Inc. *		4,500		81,765
Kirkland’s, Inc. *		52,200		500,598
New York & Co., Inc. *		69,600		234,552
Office Depot, Inc. *		709,500		1,759,560
OfficeMax, Inc.		14,200		104,370
Orbitz Worldwide, Inc. *		227,900		562,913
Rent-A-Center, Inc.		96,900		3,229,677
rue21, Inc. *		52,200		1,571,742
Stage Stores, Inc.		27,400		671,300
The Bon-Ton Stores, Inc. (a)		15,900		195,252
The Children’s Place Retail Stores, Inc. *		15,700		917,351
The Pep Boys - Manny, Moe & Jack		33,300		332,667
Tuesday Morning Corp. *		129,100		770,727
Zale Corp. *		43,500		312,330

				22,854,646

Semiconductors & Semiconductor Equipment 3.1%
Advanced Energy Industries, Inc. *		14,500		171,245
Alpha & Omega Semiconductor Ltd. *		14,200		120,984
Axcelis Technologies, Inc. *		92,700		84,960
AXT, Inc. *		49,700		159,537
Cohu, Inc.		22,200		195,360
DSP Group, Inc. *		26,000		143,000
Entegris, Inc. *		251,300		2,063,173
Entropic Communications, Inc. *		145,600		700,336
Exar Corp. *		67,800		579,690
Fairchild Semiconductor International, Inc. *		40,400		475,104
First Solar, Inc. (a)*		41,700		1,013,727
FormFactor, Inc. *		204,100		930,696
GSI Technology, Inc. *		15,100		84,409
IXYS Corp. *		71,600		681,632
MEMC Electronic Materials, Inc. *		85,300		214,956
PDF Solutions, Inc. *		22,871		302,812
Pericom Semiconductor Corp. *		43,700		337,801
Photronics, Inc. *		264,500		1,293,405
Rudolph Technologies, Inc. *		37,500		356,625
Sigma Designs, Inc. *		69,100		410,454
Spansion, Inc., Class A *		53,500		593,315
SunPower Corp. (a)*		39,727		171,223
Ultra Clean Holdings, Inc. *		50,200		232,426
Ultratech, Inc. *		20,800		642,928

				11,959,798

Software & Services 11.2%
Accelrys, Inc. *		135,500		1,212,725
Actuate Corp. *		31,500		167,895
Acxiom Corp. *		214,000		3,905,500
AOL, Inc. *		58,100		1,994,573
Blucora, Inc. *		25,800		452,790
CACI International, Inc., Class A *		31,000		1,563,330
CIBER, Inc. *		29,800		92,976
Convergys Corp.		203,100		3,414,111
CoreLogic, Inc. *		106,600		2,537,080
CSG Systems International, Inc. *		112,800		2,324,808
Dice Holdings, Inc. *		82,800		731,124
Digital River, Inc. *		45,400		651,036
DST Systems, Inc.		8,600		490,544
EarthLink, Inc.		73,600		466,624
EPIQ Systems, Inc.		47,600		581,196
Euronet Worldwide, Inc. *		145,500		2,952,195
Fair Isaac Corp.		12,400		577,840
Heartland Payment Systems, Inc.		23,300		607,664
IntraLinks Holdings, Inc. *		53,400		298,506
Limelight Networks, Inc. *		76,500		161,415
Lionbridge Technologies, Inc. *		144,900		459,333
MAXIMUS, Inc.		31,300		1,727,134
Mentor Graphics Corp. *		212,600		3,299,552
MoneyGram International, Inc. *		98,624		1,532,617
Monotype Imaging Holdings, Inc.		37,900		580,249
Move, Inc. *		48,100		398,749
NetScout Systems, Inc. *		34,400		850,712
Rosetta Stone, Inc. *		17,600		206,096
Rovi Corp. *		15,200		205,656
SeaChange International, Inc. *		96,800		876,040
SS&C Technologies Holdings, Inc. *		48,200		1,158,246
Support.com, Inc. *		76,200		353,568
Syntel, Inc.		15,500		923,955
TechTarget, Inc. *		6,700		32,026
The Hackett Group, Inc. *		27,500		106,975
TNS, Inc. *		96,500		1,381,880
Unisys Corp. *		86,440		1,473,802
United Online, Inc.		194,200		1,040,912
VASCO Data Security International, Inc. *		22,800		161,424
Virtusa Corp. *		31,900		547,404
Websense, Inc. *		41,900		553,918
XO Group, Inc. *		25,100		202,055

				43,256,235

Technology Hardware & Equipment 5.3%
Arris Group, Inc. *		129,700		1,782,078
Aviat Networks, Inc. *		177,200		404,016
Avid Technology, Inc. *		55,300		324,611
Bel Fuse, Inc., Class B		7,700		127,512
Benchmark Electronics, Inc. *		43,000		637,260
Ciena Corp. *		102,600		1,273,266

See financial notes 49

Schwab Small-Cap Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Daktronics, Inc.		25,300		221,881
Electro Scientific Industries, Inc.		43,800		467,784
Electronics for Imaging, Inc. *		30,200		524,272
Emulex Corp. *		175,500		1,221,480
Harmonic, Inc. *		398,100		1,727,754
Imation Corp. *		18,400		84,088
Insight Enterprises, Inc. *		124,400		2,011,548
Itron, Inc. *		19,300		792,458
Ixia *		78,800		1,103,988
KEMET Corp. *		21,800		98,972
Littelfuse, Inc.		6,500		348,400
Methode Electronics, Inc.		25,500		258,060
MTS Systems Corp.		29,300		1,477,013
Newport Corp. *		37,200		402,504
OSI Systems, Inc. *		8,500		673,625
Plexus Corp. *		45,100		1,213,641
Power-One, Inc. *		135,900		547,677
Quantum Corp. *		156,500		164,325
Radisys Corp. *		65,400		185,736
Richardson Electronics Ltd.		21,700		252,805
Sanmina-SCI Corp. *		103,400		919,226
STEC, Inc. *		48,400		284,108
Symmetricom, Inc. *		64,700		397,905
TTM Technologies, Inc. *		22,600		203,400
Vishay Intertechnology, Inc. *		40,200		332,856
Zygo Corp. *		14,400		268,128

				20,732,377

Telecommunication Services 0.8%
Atlantic Tele-Network, Inc.		13,100		542,864
Cbeyond, Inc. *		62,100		475,686
IDT Corp., Class B		86,000		870,320
Premiere Global Services, Inc. *		166,500		1,415,250

				3,304,120

Transportation 2.4%
AMERCO		10,100		1,166,954
Arkansas Best Corp.		23,800		191,590
Avis Budget Group, Inc. *		95,200		1,573,656
Celadon Group, Inc.		70,100		1,198,710
Con-way, Inc.		64,600		1,880,506
International Shipholding Corp.		17,300		289,256
JetBlue Airways Corp. *		222,700		1,178,083
Park-Ohio Holdings Corp. *		28,200		623,784
Republic Airways Holdings, Inc. *		52,900		247,043
Saia, Inc. *		6,000		135,600
SkyWest, Inc.		65,900		721,605

				9,206,787

Utilities 3.9%
American States Water Co.		20,100		884,802
Avista Corp.		124,800		3,172,416
Black Hills Corp.		91,500		3,272,955
NorthWestern Corp.		2,800		100,268
Ormat Technologies, Inc.		38,600		734,558
Portland General Electric Co.		127,600		3,496,240
Southwest Gas Corp.		48,500		2,108,295
UNS Energy Corp.		34,100		1,454,024

				15,223,558

Total Common Stock
(Cost $348,294,937)				386,006,596



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

Short-Term Investments 0.4% of net assets

Time Deposits 0.4%
Societe Generale
0.03%, 11/01/12		1,647,527		1,647,527

U.S. Treasury Obligation 0.0%
U.S. Treasury Bill
0.11%, 12/20/12 (b)		66,000		65,991

Total Short-Term Investments
(Cost $1,713,518)				1,713,518



End of Investments.


	Number		Value
Security	of Shares		($)

Collateral Invested for Securities on Loan 1.3% of net assets


Wells Fargo Advantage Government Money Market Fund		4,939,227		4,939,227

Total Collateral Invested for Securities on Loan
(Cost $4,939,227)				4,939,227



End of Collateral Invested for Securities on Loan

At 10/31/12, the tax basis cost of the fund’s investments was $350,541,940 and the unrealized appreciation and depreciation were $53,341,509 and ($16,163,335), respectively, with a net unrealized appreciation of $37,178,174.


*		Non-income producing security.
(a)		All or a portion of this security is on loan.
(b)		The rate shown is the purchase yield.
(c)		Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(d)		Illiquid security. At the period end, the value of these amounted to $792,844 or 0.2% of net assets.


REIT —		Real Estate Investment Trust

50 See financial notes

Schwab Small-Cap Equity Fund

Portfolio Holdings continued

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):


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

Common Stock¹		$352,379,086		$—		$—		$352,379,086
Capital Goods		32,834,666		—		792,844		33,627,510
Short-Term Investments¹		—		1,713,518		—		1,713,518

Total		$385,213,752		$1,713,518		$792,844		$387,720,114

Other Financial Instruments
Collateral Invested for Securities on Loan		$4,939,227		$—		$—		$4,939,227


¹		As categorized in Portfolio Holdings.

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

2011

(Losses)

Purchases

Sales

out

2012

Common Stock

$—

$273,298

$519,546

$—

$792,844

Total

$—

$273,298

$519,546

$—

$792,844

See financial notes 51

Schwab Small-Cap Equity Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$4,360,032
Interest		2,252
Securities on loan	+	196,532

Total investment income		4,558,816

Expenses

Investment adviser and administrator fees		3,011,522
Shareholder service fees		918,743
Registration fees		52,812
Portfolio accounting fees		46,526
Shareholder reports		45,825
Professional fees		34,715
Transfer agent fees		25,543
Custodian fees		23,569
Trustees’ fees		7,770
State filing fee reimbursement (Note 4)		(2,710	)
Other expenses	+	7,753

Total expenses		4,172,068
Expense reduction by CSIM and its affiliates¹	−	25,543

Net expenses	−	4,146,525

Net investment income		412,291

Realized and Unrealized Gains (Losses)

Net realized gains on investments		33,127,702
Net realized gains on futures contracts	+	1,456,169

Net realized gains		34,583,871
Net unrealized gains on investments		23,531,055
Net unrealized losses on futures contracts	+	(475,396	)

Net unrealized gains	+	23,055,659

Net realized and unrealized gains		57,639,530

Increase in net assets resulting from operations		$58,051,821


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $2,710. See financial note 4 for additional information.

See financial notes 53

Schwab Small-Cap Equity Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income (loss)		$412,291			($107,754	)
Net realized gains		34,583,871			42,777,267
Net unrealized gains (losses)	+	23,055,659			(15,822,877	)

Increase in net assets from operations		58,051,821			26,846,636

Distributions to Shareholders

Distributions from net investment income		($177,045	)		$—

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			10,994,013		$164,489,009			2,170,598		$33,586,870
Shares reinvested			3,977		61,875			—		—
Shares redeemed	+		(3,628,709	)	(61,262,349	)		(3,345,626	)	(52,956,292	)

Net transactions in fund shares			7,369,281		$103,288,535			(1,175,028	)	($19,369,422	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			14,507,077		$226,400,932			15,682,105		$218,923,718
Total increase or decrease	+		7,369,281		161,163,311			(1,175,028	)	7,477,214

End of period			21,876,358		$387,564,243			14,507,077		$226,400,932


Net investment income not yet distributed/(Distributions in excess of net investment income)					$339,903					($162,424	)

54 See financial notes

Schwab Hedged Equity Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		15.32			14.79			13.45			12.55			16.39

Income (loss) from investment operations:
Net investment income (loss)		(0.08	)		(0.05	)		(0.08	)		(0.05	)		(0.05	)
Net realized and unrealized gains (losses)		1.12			0.58			1.42			0.96			(3.63	)

Total from investment operations		1.04			0.53			1.34			0.91			(3.68	)
Less distributions:
Distributions from net investment income		—			—			—			(0.01	)		(0.16	)

Total distributions		—			—			—			(0.01	)		(0.16	)

Net asset value at end of period		16.36			15.32			14.79			13.45			12.55

Total return (%)		6.79			3.58			9.96			7.28			(22.66	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses (including dividend expense on short sales)		2.08			1.86			1.97			2.07	²		2.17	³
Net operating expenses (excluding dividend expense on short sales)		1.53	⁴		1.44	⁵		1.38	⁶		1.62	^2,6		1.77
Gross operating expenses		2.13			1.88			1.99			2.29			2.19
Net investment income (loss)		(0.47	)		(0.25	)		(0.54	)		(0.41	)		(0.17	)
Portfolio turnover rate		109			98			115			169			138
Net assets, end of period ($ x 1,000,000)		194			236			329			306			343

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 The ratio of net operating expenses would have been 2.16%, if interest expense had not been incurred.

⁴ The ratio of net operating expenses would have been 1.33% for the period ended 10/31/12, if stock loan fees on short sales had not been incurred.

⁵ The ratio of net operating expenses would have been 1.33% for the period ended 10/31/11, if stock loan fees on short sales and payment for state filing fees had not been included.

⁶ The ratio of net operating expenses would have been 1.47% and 1.31% for the period ended 10/31/09, and 10/31/10, respectively, if stock loan fees on short sales had not been incurred.

See financial notes 55

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2012

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


				Cost			Value
Holdings by Category				($)			($)

	99	.1%	Common Stock		169,273,330			192,489,748
	1	.3%	Other Investment Company		2,592,462			2,592,462


	100	.4%	Total Investments		171,865,792			195,082,210
	(45	.7)%	Short Sales		(89,979,644	)		(88,735,500	)
	45	.3%	Other Assets and Liabilities, Net					88,019,047


	100	.0%	Total Net Assets					194,365,757


	Number		Value
Security	of Shares		($)

Common Stock 99.1% of net assets

Automobiles & Components 0.1%
The Goodyear Tire & Rubber Co. *		9,000		102,690

Banks 4.6%
Fifth Third Bancorp		78,998		1,147,841
KeyCorp (a)		208,300		1,753,886
Regions Financial Corp. (a)		248,600		1,620,872
SunTrust Banks, Inc.		23,634		642,845
Wells Fargo & Co. (a)		114,491		3,857,202

				9,022,646

Capital Goods 8.4%
3M Co.		4,600		402,960
AGCO Corp. *		34,373		1,564,315
Curtiss-Wright Corp.		43,600		1,345,932
Fluor Corp.		28,200		1,574,970
General Electric Co. (a)		122,305		2,575,743
Masco Corp. (a)		112,100		1,691,589
Roper Industries, Inc.		6,500		709,605
Terex Corp. *		10,700		241,285
Textron, Inc.		84,735		2,136,170
The Timken Co.		17,617		695,695
United Technologies Corp.		4,300		336,088
Wabtec Corp. (a)		36,300		2,972,970

				16,247,322

Commercial & Professional Supplies 0.8%
Equifax, Inc.		13,800		690,552
Towers Watson & Co., Class A		15,526		833,901

				1,524,453

Consumer Durables & Apparel 3.0%
Brunswick Corp. (a)		41,478		978,466
Harman International Industries, Inc.		20,200		846,986
Jarden Corp. (a)		23,611		1,175,828
Mohawk Industries, Inc. (a)*		26,220		2,188,583
Newell Rubbermaid, Inc.		12,600		260,064
The Jones Group, Inc.		35,300		416,893

				5,866,820

Consumer Services 0.7%
Brinker International, Inc. (a)		42,226		1,300,561

Diversified Financials 5.2%
Bank of America Corp.		118,400		1,103,488
JPMorgan Chase & Co. (a)		93,012		3,876,740
Northern Trust Corp.		11,700		559,026
SLM Corp. (a)		146,709		2,579,144
State Street Corp.		8,500		378,845
The Bank of New York Mellon Corp.		64,500		1,593,795

				10,091,038

Energy 11.4%
Chevron Corp.		32,596		3,592,405
EOG Resources, Inc.		29,900		3,483,051
Exxon Mobil Corp.		61,420		5,599,662
Helix Energy Solutions Group, Inc. *		12,300		212,667
Marathon Oil Corp.		79,400		2,386,764
Murphy Oil Corp. (a)		41,553		2,493,180
Oceaneering International, Inc. (a)		24,501		1,282,137
Schlumberger Ltd.		10,700		743,971
Teekay Offshore Partners LP		27,100		720,589
Tesoro Corp.		5,327		200,881
Valero Energy Corp. (a)		53,078		1,544,570

				22,259,877

Food & Staples Retailing 2.1%
Costco Wholesale Corp.		8,700		856,341
Harris Teeter Supermarkets, Inc.		12,904		483,255
The Kroger Co. (a)		108,743		2,742,498

				4,082,094

Food, Beverage & Tobacco 6.7%
Archer-Daniels-Midland Co.		10,300		276,452
Beam, Inc. (a)		33,300		1,850,148
Bunge Ltd. (a)		34,444		2,446,557
Constellation Brands, Inc., Class A (a)*		19,379		684,854
Ingredion, Inc. (a)		52,849		3,248,100
Smithfield Foods, Inc. (a)*		29,003		593,691
The Coca-Cola Co.		60,000		2,230,800
Universal Corp.		32,400		1,605,744

				12,936,346

Health Care Equipment & Services 2.0%
Allscripts Healthcare Solutions, Inc. *		9,400		121,448
Covidien plc		6,300		346,185

56 See financial notes

Schwab Hedged Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Henry Schein, Inc. *		4,100		302,498
Masimo Corp. *		9,800		215,306
McKesson Corp.		18,128		1,691,524
Medtronic, Inc.		18,900		785,862
UnitedHealth Group, Inc.		9,200		515,200

				3,978,023

Household & Personal Products 0.1%
Nu Skin Enterprises, Inc., Class A		5,000		236,650

Insurance 3.1%
American Financial Group, Inc.		65,535		2,542,758
Genworth Financial, Inc., Class A *		36,200		215,752
Marsh & McLennan Cos., Inc.		8,500		289,255
MetLife, Inc.		21,800		773,682
Principal Financial Group, Inc.		39,132		1,077,695
Reinsurance Group of America, Inc.		8,300		439,236
The Travelers Cos., Inc.		9,900		702,306

				6,040,684

Materials 7.2%
CF Industries Holdings, Inc.		944		193,699
Coeur d’Alene Mines Corp. *		42,400		1,310,584
Huntsman Corp. (a)		80,200		1,206,208
International Paper Co. (a)		66,916		2,397,600
MeadWestvaco Corp. (a)		81,747		2,427,069
Minerals Technologies, Inc. (a)		38,946		2,790,870
PPG Industries, Inc.		20,072		2,350,030
Rockwood Holdings, Inc.		19,828		910,105
United States Steel Corp.		18,500		377,215

				13,963,380

Media 1.6%
CBS Corp., Class B - Non Voting Shares (a)		82,842		2,684,081
Omnicom Group, Inc.		7,300		349,743

				3,033,824

Pharmaceuticals, Biotechnology & Life Sciences 6.8%
Agilent Technologies, Inc.		18,884		679,635
Charles River Laboratories International, Inc. (a)*		59,200		2,209,344
Merck & Co., Inc.		43,700		1,994,031
PerkinElmer, Inc. (a)		82,041		2,537,528
Pfizer, Inc. (a)		219,587		5,461,129
Warner Chilcott plc, Class A		22,400		259,392

				13,141,059

Real Estate 3.1%
CBL & Associates Properties, Inc. (a)		93,000		2,080,410
Host Hotels & Resorts, Inc. (a)		176,800		2,556,528
Strategic Hotels & Resorts, Inc. (a)*		238,600		1,309,914

				5,946,852

Retailing 5.1%
ANN, Inc. *		5,200		182,832
Ascena Retail Group, Inc. (a)*		53,300		1,055,340
Chico’s FAS, Inc.		21,300		396,180
Dillard’s, Inc., Class A		27,157		2,091,089
Expedia, Inc.		1,900		112,385
Foot Locker, Inc.		82,989		2,780,132
Macy’s, Inc.		67,321		2,562,910
The TJX Cos., Inc.		16,400		682,732

				9,863,600

Semiconductors & Semiconductor Equipment 2.7%
Amkor Technology, Inc. (a)*		154,276		666,472
Fairchild Semiconductor International, Inc. (a)*		120,810		1,420,726
First Solar, Inc. *		14,100		342,771
LSI Corp. *		206,066		1,411,552
Micron Technology, Inc. (a)*		208,354		1,130,321
NVIDIA Corp.		27,900		333,963

				5,305,805

Software & Services 10.0%
BMC Software, Inc. *		15,300		622,710
CA, Inc. (a)		112,306		2,529,131
Cadence Design Systems, Inc. (a)*		137,800		1,744,548
Convergys Corp. (a)		100,622		1,691,456
DST Systems, Inc.		45,439		2,591,841
IAC/InterActiveCorp		46,318		2,239,475
MAXIMUS, Inc. (a)		13,003		717,506
Microsoft Corp.		23,900		681,986
Oracle Corp.		60,400		1,875,420
Symantec Corp. (a)*		108,425		1,972,251
Total System Services, Inc. (a)		123,600		2,779,764

				19,446,088

Technology Hardware & Equipment 7.4%
Apple, Inc.		9,728		5,789,133
AVX Corp.		63,681		626,621
Brocade Communications Systems, Inc. (a)*		349,224		1,850,887
Cisco Systems, Inc.		37,800		647,892
EchoStar Corp., Class A (a)*		33,367		1,059,736
EMC Corp. *		10,200		249,084
Jabil Circuit, Inc.		38,188		662,180
NCR Corp. (a)*		45,849		975,667
Tech Data Corp. (a)*		34,245		1,517,396
Western Digital Corp.		18,779		642,805
Xerox Corp.		47,342		304,882

				14,326,283

Telecommunication Services 1.5%
Telephone & Data Systems, Inc. (a)		39,620		985,349
Verizon Communications, Inc.		45,000		2,008,800

				2,994,149

Transportation 2.3%
Con-way, Inc.		10,500		305,655
Delta Air Lines, Inc. (a)*		150,700		1,451,241
FedEx Corp.		27,592		2,538,188

See financial notes 57

Schwab Hedged Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Short Sales 45.7% of net assets

Automobiles & Components 0.8%
Gentex Corp.		62,900		1,083,138
Johnson Controls, Inc.		20,400		525,300

				1,608,438

Banks 4.1%
Bank of Hawaii Corp.		22,400		989,184
Bank of the Ozarks, Inc.		32,800		1,073,872
BankUnited, Inc.		43,100		1,021,901
Capitol Federal Financial, Inc.		83,900		999,249
First Niagara Financial Group, Inc.		114,500		948,060
IBERIABANK Corp.		19,300		960,947
New York Community Bancorp, Inc.		77,400		1,072,764
Valley National Bancorp		86,835		845,773

				7,911,750

Capital Goods 3.8%
Air Lease Corp. *		52,000		1,082,640
Colfax Corp. *		33,900		1,165,821
Fortune Brands Home & Security, Inc. *		8,100		230,364
GrafTech International Ltd. *		56,400		592,764
Joy Global, Inc.		8,500		530,825
MasTec, Inc. *		62,600		1,412,256
Owens Corning *		4,200		141,078
Pall Corp.		18,800		1,183,648
Rockwell Collins, Inc.		18,300		980,514

				7,319,910

Commercial & Professional Supplies 1.6%
Corrections Corp. of America		6,600		222,090
Stericycle, Inc. *		11,100		1,051,836
The Advisory Board Co. *		15,900		755,250
Waste Connections, Inc.		32,700		1,073,541

				3,102,717

Consumer Durables & Apparel 1.5%
Carter’s, Inc. *		8,600		464,916
D.R. Horton, Inc.		35,200		737,792
M.D.C. Holdings, Inc.		15,400		588,896
Meritage Homes Corp. *		17,100		632,358
Standard Pacific Corp. *		70,100		483,690

				2,907,652

Consumer Services 0.4%
DeVry, Inc.		20,100		527,826
Weight Watchers International, Inc.		5,900		296,475

				824,301

Diversified Financials 1.0%
Apollo Investment Corp.		55,900		444,405
CME Group, Inc.		6,000		335,580
T. Rowe Price Group, Inc.		16,500		1,071,510

				1,851,495

Energy 4.2%
Approach Resources, Inc. *		7,600		187,188
Cabot Oil & Gas Corp.		21,400		1,005,372
Carrizo Oil & Gas, Inc. *		18,400		493,488
Cheniere Energy, Inc. *		6,400		102,976
Concho Resources, Inc. *		2,000		172,240
Continental Resources, Inc. *		12,100		869,506
Dril-Quip, Inc. *		15,400		1,066,604
FMC Technologies, Inc. *		5,100		208,590
Gulfport Energy Corp. *		7,600		252,168
Kodiak Oil & Gas Corp. *		98,484		909,992
Oasis Petroleum, Inc. *		32,400		951,588
PDC Energy, Inc. *		6,500		196,755
Range Resources Corp.		3,700		241,832
Southwestern Energy Co. *		33,900		1,176,330
World Fuel Services Corp.		9,300		322,710

				8,157,339

Food & Staples Retailing 1.1%
PriceSmart, Inc.		2,100		174,279
Sysco Corp.		35,300		1,096,771
The Fresh Market, Inc. *		14,500		822,295

				2,093,345

Food, Beverage & Tobacco 3.4%
B&G Foods, Inc.		33,600		1,017,072
Dr Pepper Snapple Group, Inc.		25,000		1,071,250
Hormel Foods Corp.		29,100		859,323
Reynolds American, Inc.		18,428		767,342
Sanderson Farms, Inc.		19,600		887,684
Snyders-Lance, Inc.		23,900		605,626
The Hain Celestial Group, Inc. *		7,300		421,940
Vector Group Ltd.		60,480		995,501

				6,625,738

Health Care Equipment & Services 1.5%
DexCom, Inc. *		90,800		1,189,480
HeartWare International, Inc. *		8,800		739,024
HMS Holdings Corp. *		8,200		189,338
MEDNAX, Inc. *		11,800		813,964

				2,931,806

Household & Personal Products 0.2%
Church & Dwight Co., Inc.		7,700		390,852

Insurance 2.5%
Cincinnati Financial Corp.		25,600		1,019,904
Erie Indemnity Co., Class A		13,700		852,414
MBIA, Inc. *		78,100		773,190
Mercury General Corp.		12,200		494,466
RLI Corp.		15,500		1,056,790
The Progressive Corp.		17,100		381,330
White Mountains Insurance Group Ltd.		700		358,890

				4,936,984

See financial notes 59

Schwab Hedged Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Materials 3.7%
AK Steel Holding Corp.		32,300		162,792
Albemarle Corp.		9,500		523,545
Allied Nevada Gold Corp. *		26,000		959,920
AptarGroup, Inc.		10,300		528,184
Compass Minerals International, Inc.		3,400		268,090
Eagle Materials, Inc.		4,900		259,553
Louisiana-Pacific Corp. *		38,800		612,652
NewMarket Corp.		1,000		271,310
Praxair, Inc.		8,700		924,027
Sealed Air Corp.		16,200		262,764
Sigma-Aldrich Corp.		9,900		694,386
Southern Copper Corp.		30,985		1,180,528
Walter Energy, Inc.		17,100		597,816

				7,245,567

Media 0.9%
DreamWorks Animation SKG, Inc., Class A *		61,300		1,248,681
Lions Gate Entertainment Corp. *		27,800		463,704

				1,712,385

Pharmaceuticals, Biotechnology & Life Sciences 0.4%
Akorn, Inc. *		24,000		288,240
Mettler-Toledo International, Inc. *		3,400		575,858

				864,098

Real Estate 2.0%
Education Realty Trust, Inc.		14,600		153,738
Government Properties Income Trust		42,900		951,951
LTC Properties, Inc.		8,100		267,381
Rayonier, Inc.		20,400		999,804
Realty Income Corp.		19,500		765,765
Senior Housing Properties Trust		36,000		791,280

				3,929,919

Retailing 2.9%
AutoZone, Inc. *		2,600		975,000
Big Lots, Inc. *		8,300		241,779
CarMax, Inc. *		32,300		1,090,125
Group 1 Automotive, Inc.		16,500		1,023,165
HomeAway, Inc. *		10,500		269,955
Kohl’s Corp.		14,100		751,248
Pier 1 Imports, Inc.		48,500		989,400
Shutterfly, Inc. *		8,400		254,184

				5,594,856

Semiconductors & Semiconductor Equipment 1.0%
Cavium, Inc. *		24,500		812,910
Cirrus Logic, Inc. *		17,000		692,920
Lam Research Corp. *		13,000		460,200

				1,966,030

Software & Services 3.0%
Blackbaud, Inc.		7,300		173,521
Concur Technologies, Inc. *		15,800		1,046,434
CoStar Group, Inc. *		4,800		397,920
Informatica Corp. *		14,300		388,102
Jive Software, Inc. *		34,900		390,880
LinkedIn Corp., Class A *		6,700		716,431
Liquidity Services, Inc. *		8,000		329,840
NetSuite, Inc. *		21,300		1,352,763
QLIK Technologies, Inc. *		23,000		423,430
ServiceSource International, Inc. *		58,800		529,788

				5,749,109

Technology Hardware & Equipment 2.8%
Acme Packet, Inc. *		22,100		365,534
ADTRAN, Inc.		26,600		449,274
Aruba Networks, Inc. *		4,200		76,314
F5 Networks, Inc. *		8,300		684,584
Fusion-io, Inc. *		18,000		424,800
IPG Photonics Corp. *		1,900		100,852
Loral Space & Communications, Inc.		5,400		424,764
National Instruments Corp.		37,400		881,144
SanDisk Corp. *		24,000		1,002,240
Universal Display Corp. *		4,400		144,232
ViaSat, Inc. *		21,400		831,176

				5,384,914

Transportation 2.9%
Atlas Air Worldwide Holdings, Inc. *		18,700		1,028,313
C.H. Robinson Worldwide, Inc.		15,400		929,082
Heartland Express, Inc.		17,200		239,940
Hub Group, Inc., Class A *		28,600		886,886
J.B. Hunt Transport Services, Inc.		3,000		176,100
Kirby Corp. *		12,800		735,744
Norfolk Southern Corp.		13,900		852,765
Spirit Airlines, Inc. *		44,300		777,465

				5,626,295

Total Short Sales
(Proceeds $89,979,644)				88,735,500



End of Short Sale Positions.


*		Non-income producing security.

60 See financial notes

Schwab Hedged Equity Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$3,408,060
Interest	+	2,960

Total investment income		3,411,020

Expenses

Investment adviser and administrator fees		2,221,478
Shareholder service fees		496,557
Dividends on short sales		1,158,883
Stock loan fees on short sales		431,834
Professional fees		53,784
Transfer agent fees		46,477
Portfolio accounting fees		38,936
Registration fees		24,245
Custodian fees		12,345
Shareholder reports		10,940
Trustees’ fees		7,312
Interest expense		274
State filing fee reimbursement (Note 4)		(4,976	)
Other expenses	+	6,827

Total expenses		4,504,916
Expense reduction by CSIM and its affiliates¹	−	100,684
Custody credits	−	1

Net expenses	−	4,404,231

Net investment loss		(993,211	)

Realized and Unrealized Gains (Losses)

Net realized gains on investments		21,377,818
Net realized gains on futures contracts		804,498
Net realized losses on short sales	+	(6,516,130	)

Net realized gains		15,666,186
Net unrealized gains on investments		5,234,203
Net unrealized losses on futures contracts		(154,429	)
Net unrealized losses on short sales	+	(5,785,129	)

Net unrealized losses	+	(705,355	)

Net realized and unrealized gains		14,960,831

Increase in net assets resulting from operations		$13,967,620


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $4,976. See financial note 4 for additional information.

See financial notes 63

Schwab Financial Services Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		9.17			9.74			8.77			9.05			15.88

Income (loss) from investment operations:
Net investment income (loss)		0.08			0.05			0.04			0.08			0.18
Net realized and unrealized gains (losses)		1.46			(0.58	)		0.99			(0.21	)		(6.78	)

Total from investment operations		1.54			(0.53	)		1.03			(0.13	)		(6.60	)
Less distributions:
Distributions from net investment income		(0.05	)		(0.04	)		(0.06	)		(0.15	)		(0.21	)
Distributions from net realized gains		—			—			—			—			(0.02	)

Total distributions		(0.05	)		(0.04	)		(0.06	)		(0.15	)		(0.23	)

Net asset value at end of period		10.66			9.17			9.74			8.77			9.05

Total return (%)		16.92			(5.51	)		11.79			(1.10	)		(42.08	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.94			0.93	¹		0.95	²		0.96	³		0.94
Gross operating expenses		1.10			1.06			1.04			0.99			0.94
Net investment income (loss)		0.78			0.45			0.37			0.91			1.56
Portfolio turnover rate		84			77			54			47			59
Net assets, end of period ($ x 1,000,000)		47			40			52			64			84

¹ The ratio of net operating expenses would have been 0.94%, if payment for state filing fees had not been included.

² The ratio of net operating expenses would have been 0.94%, if certain non-routine expenses had not been incurred.

³ Effective July 1, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

See financial notes 65

Schwab Financial Services Fund

Portfolio Holdings as of October 31, 2012

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

Cost

Value

Holdings by Category

($)

.5%

Common Stock

41,356,860

45,511,783

.4%

Short-Term Investments

1,144,285

.9%

Total Investments

42,501,145

46,656,068

.1%

Other Assets and Liabilities, Net

37,969

100

.0%

Total Net Assets

46,694,037


	Number		Value
Security	of Shares		($)

Common Stock 97.5% of net assets

Banks 22.4%
BB&T Corp.		38,000		1,100,100
Columbia Banking System, Inc.		7,600		134,596
Comerica, Inc.		2,800		83,468
Commerce Bancshares, Inc.		15,540		591,763
First Citizens BancShares, Inc., Class A		400		67,500
First Interstate BancSystem, Inc.		11,300		169,839
Huntington Bancshares, Inc.		11,800		75,402
KeyCorp		57,800		486,676
MainSource Financial Group, Inc.		10,100		126,452
Regions Financial Corp.		119,800		781,096
SunTrust Banks, Inc.		41,900		1,139,680
U.S. Bancorp		12,500		415,125
United Community Banks, Inc. *		7,100		61,770
Wells Fargo & Co.		124,000		4,177,560
WSFS Financial Corp.		3,100		131,300
Zions Bancorp		41,600		893,152

				10,435,479

Diversified Financials 32.8%
American Express Co.		32,300		1,807,831
Bank of America Corp.		288,300		2,686,956
Capital One Financial Corp.		25,100		1,510,267
Interactive Brokers Group, Inc., Class A		36,600		521,550
Investment Technology Group, Inc. *		3,000		25,320
Jefferies Group, Inc.		23,000		327,520
JPMorgan Chase & Co.		95,200		3,967,936
Northern Trust Corp.		19,200		917,376
Oppenheimer Holdings, Inc., Class A		1,200		19,536
PHH Corp. *		2,400		49,944
SLM Corp.		28,700		504,546
State Street Corp.		28,000		1,247,960
SWS Group, Inc. *		23,000		130,870
The Bank of New York Mellon Corp.		20,800		513,968
The Goldman Sachs Group, Inc.		8,900		1,089,271

				15,320,851

Insurance 27.7%
Aflac, Inc.		26,600		1,324,148
American National Insurance Co.		2,300		168,038
Berkshire Hathaway, Inc., Class B *		12,600		1,088,010
First American Financial Corp.		39,200		891,800
HCC Insurance Holdings, Inc.		24,800		883,872
Loews Corp.		24,900		1,052,772
MetLife, Inc.		44,000		1,561,560
Primerica, Inc.		27,400		774,324
Prudential Financial, Inc.		20,300		1,158,115
Reinsurance Group of America, Inc.		15,100		799,092
Symetra Financial Corp.		44,800		535,360
The Travelers Cos., Inc.		20,000		1,418,800
Torchmark Corp.		17,900		905,561
Validus Holdings Ltd.		9,500		340,100
XL Group plc		2,200		54,428

				12,955,980

Real Estate 14.6%
Apartment Investment & Management Co., Class A		33,700		899,453
Camden Property Trust		5,500		360,965
CBL & Associates Properties, Inc.		12,800		286,336
Coresite Realty Corp.		16,600		377,318
Extra Space Storage, Inc.		7,500		258,675
First Industrial Realty Trust, Inc. *		35,000		467,250
Home Properties, Inc.		2,800		170,212
Host Hotels & Resorts, Inc.		33,300		481,518
Kimco Realty Corp.		13,000		253,760
Kite Realty Group Trust		52,900		289,363
Mid-America Apartment Communities, Inc.		3,100		200,601
Pennsylvania Real Estate Investment Trust		12,500		206,625
RLJ Lodging Trust		6,100		108,702
Saul Centers, Inc.		8,900		385,103
Simon Property Group, Inc.		10,837		1,649,500
Sunstone Hotel Investors, Inc. *		40,900		404,092

				6,799,473

Total Common Stock
(Cost $41,356,860)				45,511,783



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

Short-Term Investments 2.4% of net assets

Time Deposit 2.3%
Societe Generale
0.03%, 11/01/12		1,105,290		1,105,290

66 See financial notes

Schwab Financial Services Fund

Portfolio Holdings continued


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

U.S. Treasury Obligation 0.1%
U.S. Treasury Bill
0.11%, 12/20/12 (a)(b)		39,000		38,995

Total Short-Term Investments
(Cost $1,144,285)				1,144,285



End of Investments.

At 10/31/12, the tax basis cost of the fund’s investments was $42,516,062 and the unrealized appreciation and depreciation were $4,552,575 and ($412,569), respectively, with a net unrealized appreciation of $4,140,006.


*		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.

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contracts

S&P 500 Index, e-mini, Long, expires 12/21/12

703,400

(20,168

)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$45,511,783			$—		$—		$45,511,783
Short-Term Investments¹		—			1,144,285		—		1,144,285

Total		$45,511,783			$1,144,285		$—		$46,656,068



Liabilities Valuation Input


Other Financial Instruments
Futures Contracts²		($20,168	)		$—		$—		($20,168	)


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

See financial notes 67

Schwab Financial Services Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends		$750,753
Interest		304
Securities on loan	+	17

Total investment income		751,074

Expenses

Investment adviser and administrator fees		235,331
Shareholder service fees		103,958
Portfolio accounting fees		36,845
Transfer agent fees		32,513
Professional fees		28,803
Registration fees		21,929
Shareholder reports		9,514
Trustees’ fees		5,979
Custodian fees		4,525
State filing fee reimbursement (Note 4)		(1,664	)
Other expenses	+	1,838

Total expenses		479,571
Expense reduction by CSIM and its affiliates¹	−	69,920

Net expenses	−	409,651

Net investment income		341,423

Realized and Unrealized Gains (Losses)

Net realized gains on investments		1,427,826
Net realized gains on futures contracts	+	75,059

Net realized gains		1,502,885
Net unrealized gains on investments		4,714,262
Net unrealized losses on futures contracts	+	(20,168	)

Net unrealized gains	+	4,694,094

Net realized and unrealized gains		6,196,979

Increase in net assets resulting from operations		$6,538,402


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $1,664. See financial note 4 for additional information.

See financial notes 69

Schwab Financial Services Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$341,423			$218,566
Net realized gains		1,502,885			343,656
Net unrealized gains (losses)	+	4,694,094			(2,420,332	)

Increase (Decrease) in net assets from operations		6,538,402			(1,858,110	)

Distributions to Shareholders

Distributions from net investment income		($224,748	)		($200,494	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			1,195,666		$12,102,193			944,737		$9,521,425
Shares reinvested			21,793		196,795			17,076		178,785
Shares redeemed	+		(1,227,292	)	(12,174,120	)		(1,921,163	)	(19,499,334	)

Net transactions in fund shares			(9,833	)	$124,868			(959,350	)	($9,799,124	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			4,391,126		$40,255,515			5,350,476		$52,113,243
Total increase or decrease	+		(9,833	)	6,438,522			(959,350	)	(11,857,728	)

End of period			4,381,293		$46,694,037			4,391,126		$40,255,515


Net investment income not yet distributed					$222,352					$108,593

70 See financial notes

Schwab Health Care Fund™

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			11/1/07–
	10/31/12			10/31/11			10/31/10			10/31/09			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		17.29			15.48			13.41			12.55			17.08

Income (loss) from investment operations:
Net investment income (loss)		0.27			0.15			0.19			0.13			0.08
Net realized and unrealized gains (losses)		3.18			1.85			2.01			0.82			(4.46	)

Total from investment operations		3.45			2.00			2.20			0.95			(4.38	)
Less distributions:
Distributions from net investment income		(0.15	)		(0.19	)		(0.13	)		(0.09	)		(0.05	)
Distributions from net realized gains		—			—			—			—			(0.10	)

Total distributions		(0.15	)		(0.19	)		(0.13	)		(0.09	)		(0.15	)

Net asset value at end of period		20.59			17.29			15.48			13.41			12.55

Total return (%)		20.10			13.00			16.49			7.65			(25.87	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.82			0.81	¹		0.82			0.83	²		0.82
Gross operating expenses		0.85			0.85			0.86			0.85			0.82
Net investment income (loss)		1.44			0.85			1.14			0.88			0.48
Portfolio turnover rate		60			24			37			36			50
Net assets, end of period ($ x 1,000,000)		511			414			410			430			545

¹ The ratio of net operating expenses would have been 0.82%, if payment for state filing fees and a voluntary reduction of Investment Adviser fees had not been included.

² Effective July 1, 2009, the net operating expense limitation was lowered. The ratio presented for period ended 10/31/09 is a blended rate.

See financial notes 71

Schwab Health Care Fund

Portfolio Holdings as of October 31, 2012

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


				Cost		Value
Holdings by Category				($)		($)

	77	.3%	Common Stock		338,568,087		394,944,675
	20	.1%	Foreign Common Stock		80,166,026		102,593,184
	2	.4%	Short-Term Investments		12,118,579		12,118,579


	99	.8%	Total Investments		430,852,692		509,656,438
	0	.2%	Other Assets and Liabilities, Net				1,259,290


	100	.0%	Total Net Assets				510,915,728


	Number		Value
Security	of Shares		($)

Common Stock 77.3% of net assets

Health Care Equipment & Services 25.2%
Aetna, Inc.		50,000		2,185,000
Alere, Inc. *		50,000		960,000
Baxter International, Inc.		195,000		12,212,850
Becton, Dickinson & Co.		35,000		2,648,800
Boston Scientific Corp. *		1,675,000		8,609,500
Cigna Corp.		75,000		3,825,000
Community Health Systems, Inc. *		35,000		959,700
CONMED Corp.		25,000		691,500
Covidien plc		135,000		7,418,250
Cynosure, Inc., Class A *		25,000		658,500
Express Scripts Holding Co. *		150,000		9,231,000
Greatbatch, Inc. *		100,000		2,198,000
Haemonetics Corp. *		15,000		1,225,500
Health Management Associates, Inc., Class A *		96,000		700,800
Henry Schein, Inc. *		110,000		8,115,800
Hill-Rom Holdings, Inc.		36,000		1,011,240
ICU Medical, Inc. *		20,000		1,186,600
Integra LifeSciences Holdings Corp. *		25,000		956,250
Invacare Corp.		135,000		1,842,750
LifePoint Hospitals, Inc. *		50,000		1,767,000
McKesson Corp.		25,000		2,332,750
MedAssets, Inc. *		210,000		3,723,300
Medtronic, Inc.		385,000		16,008,300
ResMed, Inc.		35,000		1,397,900
RTI Biologics, Inc. *		81,000		328,860
Sirona Dental Systems, Inc. *		50,000		2,863,000
STERIS Corp.		30,000		1,068,300
Stryker Corp.		30,000		1,578,000
SurModics, Inc. *		15,000		269,700
Teleflex, Inc.		25,000		1,698,750
The Cooper Cos., Inc.		80,000		7,678,400
Thoratec Corp. *		25,000		892,500
UnitedHealth Group, Inc.		265,000		14,840,000
Wright Medical Group, Inc. *		130,000		2,641,600
Zimmer Holdings, Inc.		50,000		3,210,500

				128,935,900

Pharmaceuticals, Biotechnology & Life Sciences 52.1%
Abbott Laboratories		228,000		14,938,560
Acorda Therapeutics, Inc. *		130,000		3,113,500
Allergan, Inc.		25,000		2,248,000
AMAG Pharmaceuticals, Inc. *		76,000		1,176,480
Amgen, Inc.		315,000		27,261,675
Astex Pharmaceuticals *		108,000		257,040
Auxilium Pharmaceuticals, Inc. *		75,000		1,536,000
Bio-Rad Laboratories, Inc., Class A *		20,000		2,027,000
Biogen Idec, Inc. *		105,000		14,513,100
Bristol-Myers Squibb Co.		107,000		3,557,750
Celgene Corp. *		184,000		13,490,880
Charles River Laboratories International, Inc. *		65,000		2,425,800
Eli Lilly & Co.		300,000		14,589,000
Forest Laboratories, Inc. *		200,000		6,742,000
Gilead Sciences, Inc. *		110,000		7,387,600
Johnson & Johnson		380,000		26,911,600
Life Technologies Corp. *		200,000		9,782,000
Merck & Co., Inc.		775,000		35,363,250
Mylan, Inc. *		476,000		12,061,840
Myriad Genetics, Inc. *		50,000		1,308,500
Obagi Medical Products, Inc. *		35,000		431,550
PAREXEL International Corp. *		35,000		1,074,150
PDL Biopharma, Inc.		200,000		1,490,000
PerkinElmer, Inc.		75,000		2,319,750
Pfizer, Inc.		1,350,000		33,574,500
POZEN, Inc. *		50,000		299,500
Repligen Corp. *		30,000		153,000
Santarus, Inc. *		50,000		456,500
SciClone Pharmaceuticals, Inc. *		50,000		275,500
Thermo Fisher Scientific, Inc.		225,000		13,738,500
United Therapeutics Corp. *		100,000		4,567,000
ViroPharma, Inc. *		75,000		1,893,750
Warner Chilcott plc, Class A		400,000		4,632,000
Xenoport, Inc. *		50,000		411,500

				266,008,775

Total Common Stock
(Cost $338,568,087)				394,944,675




Foreign Common Stock 20.1% of net assets

Australia 1.8%


Health Care Equipment & Services 0.1%
Cochlear Ltd.		10,000		738,517


Pharmaceuticals, Biotechnology & Life Sciences 1.7%
CSL Ltd.		175,000		8,631,118

				9,369,635

72 See financial notes

Schwab Health Care Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Denmark 2.0%


Health Care Equipment & Services 0.1%
GN Store Nord A/S		25,000		391,812


Pharmaceuticals, Biotechnology & Life Sciences 1.9%
H. Lundbeck A/S		21,000		365,333
Novo Nordisk A/S, Class B		60,000		9,618,926

				9,984,259

				10,376,071

France 2.8%


Pharmaceuticals, Biotechnology & Life Sciences 2.8%
Sanofi		160,000		14,052,385

Germany 0.8%


Pharmaceuticals, Biotechnology & Life Sciences 0.8%
Bayer AG - Reg’d		26,000		2,267,019
Merck KGaA		15,000		1,918,558

				4,185,577

Israel 0.3%


Pharmaceuticals, Biotechnology & Life Sciences 0.3%
Teva Pharmaceutical Industries Ltd.		35,000		1,411,950

Japan 3.3%


Health Care Equipment & Services 0.0%
Fukuda Denshi Co., Ltd.		2,000		59,710


Pharmaceuticals, Biotechnology & Life Sciences 3.3%
Astellas Pharma, Inc.		100,000		4,973,758
Chugai Pharmaceutical Co., Ltd.		25,000		506,532
Dainippon Sumitomo Pharma Co., Ltd.		244,000		2,806,436
Eisai Co., Ltd.		70,000		3,114,415
Kyowa Hakko Kirin Co., Ltd.		404,000		4,300,267
Otsuka Holdings Co., Ltd.		25,000		770,689

				16,472,097

				16,531,807

Switzerland 5.6%


Pharmaceuticals, Biotechnology & Life Sciences 5.6%
Actelion Ltd. - Reg’d *		10,000		482,675
Novartis AG - Reg’d		230,000		13,869,125
Roche Holding AG		74,400		14,331,307

				28,683,107

United Kingdom 3.5%


Pharmaceuticals, Biotechnology & Life Sciences 3.5%
AstraZeneca plc		180,000		8,347,456
GlaxoSmithKline plc		430,000		9,635,196

				17,982,652

Total Foreign Common Stock
(Cost $80,166,026)				102,593,184



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

Short-Term Investments 2.4% of net assets

Time Deposit 2.3%
Societe Generale
US Dollar
0.03%, 11/01/12		11,733,634		11,733,634

U.S. Treasury Obligation 0.1%
U.S. Treasury Bill
0.11%, 12/20/12 (a)(b)		385,000		384,945

Total Short-Term Investments
(Cost $12,118,579)				12,118,579



End of Investments.

At 10/31/12, the tax basis cost of the fund’s investments was $430,862,520 and the unrealized appreciation and depreciation were $86,865,680 and ($8,071,762), respectively, with a net unrealized appreciation of $78,793,918.

At 10/31/12, the values of certain foreign securities held by the fund aggregating $102,593,184 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)		All or a portion of this security is held as collateral for open futures contracts.
(b)		The rate shown is the purchase yield.


Reg’d —		Registered

In addition to the above, the fund held the following at 10/31/12.

Contract

Unrealized

Number of

Value

Losses

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 12/21/12

100

7,034,000

(236,050

)

See financial notes 73

Schwab Health Care Fund

Portfolio Holdings continued

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):

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 Stock¹		$394,944,675			$—		$—		$394,944,675
Foreign Common Stock
Australia¹		—			9,369,635		—		9,369,635
Denmark¹		—			10,376,071		—		10,376,071
France¹		—			14,052,385		—		14,052,385
Germany¹		—			4,185,577		—		4,185,577
Israel¹		—			1,411,950		—		1,411,950
Japan¹		—			16,531,807		—		16,531,807
Switzerland¹		—			28,683,107		—		28,683,107
United Kingdom¹		—			17,982,652		—		17,982,652
Short-Term Investments¹		—			12,118,579		—		12,118,579

Total		$394,944,675			$114,711,763		$—		$509,656,438



Liabilities Valuation Input


Other Financial Instruments
Futures Contract²		($236,050	)		$—		$—		($236,050	)


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments and are valued at unrealized appreciation or depreciation.

74 See financial notes

Schwab Health Care Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends (net of foreign withholding taxes of $316,372)		$10,270,323
Interest		5,572
Securities on loan	+	11,995

Total investment income		10,287,890

Expenses

Investment adviser and administrator fees		2,458,891
Shareholder service fees		1,101,144
Transfer agent fees		95,691
Portfolio accounting fees		54,314
Shareholder reports		40,350
Registration fees		35,158
Professional fees		31,491
Custodian fees		26,902
Trustees’ fees		8,654
State filing fee reimbursement (Note 4)		(9,270	)
Other expenses	+	12,698

Total expenses		3,856,023
Expense reduction by CSIM and its affiliates¹	−	118,610

Net expenses	−	3,737,413

Net investment income		6,550,477

Realized and Unrealized Gains (Losses)

Net realized gains on investments		67,201,641
Net realized gains on futures contracts		2,759,750
Net realized gains on foreign currency transactions	+	2,294

Net realized gains		69,963,685
Net unrealized gains on investments		7,406,220
Net unrealized losses on futures contracts		(1,036,424	)
Net unrealized losses on foreign currency translations	+	(17,519	)

Net unrealized gains	+	6,352,277

Net realized and unrealized gains		76,315,962

Increase in net assets resulting from operations		$82,866,439


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $9,270. See financial note 4 for additional information.

76 See financial notes

Schwab Health Care Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$6,550,477			$3,549,515
Net realized gains		69,963,685			29,312,204
Net unrealized gains	+	6,352,277			17,540,015

Increase in net assets from operations		82,866,439			50,401,734

Distributions to Shareholders

Distributions from net investment income		($3,529,101	)		($4,837,988	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			4,855,710		$92,832,540			3,540,237		$60,660,382
Shares reinvested			178,373		3,114,387			268,207		4,275,226
Shares redeemed	+		(4,151,453	)	(78,160,304	)		(6,338,786	)	(106,395,149	)

Net transactions in fund shares			882,630		$17,786,623			(2,530,342	)	($41,459,541	)

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			23,927,757		$413,791,767			26,458,099		$409,687,562
Total increase or decrease	+		882,630		97,123,961			(2,530,342	)	4,104,205

End of period			24,810,387		$510,915,728			23,927,757		$413,791,767


Net investment income not yet distributed					$6,599,289					$3,510,614

See financial notes 77

Schwab^® International Core Equity Fund

Financial Statements

Financial Highlights


	11/1/11–			11/1/10–			11/1/09–			11/1/08–			5/30/08²–
	10/31/12			10/31/11			10/31/10			10/31/09¹			10/31/08


Per-Share Data ($)

Net asset value at beginning of period		7.32			7.80			7.25			5.85			10.00

Income (loss) from investment operations:
Net investment income (loss)		0.16			0.17			0.16			0.03			0.06
Net realized and unrealized gains (losses)		0.62			(0.46	)		0.57			1.46			(4.21	)

Total from investment operations		0.78			(0.29	)		0.73			1.49			(4.15	)
Less distributions:
Distributions from net investment income		(0.20	)		(0.19	)		(0.18	)		(0.09	)		—

Net asset value at end of period		7.90			7.32			7.80			7.25			5.85

Total return (%)		11.17			(3.89	)		10.09			25.98			(41.50	)³

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.86			0.80	⁴		0.87	⁵		0.86			0.86	⁶
Gross operating expenses		1.16			1.22			1.27			1.60			1.39	⁶
Net investment income (loss)		2.45			2.32			1.85			1.19			1.67	⁶
Portfolio turnover rate		112			86			91	⁷		94			56	³
Net assets, end of period ($ x 1,000,000)		78			60			53			37			3

¹ Effective October 7, 2009, the Investor Shares class, the Select Shares class and the Institutional Shares 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 Institutional Shares.

² Commencement of operations.

³ Not annualized.

⁴ The ratio of net operating expenses would have been 0.86%, if a voluntary reduction of Investment Adviser fees had not been included. (See financial note 4)

⁵ The ratio of net operating expenses would have been 0.86%, if certain non-routine expenses had not been incurred.

⁶ Annualized

⁷ Portfolio turnover excludes the impact of investment activity resulting from a merger with another fund.

78 See financial notes

Schwab International Core Equity Fund

Portfolio Holdings as of October 31, 2012

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

Cost

Value

Holdings by Category

($)

.6%

Common Stock

69,994,392

76,187,170

.1%

Other Investment Companies

1,604,027

1,669,684

.7%

Total Investments

71,598,419

77,856,854

.3%

Other Assets and Liabilities, Net

261,130

100

.0%

Net Assets

78,117,984


	Number		Value
Security	of Shares		($)

Common Stock 97.6% of net assets

Australia 8.0%


Automobiles & Components 0.2%
Fleetwood Corp. Ltd.		13,818		147,623


Banks 0.5%
Westpac Banking Corp.		15,602		412,484


Capital Goods 0.2%
Emeco Holdings Ltd.		198,530		142,973


Commercial & Professional Supplies 0.1%
Skilled Group Ltd.		40,827		112,562


Diversified Financials 2.0%
Macquarie Group Ltd.		31,942		1,055,094
Perpetual Ltd.		17,445		504,741

				1,559,835


Food & Staples Retailing 1.0%
Wesfarmers Ltd.		21,409		771,780


Food, Beverage & Tobacco 0.4%
GrainCorp Ltd., Class A		24,445		310,430


Health Care Equipment & Services 0.4%
Sigma Pharmaceuticals Ltd.		397,524		278,117


Insurance 0.4%
Challenger Ltd.		99,231		332,224


Materials 1.2%
Arrium Ltd.		58,460		47,483
Iluka Resources Ltd.		9,636		98,839
Incitec Pivot Ltd.		33,775		110,623
OZ Minerals Ltd.		16,483		139,858
Rio Tinto Ltd.		6,581		387,987
St. Barbara Ltd. *		95,287		188,205

				972,995


Pharmaceuticals, Biotechnology & Life Sciences 0.6%
CSL Ltd.		8,716		429,879


Retailing 1.0%
David Jones Ltd.		84,879		234,919
Myer Holdings Ltd		43,891		88,962
Pacific Brands Ltd.		486,864		313,143
Wotif.com Holdings Ltd.		36,359		175,081

				812,105

				6,283,007

Austria 1.5%


Banks 0.3%
Raiffeisen Bank International AG		5,291		211,935


Energy 0.2%
OMV AG		5,085		186,087


Real Estate 0.2%
Conwert Immobilien Invest SE		17,060		197,624


Transportation 0.8%
Oesterreichische Post AG		15,840		610,181

				1,205,827

Belgium 1.8%


Food, Beverage & Tobacco 1.7%
Anheuser-Busch InBev N.V.		15,813		1,322,458


Technology Hardware & Equipment 0.1%
Barco N.V.		921		63,357

				1,385,815

Canada 0.6%


Energy 0.6%
Canadian Natural Resources Ltd.		5,300		159,730
Suncor Energy, Inc.		8,000		268,495

				428,225

Denmark 1.2%


Pharmaceuticals, Biotechnology & Life Sciences 1.2%
Novo Nordisk A/S, Class B		5,881		942,815

Finland 1.2%


Capital Goods 0.7%
Metso Oyj		15,978		561,922


Software & Services 0.2%
Tieto Oyj		7,189		137,982


Technology Hardware & Equipment 0.3%
Nokia Oyj		83,716		225,069

				924,973

France 9.3%


Automobiles & Components 1.2%
Compagnie Generale des Etablissements Michelin		2,239		193,013
Plastic Omnium S.A.		2,952		81,617
Renault S.A.		15,283		685,274

				959,904

See financial notes 79

Schwab International Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)


Banks 0.6%
BNP Paribas S.A.		9,331		470,702


Capital Goods 1.3%
Bouygues S.A.		14,773		355,063
Legrand S.A.		4,200		162,031
Schneider Electric S.A.		5,923		370,866
Vinci S.A.		3,674		162,854

				1,050,814


Commercial & Professional Supplies 0.1%
Teleperformance		3,410		103,258


Energy 1.7%
Total S.A.		26,338		1,326,651


Food, Beverage & Tobacco 0.4%
Danone S.A.		4,834		297,326


Insurance 0.3%
AXA S.A.		12,260		195,408


Materials 0.2%
Lafarge S.A.		2,229		130,685


Media 0.2%
Lagardere S.C.A.		4,686		128,296


Pharmaceuticals, Biotechnology & Life Sciences 1.7%
Sanofi		14,966		1,314,425


Real Estate 0.5%
Unibail-Rodamco SE		1,878		422,992


Software & Services 0.4%
UbiSoft Entertainment S.A. *		35,156		327,106


Telecommunication Services 0.1%
Vivendi S.A.		3,878		79,466


Utilities 0.6%
GDF Suez		18,716		429,576

				7,236,609

Germany 7.4%


Automobiles & Components 0.3%
Continental AG		2,039		205,225


Capital Goods 0.5%
Pfeiffer Vacuum Technology AG		3,067		313,558
Rheinmetall AG		1,715		81,967

				395,525


Commercial & Professional Supplies 0.6%
Bilfinger SE		4,772		467,620


Health Care Equipment & Services 0.8%
Fresenius SE & Co KGaA		5,322		606,847


Materials 0.7%
BASF SE		6,876		570,367


Pharmaceuticals, Biotechnology & Life Sciences 2.2%
Bayer AG - Reg’d		12,347		1,076,573
Merck KGaA		4,926		630,054

				1,706,627


Semiconductors & Semiconductor Equipment 0.4%
Infineon Technologies AG		36,553		249,016
SMA Solar Technology AG		3,114		66,889

				315,905


Software & Services 0.6%
SAP AG		6,847		499,304


Transportation 0.5%
Deutsche Lufthansa AG - Reg’d		9,630		147,330
Deutsche Post AG - Reg’d		12,892		255,596

				402,926


Utilities 0.8%
E.ON AG		18,150		413,186
RWE AG		4,038		184,798

				597,984

				5,768,330

Hong Kong 2.8%


Capital Goods 0.2%
Hutchison Whampoa Ltd.		16,000		156,744


Energy 0.5%
CNOOC Ltd.		200,000		411,595


Materials 0.4%
Shougang Fushan Resources Group Ltd.		802,000		279,047


Real Estate 1.6%
Cheung Kong (Holdings) Ltd.		41,000		604,322
Sino Land Co., Ltd.		102,000		181,973
Sun Hung Kai Properties Ltd.		30,000		414,718

				1,201,013


Utilities 0.1%
Power Assets Holdings Ltd.		12,500		106,219

				2,154,618

Israel 0.9%


Materials 0.2%
Israel Chemicals Ltd.		13,695		171,333


Pharmaceuticals, Biotechnology & Life Sciences 0.7%
Teva Pharmaceutical Industries Ltd.		12,097		488,010

				659,343

Italy 1.9%


Capital Goods 0.1%
Finmeccanica S.p.A. *		19,108		94,765


Energy 1.0%
Eni S.p.A.		34,705		798,594


Telecommunication Services 0.3%
Telecom Italia S.p.A.		231,155		213,267


Utilities 0.5%
Enel S.p.A.		102,622		386,448

				1,493,074

Japan 18.8%


Automobiles & Components 2.0%
Aisin Seiki Co., Ltd.		6,800		198,589
Daihatsu Motor Co., Ltd.		8,000		140,010
Denso Corp.		7,600		238,618
Honda Motor Co., Ltd.		4,700		141,297

80 See financial notes

Schwab International Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
Toyota Motor Corp.		21,200		817,412

				1,535,926


Banks 5.9%
Aozora Bank Ltd.		52,000		146,641
Mitsubishi UFJ Financial Group, Inc.		279,400		1,263,997
Mizuho Financial Group, Inc.		280,400		438,736
Resona Holdings, Inc.		166,000		718,314
Sumitomo Mitsui Financial Group, Inc.		37,700		1,151,998
The Shizuoka Bank Ltd.		89,000		910,290

				4,629,976


Capital Goods 3.2%
Asahi Glass Co., Ltd.		20,000		135,957
COMSYS Holdings Corp.		9,000		119,642
Kajima Corp.		27,000		74,776
Mitsubishi Heavy Industries Ltd.		143,000		602,327
Mitsui & Co., Ltd.		30,500		429,904
Sumitomo Corp.		61,000		831,600
Taisei Corp.		95,000		261,932

				2,456,138


Consumer Durables & Apparel 0.7%
Namco Bandai Holdings, Inc.		28,600		449,393
Panasonic Corp.		19,800		120,098

				569,491


Diversified Financials 1.3%
Mitsubishi UFJ Lease & Finance Co., Ltd.		11,150		480,751
ORIX Corp.		5,150		528,956

				1,009,707


Energy 0.2%
Inpex Corp.		32		182,300


Food, Beverage & Tobacco 2.3%
Ajinomoto Co., Inc.		63,000		961,879
Japan Tobacco, Inc.		31,000		857,219

				1,819,098


Household & Personal Products 0.4%
Kao Corp.		10,900		306,198


Materials 0.3%
Nitto Denko Corp.		5,000		227,140


Media 0.2%
SKY Perfect JSAT Holdings, Inc.		310		141,648


Real Estate 0.6%
Nomura Real Estate Holdings, Inc.		24,600		441,565


Software & Services 0.8%
NEC Networks & System Integration Corp.		8,700		158,935
Nihon Unisys Ltd.		66,000		479,888

				638,823


Technology Hardware & Equipment 0.6%
Canon, Inc.		14,300		464,745


Transportation 0.3%
Central Japan Railway Co.		3,100		266,767

				14,689,522

Mexico 0.3%


Materials 0.3%
Grupo Mexico S.A.B. de C.V., Series B		82,000		262,771

Netherlands 4.0%


Capital Goods 1.7%
European Aeronautic Defence & Space Co., N.V.		3,936		140,082
Koninklijke Philips Electronics N.V.		48,271		1,208,998

				1,349,080


Consumer Durables & Apparel 0.3%
TomTom N.V. *		38,626		192,886


Diversified Financials 0.4%
ING Groep N.V. CVA *		36,342		323,376


Food & Staples Retailing 0.8%
Koninklijke Ahold N.V.		50,472		642,738


Materials 0.2%
Koninklijke DSM N.V.		3,111		159,980


Semiconductors & Semiconductor Equipment 0.5%
ASML Holding N.V.		4,534		249,244
STMicroelectronics N.V.		20,080		118,266

				367,510


Technology Hardware & Equipment 0.1%
Gemalto N.V.		970		87,611

				3,123,181

Netherlands Antilles 0.2%


Health Care Equipment & Services 0.2%
Orthofix International N.V. *		4,400		174,504

New Zealand 0.1%


Materials 0.1%
Fletcher Building Ltd.		13,997		80,958

Norway 0.6%


Energy 0.6%
Statoil A.S.A.		19,372		477,112

Republic of Korea 0.2%


Banks 0.1%
Woori Finance Holdings Co., Ltd.		9,460		89,304


Capital Goods 0.1%
Daelim Industrial Co., Ltd.		955		66,372

				155,676

Singapore 1.1%


Capital Goods 0.3%
Noble Group Ltd.		181,000		193,258


Real Estate 0.8%
UOL Group Ltd.		137,000		633,902

				827,160

See financial notes 81

Schwab International Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

South Africa 0.3%


Materials 0.3%
Kumba Iron Ore Ltd.		3,666		229,288

Spain 2.7%


Capital Goods 0.7%
Ferrovial S.A.		37,157		525,782


Energy 0.3%
Repsol S.A.		12,887		258,265


Retailing 0.6%
Inditex S.A.		3,998		510,513


Software & Services 0.4%
Amadeus IT Holding S.A., A Shares		13,096		324,418


Transportation 0.3%
Abertis Infraestructuras S.A.		15,555		234,940


Utilities 0.4%
Endesa S.A.		13,489		287,361

				2,141,279

Sweden 3.6%


Banks 1.2%
Nordea Bank AB		101,441		922,063


Capital Goods 0.7%
Scania AB, B Shares		12,185		232,498
Trelleborg AB, B Shares		25,989		283,196

				515,694


Materials 0.6%
Boliden AB		28,492		499,285


Retailing 1.1%
Hennes & Mauritz AB, B Shares		26,602		901,980

				2,839,022

Switzerland 7.8%


Capital Goods 0.7%
Geberit AG - Reg’d *		2,271		469,064
OC Oerlikon Corp. AG - Reg’d *		7,477		75,306

				544,370


Food, Beverage & Tobacco 2.4%
Nestle S.A. - Reg’d		29,323		1,861,664


Insurance 2.1%
Helvetia Holding AG - Reg’d		2,882		1,012,001
Swiss Re AG *		7,084		490,194
Zurich Insurance Group AG *		627		154,568

				1,656,763


Pharmaceuticals, Biotechnology & Life Sciences 2.6%
Novartis AG - Reg’d		13,115		790,841
Roche Holding AG		6,242		1,202,366

				1,993,207

				6,056,004

Turkey 0.3%


Banks 0.3%
Turkiye Vakiflar Bankasi T.A.O., Class D		95,161		224,152

United Kingdom 21.0%


Banks 2.3%
HSBC Holdings plc		152,362		1,502,180
Standard Chartered plc		13,903		329,175

				1,831,355


Capital Goods 1.3%
BAE Systems plc		32,862		165,863
Bodycote plc		55,138		336,656
Cobham plc		62,420		217,009
Wolseley plc		6,496		284,767

				1,004,295


Commercial & Professional Supplies 0.7%
Berendsen plc		60,597		551,018


Consumer Durables & Apparel 0.7%
Persimmon plc		39,340		506,181


Consumer Services 0.8%
William Hill plc		119,332		652,024


Diversified Financials 1.4%
Aberdeen Asset Management plc		83,310		436,950
Intermediate Capital Group plc		121,442		599,415
Man Group plc		42,945		54,573

				1,090,938


Energy 4.0%
BP plc		195,147		1,393,661
Enquest plc *		91,661		171,828
Ensco plc, Class A		7,025		406,185
John Wood Group plc		22,873		314,382
Royal Dutch Shell plc, B Shares		17,266		610,740
Soco International plc *		23,416		127,944
Tullow Oil plc		5,899		134,018

				3,158,758


Food, Beverage & Tobacco 0.1%
Unilever plc		2,657		99,115


Household & Personal Products 0.5%
Reckitt Benckiser Group plc		6,937		420,272


Materials 2.8%
Mondi plc		83,126		916,332
Rio Tinto plc		24,992		1,248,511

				2,164,843


Pharmaceuticals, Biotechnology & Life Sciences 2.7%
AstraZeneca plc		16,856		781,693
GlaxoSmithKline plc		58,133		1,302,611

				2,084,304


Retailing 0.8%
Debenhams plc		52,266		101,187
WH Smith plc		53,021		532,065

				633,252


Software & Services 0.6%
Micro Focus International plc		31,162		288,649

82 See financial notes

Schwab International Core Equity Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)
The Sage Group plc		30,976		155,578

				444,227


Telecommunication Services 1.8%
BT Group plc		71,875		247,005
Vodafone Group plc		433,440		1,177,063

				1,424,068


Utilities 0.5%
National Grid plc		31,501		359,255

				16,423,905

Total Common Stock
(Cost $69,994,392)				76,187,170




Other Investment Companies 2.1% of net assets

United States 2.1%
iShares MSCI EAFE Index Fund		13,144		704,124
State Street Institutional U.S. Government Money Market Fund		965,560		965,560

Total Other Investment Companies
(Cost $1,604,027)				1,669,684



End of Investments.

At 10/31/12, the tax basis cost of the fund’s investments was $72,188,859 and the unrealized appreciation and depreciation were $7,511,567 and ($1,843,572), respectively, with a net unrealized appreciation of $5,667,995.

At 10/31/12, the values of certain foreign securities held by the fund aggregating $74,016,655 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.


CVA —		Dutch Certificate
Reg’d —		Registered

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2012 (see financial note 2(a) for additional information):


	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total²

Common Stock¹		$—		$57,691,938		$—		$57,691,938
Austria¹		—		595,646		—		595,646
Transportation		610,181		—		—		610,181
Canada¹		428,225		—		—		428,225
Mexico¹		262,771		—		—		262,771
Netherlands Antilles¹		174,504		—		—		174,504
United Kingdom¹		—		12,820,920		—		12,820,920
Energy		406,185		2,752,573		—		3,158,758
Software & Services		288,649		155,578		—		444,227
Other Investment Companies¹		1,669,684		—		—		1,669,684

Total		$3,840,199		$74,016,655		$—		$77,856,854


¹		As categorized in Portfolio Holdings.
²		The fund had no Other Financial Instruments.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $477,728 from Level 2 to Level 1 for the period ended October 31, 2012. The transfers between Level 2 and Level 1 were primarily due to the use of international fair valuation by the fund. There were no transfers in or out of Level 3 securities during the period.

See financial notes 83

Schwab International Core Equity Fund

Statement of

Operations

For November 1, 2011 through October 31, 2012



Investment Income

Dividends (net of foreign withholding taxes of $148,675)		$2,120,360
Interest	+	49

Total investment income		2,120,409

Expenses

Investment adviser and administrator fees		371,481
Shareholder service fees		159,435
Portfolio accounting fees		66,579
Custodian fees		41,411
Professional fees		33,808
Registration fees		25,886
Transfer agent fees		18,218
Shareholder reports		13,717
Trustees’ fees		6,116
Interest expense		30
State filing fee reimbursement (Note 4)		(11	)
Other expenses	+	8,580

Total expenses		745,250
Expense reduction by CSIM and its affiliates¹	−	194,403
Custody credits	−	1

Net expenses	−	550,846

Net investment income		1,569,563

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(587,311	)
Net realized losses on foreign currency transactions	+	(22,218	)

Net realized losses		(609,529	)
Net unrealized gains on investments		6,167,081
Net unrealized losses on foreign currency translations	+	(2,885	)

Net unrealized gains	+	6,164,196

Net realized and unrealized gains		5,554,667

Increase in net assets resulting from operations		$7,124,230


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $11. See financial note 4 for additional information.

See financial notes 85

Schwab International Core Equity Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


11/1/11-10/31/12				11/1/10-10/31/11
Net investment income		$1,569,563			$1,403,431
Net realized gains (losses)		(609,529	)		2,297,715
Net unrealized gains (losses)	+	6,164,196			(6,610,970	)

Increase (Decrease) in net assets from operations		7,124,230			(2,909,824	)

Distributions to Shareholders

Distributions from net investment income		($1,709,354	)		($1,304,611	)

Transactions in Fund Shares


		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		VALUE			SHARES		VALUE
Shares sold			3,640,288		$26,971,761			3,331,795		$26,421,070
Shares reinvested			151,161		1,017,316			125,830		983,995
Shares redeemed	+		(2,074,860	)	(15,099,441	)		(2,027,829	)	(15,977,680	)

Net transactions in fund shares			1,716,589		$12,889,636			1,429,796		$11,427,385

Shares Outstanding and Net Assets

		11/1/11-10/31/12					11/1/10-10/31/11
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			8,175,389		$59,813,472			6,745,593		$52,600,522
Total increase	+		1,716,589		18,304,512			1,429,796		7,212,950

End of period			9,891,978		$78,117,984			8,175,389		$59,813,472


Net investment income not yet distributed					$1,463,091					$1,302,126

86 See financial notes

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

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 at halfway between the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value

Schwab Active Equity Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the procedures.


	•	International fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the funds valuing 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 regularly reviews fair value determinations made by the funds pursuant to the procedures.

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

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in 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 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.

Schwab Active Equity Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):


	•	Level 3 — significant unobservable inputs (including the funds’ own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the funds’ investments as of October 31, 2012 are disclosed in the Portfolio Holdings.

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

Securities Lending: Under the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to have a value of at least 102% of the prior day’s market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities and is marked to market daily. The cash collateral of securities loaned is invested in money market portfolios operating 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, 2012 and the value of the related collateral are disclosed in the Portfolio Holdings and the Statement of Assets and Liabilities.

Short Sales: When a fund sells securities short (sells securities it does not own), the fund identifies assets worth at least 100% of the value of the short securities as collateral. If the market value of the short securities subsequently falls, the fund can realize a gain by closing the short position. However, if the value rises, the fund typically would have to add to its collateral or close out its short position at a loss. The potential for losses associated with short positions is much greater than the original value of the securities sold short and may exceed amounts recorded in the Statement of Assets and Liabilities.

(c) Security Transactions:

Schwab Active Equity Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

If the fund sells securities short, it records the proceeds received as an asset and the obligation to buy back the securities as a liability. At the time a short sale is initiated, the asset and liability are of equal value and effectively cancel each other out. Subsequently, the fund values the liability side of the transaction according to the market price of the securities sold short, and values the asset side according to the value of the proceeds. When the fund closes out a short position (buys the security), it records the outcome as a realized gain or loss. Dividends accrued on securities sold short are recorded as an expense on the fund’s records and presented in the Statement of Operations. The fund may also incur stock loan fees which represent the cost of borrowing securities used for short sale transactions.

(d) Investment Income:

(e) Expenses:

(f) Distributions to Shareholders:

The funds make distributions from net investment income, if any, once a year, with the exception of Schwab Dividend Equity Fund which typically pays quarterly dividends. The funds make distributions from net realized capital gains, if any, once a year.

(g) Custody Credit:

(h) Accounting Estimates:

Schwab Active Equity Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(i) Federal Income Taxes:

(j) Foreign Taxes:

(k) Indemnification:

(l) New Accounting Pronouncements:

3. Risk Factors:

The funds’ investment adviser makes investment decisions for the funds using a strategy based largely on historical information. There is no guarantee that a strategy based on historical information will produce the desired results in the future. In addition, the portfolio optimization process used by each fund to assist in constructing the fund’s portfolio does not assure successful investment. Securities selected with the assistance of the process may be negatively impacted by factors or events not foreseen in developing the process. As a result, a fund may have a lower return than if it were managed using another process or strategy.

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.

Schwab Active Equity Funds

Financial Notes (continued)

3. Risk Factors (continued):

Growth stocks can be volatile. Growth companies usually invest a high portion of earnings in their businesses and may lack the dividends of value stocks that can cushion stock prices in a falling market. The prices of growth stocks are based largely on projections of the issuer’s future earnings and revenues. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.

To the extent that a fund invests in dividend paying stocks, the fund’s performance will correlate directly with the performance of the dividend paying stock segment of the stock market, and the fund may underperform funds that do not limit their investments to dividend paying stocks. If stocks held by a fund reduce or stop paying dividends, the fund’s ability to generate income may be affected.

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.

Convertible securities generally are debt obligations that pay income, but which may convert into common or preferred stock under certain circumstances. These investments, which are often issued by smaller or less established companies, are subject to the equity risks described above, but they also are subject to fixed income risks. For example, an issuer may fail to pay interest or dividends, and prices of convertible securities generally will fall when interest rates rise.

When a fund invests in an exchange-traded fund (“ETF”), it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.

A fund’s investments in real estate investment trusts (“REITs”) will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks; for example, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences on a fund. In addition, REITs have their own expenses, and a fund will bear a proportionate share of those expenses.

Certain funds engage in short sales transactions. Short sales are transactions in which a fund sells a security it does not own. To complete a short sale, a fund must borrow the security to deliver to the buyer. A fund is then obligated to replace the borrowed security by purchasing the security at the market price at the time of replacement. This price may be more or less than the price at which the security was sold by a fund, and the fund will incur a loss if the price of the security sold short increases between the time of the short sales and the time the fund replaces the borrowed security.

To the extent a fund establishes both long and short positions in equity securities the fund’s long positions could decline in value at the same time that the value of the stocks sold short increase, thereby increasing the fund’s overall potential for loss. A fund’s short sales may result in a loss if the prices of the borrowed securities rise and it costs more to replace the borrowed securities. In contrast to a fund’s long positions, the potential loss on the fund’s short positions is unlimited. In addition, the lender of the borrowed securities may require a fund to return the securities on short notice, which may require the fund to purchase the borrowed securities at an unfavorable price, resulting in a loss.

Schwab Active Equity Funds

Financial Notes (continued)

3. Risk Factors (continued):

securities market structures; and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.

Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting requirements. It is sometimes difficult to obtain and enforce court judgments in such countries and there is often a greater potential for nationalization and/or expropriation of assets by the government of an emerging market country. 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, which may be magnified by currency fluctuations relative to the U.S. dollar.

The investments of certain funds are concentrated in issuers doing business in the same sector, and therefore, the companies in which a fund invests will be affected by many of the same factors, such as legislative or regulatory changes, intense competition for market share, and other competitive challenges. In addition, a fund is subject to the risks that stocks of these companies may underperform other segments of the equity market or stock market as a whole and are likely to have above-average volatility.

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:

Schwab

International

% of Average

Core

Dividend

Large-Cap

Small-Cap

Hedged

Core

Daily Net Assets

Equity Fund

Growth Fund

Equity Fund

Flat rate

0.47%

0.62%

0.72%

0.81%

1.05%

0.58%


	Schwab		Schwab
% of Average	Financial		Health Care
Daily Net Assets	Services Fund		Fund

First $500 million		0.54%		0.54%
$500 million to $1 billion		0.515%		0.515%
Over $1 billion		0.49%		0.49%

Pursuant to the Plan, each fund’s shares are subject to an annual shareholder servicing fee up to 0.25%. 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% of the average annual daily net asset value of the fund shares owned by shareholders holding shares through such service

Schwab Active Equity Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

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 payment received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.

Schwab

Core

Dividend

Large-Cap

Small-Cap

Hedged

Equity Fund

Growth Fund

Equity Fund

0.75%

0.89%

0.99%

1.12%

1.33%


				Schwab
Schwab		Schwab		International
Financial		Health Care		Core
Services Fund		Fund		Equity Fund

	0.94%		0.82%		0.86%


*		Excludes dividends and stock loan fees paid on securities sold short.

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, 2012:


	Schwab		Schwab		Schwab
	Core		Dividend		Small-Cap
	Equity Fund		Equity Fund		Equity Fund

Schwab Target Funds:
Schwab Target 2010 Fund		0.2%		0.1%		0.6%
Schwab Target 2015 Fund		0.3%		0.2%		0.8%
Schwab Target 2020 Fund		1.5%		0.9%		4.5%
Schwab Target 2025 Fund		0.8%		0.5%		2.4%
Schwab Target 2030 Fund		2.8%		1.7%		8.2%
Schwab Target 2035 Fund		0.7%		0.4%		2.2%
Schwab Target 2040 Fund		3.0%		1.9%		9.2%
Schwab Monthly Income Funds:
Schwab Monthly Income Fund - Moderate Payout		—%		0.4%		—%
Schwab Monthly Income Fund - Enhanced Payout		—%		0.7%		—%
Schwab Monthly Income Fund - Maximum Payout		—%		0.3%		—%
Schwab Balanced Fund		2.2%		—%		—%

During the period, the Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Financial Services Fund, Schwab Health Care Fund and Schwab International Core Equity Fund received a payment of $32,770, $13,172, $6,516, $2,710, $4,976, $1,664, $9,270 and $11, respectively, related to state filing fees resulting from revised fee calculation methodologies being applied on sales of the funds’

Schwab Active Equity Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

shares in prior periods in certain states. These payments are presented in each fund’s Statement of Operations as “State filing fee reimbursement”.

5. Transfer Agent Services:

Boston Financial Data Services, Inc. provides transfer agent services for each fund.

6. Board of Trustees:

7. Borrowing from Banks:

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2012, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:


	Purchases of Securities		Sales/Maturities of Securities

Schwab Core Equity Fund		$761,961,218		$1,003,484,704
Schwab Dividend Equity Fund		752,904,698		810,263,993
Schwab Large-Cap Growth Fund		171,911,919		192,223,592
Schwab Small-Cap Equity Fund		479,469,108		368,633,755
Schwab Hedged Equity Fund*		225,484,752		279,792,813
Schwab Financial Services Fund		35,841,229		36,162,587
Schwab Health Care Fund		285,495,944		262,785,879
Schwab International Core Equity Fund		83,118,320		70,892,266


*		Including securities sold short.

9. Derivatives:

Schwab Active Equity Funds

Financial Notes (continued)

9. Derivatives (continued):

investing in futures contracts. During the period, the month-end average values of futures contracts held by the funds and the month-end average number of contracts held were as follows:


	Contract Values		Number of Contracts

Schwab Core Equity Fund		$11,775,454		173
Schwab Dividend Equity Fund		20,378,323		304
Schwab Large-Cap Growth Fund		1,357,896		20
Schwab Small-Cap Equity Fund		3,954,540		51
Schwab Hedged Equity Fund		2,935,242		44
Schwab Financial Services Fund		439,950		6
Schwab Health Care Fund		12,512,835		185
Schwab International Core Equity Fund		—		—

10. Redemption Fee:


	Current Period		Prior Period
	(11/1/11-10/31/12)		(11/1/10-10/31/11)

Schwab Core Equity Fund		$14,523		$22,228
Schwab Dividend Equity Fund		19,131		26,900
Schwab Large-Cap Growth Fund		6,173		24,056
Schwab Small-Cap Equity Fund		4,731		8,490
Schwab Hedged Equity Fund		5,426		7,560
Schwab Financial Services Fund		5,169		3,360
Schwab Health Care Fund		11,650		17,659
Schwab International Core Equity Fund		1,452		4,402

11. Federal Income Taxes:

As of October 31, 2012, the components of distributable earnings on a tax-basis were as follows:


	Schwab			Schwab			Schwab			Schwab			Schwab
	Core			Dividend			Large-Cap			Small-Cap			Hedged
	Equity Fund			Equity Fund			Growth Fund			Equity Fund			Equity Fund

Undistributed ordinary income		$3,792,266			$832,279			$873,342			$339,903			$—
Undistributed long-term capital gains		—			—			—			—			—
Unrealized appreciation on investments		291,663,236			240,407,636			30,205,312			53,341,509			28,707,035
Unrealized depreciation on investments		(42,582,519	)		(22,487,941	)		(4,301,439	)		(16,163,335	)		(5,489,688	)
Other unrealized appreciation/(depreciation)		—			—			(3	)		—			1,151,978

Net unrealized appreciation/(depreciation)		$249,080,717			$217,919,695			$25,903,870			$37,178,174			$24,369,325

Schwab Active Equity Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):


							Schwab
	Schwab			Schwab			International
	Financial			Health Care			Core
	Services Fund			Fund			Equity Fund

							Schwab
	Schwab			Schwab			International
	Financial			Health Care			Core
	Services Fund			Fund			Equity Fund

Undistributed ordinary income		$222,352			$6,609,117			$1,836,736
Undistributed long-term capital gains		—			54,298,242			—
Unrealized appreciation on investments		4,552,575			86,865,680			7,511,567
Unrealized depreciation on investments		(412,569	)		(8,071,762	)		(1,843,572	)
Other unrealized appreciation/(depreciation)		—			(9,857	)		(4,427	)

Net unrealized appreciation/(depreciation)		$4,140,006			$78,784,061			$5,663,568

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 deferral of losses on wash sales.

Schwab

Core

Dividend

Large-Cap

Small-Cap

Hedged

Expiration Date

Equity Fund

Growth Fund

Equity Fund

October 31, 2016

$53,230,501

$—

October 31, 2017

56,516,765

66,553,849

45,816,541

14,134,762

2,570,724

Total

$109,747,266

$66,553,849

$45,816,541

$14,134,762

$2,570,724

Schwab

International

Financial

Health Care

Core

Expiration Date

Services Fund

Fund

Equity Fund

October 31, 2016

$6,950,804

$—

October 31, 2017

28,673,848

—

17,505,510

October 31, 2018

170,394

—

No expiration

—

813,296

Total

$35,795,046

$—

$18,318,806


*		The Schwab Core Equity Fund and Schwab International Core Equity Fund have capital loss carryforwards acquired via merger which are subject to certain annual limitations in regard to availability to offset potential future capital gains.

For the year ended October 31, 2012, the funds had capital losses deferred and capital losses utilized as follows:

Schwab

Core

Dividend

Large-Cap

Small-Cap

Hedged

Equity Fund

Growth Fund

Equity Fund

Capital losses deferred

$—

$900,099

Capital losses utilized

138,165,164

106,534,439

29,184,829

34,374,879

15,562,685

Schwab

International

Financial

Health Care

Core

Services Fund

Fund

Equity Fund

Capital losses utilized

$1,500,550

$14,437,135

$—

Schwab Active Equity Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):

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


	Schwab		Schwab		Schwab		Schwab		Schwab
	Core		Dividend		Large-Cap		Small-Cap		Hedged
	Equity Fund		Equity Fund		Growth Fund		Equity Fund		Equity Fund

Current period distributions
Ordinary income		$32,156,180		$28,261,739		$1,032,046		$177,045		$—
Long-term capital gains		—		—		—		—		—
Return of capital		—		—		—		—		—

Prior period distributions
Ordinary income		$18,535,012		$23,212,957		$1,241,602		$—		$—
Long-term capital gains		—		—		—		—		—
Return of capital		—		—		—		—		—


					Schwab
	Schwab		Schwab		International
	Financial		Health Care		Core
	Services Fund		Fund		Equity Fund

Current period distributions
Ordinary income		$224,748		$3,529,101		$1,709,354
Long-term capital gains		—		—		—
Return of capital		—		—		—

Prior period distributions
Ordinary income		$200,494		$4,837,988		$1,304,611
Long-term capital gains		—		—		—
Return of capital		—		—		—


	Schwab			Schwab			Schwab			Schwab			Schwab
	Core			Dividend			Large-Cap			Small-Cap			Hedged
	Equity Fund			Equity Fund			Growth Fund			Equity Fund			Equity Fund

Capital shares		$41,423,309			$—			$—			$—			($90,124	)
Undistributed net investment income		12,172			—			—			267,081			93,113
Net realized capital gains/(losses)		(41,435,481	)		—			—			(267,081	)		(2,989	)


							Schwab
	Schwab			Schwab			International
	Financial			Health Care			Core
	Services Fund			Fund			Equity Fund

Capital shares		$—			$—			$—
Undistributed net investment income		(2,916	)		67,299			300,756
Net realized capital gains/(losses)		2,916			(67,299	)		(300,756	)

Schwab Active Equity Funds

Financial Notes (continued)

11. Federal Income Taxes (continued):

Certain of the enacted provisions include:

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.

The funds have adopted the noted provisions of the Act for the period ending October 31, 2012.

12. Subsequent Events:

Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.

13. Reorganization:

Under a plan of reorganization adopted by the Trust, all of the assets and liabilities of the Schwab Premier Equity Fund were transferred to the Schwab Core Equity Fund. The reorganization, which qualified as a tax-free exchange for federal income tax purposes, was completed at the close of business on September 7, 2012. The following is a summary of shares outstanding, net assets, net asset value per share issued and unrealized appreciation/ depreciation immediately before and after the reorganization.


	Before Reorganization				After Reorganization
	Schwab		Schwab		Schwab
	Core		Premier		Core
	Equity Fund		Equity Fund		Equity Fund

Shares		90,245,503		18,709,075		101,529,069
Net Assets		$1,728,474,999		$216,114,348		$1,944,589,347
Net Assets Value		$19.15		$11.55		$19.15
Net unrealized appreciation/(depreciation)		$280,749,404		$13,800,558		$294,549,962
Market value of investments		$1,724,850,404		$215,621,273		$1,940,471,677
Cost of investments		$1,444,101,000		$201,820,715		$1,645,921,715

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Schwab Core Equity Fund

Schwab Dividend Equity Fund

Schwab Large-Cap Growth Fund

Schwab Small-Cap Equity Fund

Schwab Hedged Equity Fund

Schwab Financial Services Fund

Schwab Health Care Fund

Schwab International Core Equity Fund

In our opinion, the accompanying statements of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Financial Services Fund, Schwab Health Care Fund, and Schwab International Core Equity Fund (eight of the portfolios constituting Schwab Capital Trust, hereafter referred to as the “Funds”) at October 31, 2012, and the results of their operations for the year then ended, changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years or periods 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, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

December 14, 2012

101

Other Federal Tax Information (unaudited)

Schwab International Core Equity Fund elects to pass through under section 853 of the Internal Revenue Code foreign tax credit of $148,615 to its shareholders for the year ended October 31, 2012. The respective foreign source income on the fund is $2,237,890.

For corporate shareholders, the following percentage of the funds dividend distributions paid during the fiscal year ended October 31, 2012, qualify for the corporate dividends received deduction:


	Percentage

Schwab Core Equity Fund		100.00
Schwab Dividend Equity Fund		100.00
Schwab Large-Cap Growth Fund		100.00
Schwab Small-Cap Equity Fund		0.95
Schwab Hedged Equity Fund		—
Schwab Financial Services Fund		100.00
Schwab Health Care Fund		87.79
Schwab International Core Equity Fund		—


Schwab Core Equity Fund			$32,156,180
Schwab Dividend Equity Fund			28,261,739
Schwab Large-Cap Growth Fund			1,032,046
Schwab Small-Cap Equity Fund			1,681
Schwab Hedged Equity Fund			—
Schwab Financial Services Fund			224,748
Schwab Health Care Fund			3,529,101
Schwab International Core Equity Fund			1,709,354

102

Investment Advisory Agreement Approval

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 agreement between Schwab Capital Trust (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Financial Services Fund, Schwab Health Care Fund and Schwab International Core Equity 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 Agreement with respect to the Funds at meetings held on April 24, 2012, and June 5, 2012, and approved the renewal of the Agreement with respect to the Funds for an additional one year term at the meeting held on June 5, 2012. The Board’s approval of the Agreement with respect to the Funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


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

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

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

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

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

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreement with respect to the Funds. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, 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

103

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. Each of Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Hedged Equity Fund and Schwab Health Care 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 Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Hedged Equity Fund and Schwab Health Care Fund. These factors varied from Fund to Fund, but included one or more of 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 Agreement with respect to the Funds.

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

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 Financial Services Fund and Schwab Health Care Fund that, in each case, include lower fees at higher graduated asset levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Funds obtain reasonable benefit from economies of scale.

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

104

Trustees and Officers

The tables below give information about the trustees and officers of 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 91 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.	74	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).	74	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).	74	Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Aviat Networks (2001 – present) Director, Ditech Networks Corporation (1997 – Jan. 2012) 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.	74	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).	74	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).	74	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)

105

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).	74	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.	74	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.	91	None

106

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 and Chief Executive Officer (Dec. 2010 – present) and Chief Investment Officer (Dec. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; 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.; Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds 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., (Sept. 2011 – present); Senior Vice President and Chief Counsel, Charles Schwab Investment Management Inc. (Sept. 2011 – present); Vice President, Charles Schwab & Co., Inc., (March 2004 – Sept. 2011) and Charles Schwab Investment Management, Inc. (Jan 2011 – Sept. 2011); Secretary, Schwab Funds (April 2011 – present); Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 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 (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, 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. In addition to their employment with Schwab, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation, the parent company of Schwab and the investment adviser.
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.

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