UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-7704
Schwab Capital Trust
(Exact name of registrant as specified in charter)
| 211 Main Street, San Francisco, California 94105 | ||
| (Address of principal executive offices) | (Zip code) | |
Jonathan de St. Paer
Schwab Capital Trust
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 636-7000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2020
Item 1: Report(s) to Shareholders.
Annual
Report | October 31, 2020
Laudus International MarketMasters Fund™
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/laudusfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
Laudus International MarketMasters Fund
In
This Report
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 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 Schwab.
The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
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Laudus International
MarketMasters Fund
Performance at a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/laudusfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2020 | |
| Laudus International MarketMasters Fund1 (Ticker Symbol: SWMIX) | 8.56% |
| MSCI EAFE® Index (Net)2 | -6.86% |
| Fund Category: Morningstar Foreign Large Growth3 | 12.71% |
| Performance Details | pages 7-10 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
For index definitions, please see the
Glossary.
Fund expenses may have been partially absorbed
by CSIM and its affiliates. Without these reductions, the 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.
Foreign securities can involve risks such as
political and economic instability and currency risk. These risks may be greater in emerging markets.
| 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 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 3 | 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. |
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Diversification and asset allocation strategies do
not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report
date.
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The Investment Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late February,
the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with record speed. At their lows, key international stock indices
had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. While the
extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign currencies for the reporting period, generally increasing the
returns on overseas investments in U.S. dollar terms. For the reporting period, the S&P 500® Index, a bellwether for the overall U.S. stock
market, returned 9.71%. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance,
returned -6.86% for the reporting period and the MSCI Emerging Markets Index (Net)* returned 8.25% for the reporting period.
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
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The Investment Environment
(continued)
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exchange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
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Fund Management
 |
Omar Aguilar, Ph.D., Senior Vice President and Chief Investment Officer of Passive Equity and Multi-Asset Strategies, has overall responsibility for all aspects of the management of the fund. Prior to joining CSIM in 2011, Mr. Aguilar was with Financial Engines, where he was responsible for managing assets from leading retirement plan sponsors in the defined contribution market. Prior to that, he served as head of quantitative equity for ING Investment Management (now known as Voya Investment Management), building and developing the group and managing assets with global active, index, and enhanced index strategies for pension funds, variable annuities, and mutual funds. Mr. Aguilar also served as head of quantitative research for Lehman Brothers’ alternative investment management business and as a director of quantitative research and a portfolio manager with both Merrill Lynch Investment Management and Bankers Trust. |
 |
Jane Shi, CFA, Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2011, Ms. Shi was a vice president investment analyst at Bailard, Inc., where she developed quantitative models for domestic equity and tactical asset allocation strategies, and was also responsible for performance measurement and attribution. Prior to that, she was a treasury analyst at Sun Microsystems, Inc. |
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The
Laudus International MarketMasters Fund (the fund) uses a multi-manager strategy. Charles Schwab Investment Management, Inc. (CSIM)—the fund’s investment adviser—selects investment subadvisers with
strong long-term track records to manage a portion of the fund’s assets. In addition to selecting investment subadvisers and allocating assets among them, CSIM is responsible for monitoring and coordinating the overall management of the fund.
Each subadviser manages its respective portfolio relative to a comparative index that reflects its individual process and philosophy. The subadviser comparative indices may differ from the fund’s comparative index.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months
of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign
currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. For the 12-month
period ended October 31, 2020, the fund returned 8.56%, outperforming the fund’s comparative index, the MSCI EAFE® Index (Net) (the index),
which returned -6.86%.
Positioning and Strategies. Over the 12-month reporting period, two of the fund’s active subadvisers posted positive returns and two of the fund’s active subadvisers posted negative returns. One of the fund’s active subadvisers
began managing fund assets in January 2020 and posted positive returns for the period it managed fund assets. All five of the fund’s active subadvisers outperformed their comparative indices.
Among the fund’s five active subadvisers, Baillie
Gifford Overseas Limited posted the strongest total return and outperformed its international growth comparative index, contributing to the fund’s relative performance. Baillie Gifford began managing fund assets on January 31, 2020. Baillie
Gifford’s stock selection contributed positively to its performance relative to its comparative index, primarily due to selection in the consumer discretionary and health care sectors and within the U.S. and Germany. However, stock selection
within Spain detracted from relative performance. Baillie Gifford’s allocation across sectors and country segments also contributed positively to relative performance, most notably in the consumer discretionary and consumer staples sectors and
in the U.S. and Hong Kong. However, allocation in the information technology and health care sectors and in Taiwan and Germany detracted from relative performance.
William Blair Investment Management, LLC posted a positive
total return and outperformed its international multi-cap growth comparative index, contributing to the fund’s relative performance. Stock selection was strongest in the communication services and industrials sectors and weakest in the
consumer discretionary and consumer staples sectors. From a sector allocation standpoint, William Blair’s underweight to the consumer staples sector and overweight to the information technology sector contributed to relative performance, while
an overweight to the financials and industrials sectors detracted from relative performance. From a geographic perspective, stock selection in Switzerland and Japan contributed to relative performance, while stock selection in Hong Kong and Spain
detracted from relative performance.
American Century
Investment Management, Inc., which focuses on international small-cap growth, also posted a positive return and outperformed it comparative index. Stock selection contributed to performance relative to the comparative index, primarily due to
selection in the information technology and consumer discretionary sectors, and within Japan and Australia. However, stock selection in the real estate sector and in Canada and Norway detracted from relative performance. Allocation across country
segments contributed to performance relative to the comparative index, most notably within Hong Kong and Australia. However, allocation in Brazil and Indonesia detracted from relative performance. American Century’s allocation across sectors
detracted from performance relative to the comparative index, primarily due to selection in the financials and health care sectors. However, allocation in the information technology and real estate sectors contributed to relative performance.
Harris Associates L.P. posted a negative return but
outperformed its comparative index. Stock selection was strongest in the consumer discretionary and communication services sectors and weakest in the materials and financials sectors. From a sector allocation standpoint, Harris’ underweight to
the energy sector and overweight to the consumer discretionary sector contributed to relative performance, while an underweight to the health care and consumer staples sectors detracted from relative performance. From a geographic perspective, stock
selection in Ireland and the U.S. contributed to relative performance, while stock selection in Germany and Italy detracted from relative performance.
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Performance and Fund Facts as
of October 31, 2020
Mondrian Investment Partners Limited, with its international
small-cap value focus, also posted a negative total return but outperformed its comparative index. Mondrian’s stock selection contributed positively to its performance relative to its comparative index, primarily due to selection in the
industrials and real estate sectors and within Canada and Germany. However, stock selection in the materials and communications services sectors and within the Netherlands and Australia detracted from relative performance. From a sector allocation
standpoint, Mondrian’s underweight to the energy sector and overweight to the utilities sector contributed to relative performance, while an underweight to the materials sector and an overweight to the industrials sector detracted from
relative performance. From a country allocation standpoint, Mondrian’s overweight to Canada and Australia contributed to relative performance, while an overweight to France and Singapore detracted from relative performance.
Mellon Investments Corporation seeks to track the performance
of the fund’s index by employing a strategic trading approach to minimize transaction costs and preserve value. During the 12-month reporting period, the fund’s allocation to Mellon was liquidated to cash on January 31, 2020 and was
reallocated within the fund. Minor residual positions remained with Mellon through the end of the reporting period. Mellon has remained as a dormant subadviser for the fund.
Management views and portfolio holdings may have changed
since the report date.
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Laudus International
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Performance and Fund Facts as
of October 31, 2020 (continued)
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/laudusfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2,3
Average Annual Total Returns1,3
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Laudus International MarketMasters Fund (4/2/04)2 | 8.56% | 6.51% | 6.25% |
| MSCI EAFE® Index (Net)4 | -6.86% | 2.85% | 3.82% |
| Fund Category: Morningstar Foreign Large Growth5 | 12.71% | 7.86% | 6.47% |
| Fund Expense Ratios6: Net 1.25%; Gross 1.50% | |||
Investment
Managers and Allocations7
| Investment Managers | Investment Style | %
of Net Assets |
| American Century Investment Management, Inc. | International Small-Cap Growth | 29.6% |
| William Blair Investment Management, LLC | International Multi-Cap Growth | 28.4% |
| Mondrian Investment Partners Limited | International Small-Cap Value | 17.9% |
| Harris Associates L.P. | International Large-Cap Value | 15.1% |
| Baillie Gifford Overseas Limited8 | International Growth | 7.8% |
| Mellon Investments Corporation | International Blend | 0.0% 9 |
| Cash and other assets | 1.2% |
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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 | The fund commenced operations on October 16, 1996 which became the Laudus International MarketMasters Fund Investor Shares. The Investor Shares were consolidated into Select Shares on February 26, 2019. The performance presented is that of the former Select Shares which commenced operations on April 2, 2004. |
| 3 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 4 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 5 | 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. |
| 6 | As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
| 7 | For more information about each of the investment manager’s investment styles, refer to the fund’s prospectus. |
| 8 | Baillie Gifford Overseas Limited began managing fund assets on January 31, 2020. |
| 9 | Less than 0.05%. |
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Performance and Fund Facts as
of October 31, 2020 (continued)
Portfolio holdings may have changed since the
report date.
Source of Sector Classification:
S&P and MSCI.
International investments are
subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
| 1 | Excludes derivatives. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
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Laudus International
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Fund Expenses
(Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202 | |
| Laudus International MarketMasters Fund | ||||
| Actual Return | 1.25% | $1,000.00 | $1,233.30 | $7.02 |
| Hypothetical 5% Return | 1.25% | $1,000.00 | $1,018.82 | $6.34 |
| 1 | Based on the most recent six-month expense ratio. |
| 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 366 days of the fiscal year. |
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Laudus International
MarketMasters Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/191 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $22.89 | $22.89 | $26.96 | $21.16 | $22.71 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.00 3 | 0.31 | 0.24 | 0.22 | 0.19 | |
| Net realized and unrealized gains (losses) | 1.95 | 1.74 | (3.09) | 5.76 | (0.23) | |
| Total from investment operations | 1.95 | 2.05 | (2.85) | 5.98 | (0.04) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.43) | (0.29) | (0.36) | (0.18) | (0.31) | |
| Distributions from net realized gains | (0.04) | (1.76) | (0.86) | — | (1.20) | |
| Total distributions | (0.47) | (2.05) | (1.22) | (0.18) | (1.51) | |
| Net asset value at end of period | $24.37 | $22.89 | $22.89 | $26.96 | $21.16 | |
| Total return | 8.56% | 10.50% | (11.09%) | 28.52% | 0.00% 4 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 1.25% | 1.25% | 1.25% | 1.25% | 1.25% | |
| Gross operating expenses | 1.51% | 1.50% | 1.51% | 1.53% | 1.54% | |
| Net investment income (loss) | 0.00% 4 | 1.43% | 0.92% | 0.92% | 0.93% | |
| Portfolio turnover rate | 65% | 54% | 69% | 71% | 69% | |
| Net assets, end of period (x 1,000,000) | $1,243 | $1,413 | $1,127 | $1,229 | $1,063 | |
1
Effective February 26, 2019, the Investor Share class, and
the Select Share class were consolidated 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
Per-share amount was less than $0.005.
4
Less than 0.005%.
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020
This
section shows all the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with
the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after calendar quarters on the fund’s website.
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
| Settlement
Date |
Counterparty | Currency
to be Received |
Amount
of Currency to be Received |
Currency
to be Delivered |
Amount
of Currency to be Delivered |
Unrealized
Depreciation ($) | ||||||
| Forward Foreign Currency Exchange Contract | ||||||||||||
| 12/16/2020 | State Street Bank & Trust Co. | USD | 2,003,471 | CHF | 1,893,000 | (63,783) | ||||||
| * | Non-income producing security. |
| (a) | Securities are traded on separate exchanges for the same entity. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| ADR — | American Depositary Receipt |
| CVA — | Dutch Certificate |
| REIT — | Real Estate Investment Trust |
| CHF — | Swiss franc |
| USD — | U.S. dollar |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $348,317,989 | $— | $348,317,989 | |
| Argentina | 13,389,715 | — | — | 13,389,715 | |
| Australia | 2,113,760 | 59,260,182 | — | 61,373,942 | |
| Brazil | 12,543,098 | — | — | 12,543,098 | |
| Canada | 71,767,098 | — | — | 71,767,098 | |
| China | 22,107,262 | 82,919,452 | — | 105,026,714 | |
| Denmark | 2,569,580 | 29,184,596 | — | 31,754,176 | |
| France | 2,588,796 | 76,191,201 | — | 78,779,997 | |
| Germany | 14,780,312 | 84,401,241 | — | 99,181,553 | |
| Ireland | 8,377,246 | 2,303,897 | — | 10,681,143 | |
| Israel | 11,076,282 | — | — | 11,076,282 | |
| Mexico | 2,125,920 | — | — | 2,125,920 | |
| Netherlands | 4,327,577 | 39,324,546 | — | 43,652,123 | |
| Norway | 2,115,640 | 9,834,114 | — | 11,949,754 | |
| Panama | 1,591,843 | — | — | 1,591,843 | |
| Portugal | — | — | — * | — | |
| Russia | 1,804,589 | — | — | 1,804,589 | |
| Sweden | 7,161,108 | 63,671,399 | — | 70,832,507 | |
| Taiwan | 8,159,515 | 31,351,799 | — | 39,511,314 | |
| Thailand | 6,854,606 | — | — | 6,854,606 | |
| United Kingdom | 9,718,362 | 134,142,598 | — | 143,860,960 | |
| United States | 11,991,199 | — | — | 11,991,199 | |
| Preferred Stock1 | — | 525,477 | — | 525,477 | |
| Brazil | 2,456,636 | — | — | 2,456,636 | |
| Rights 1 | 1,151,116 | — | — | 1,151,116 | |
| Other Investment Company1 | 14,515,883 | — | — | 14,515,883 |
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Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2020 (continued)
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Liabilities | |||||
| Futures Contracts2 | (372,733) | — | — | (372,733) | |
| Forward Foreign Currency Exchange Contracts2 | — | (63,783) | — | (63,783) | |
| Total | $234,914,410 | $961,364,708 | $— | $1,196,279,118 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in Portfolio Holdings. |
| 2 | Futures contracts and forward foreign currency exchange contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
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Laudus International
MarketMasters Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $958,274,435) | $1,196,715,634 | |
| Foreign currency, at value (cost $611,251) | 617,118 | |
| Deposit with broker for futures contracts | 2,510,640 | |
| Receivables: | ||
| Investments sold | 50,085,496 | |
| Foreign tax reclaims | 1,006,000 | |
| Dividends | 916,798 | |
| Fund shares sold | 81,139 | |
| Prepaid expenses | + | 18,686 |
| Total assets | 1,251,951,511 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 6,376,794 | |
| Investment adviser and administrator fees | 1,231,386 | |
| Shareholder service fees | 180,861 | |
| Fund shares redeemed | 722,589 | |
| Variation margin on futures contracts | 148,950 | |
| Unrealized depreciation on forward foreign currency exchange contracts | 63,783 | |
| Accrued expenses | + | 521,717 |
| Total liabilities | 9,246,080 | |
| Net Assets | ||
| Total assets | 1,251,951,511 | |
| Total liabilities | – | 9,246,080 |
| Net assets | $1,242,705,431 | |
| Net Assets by Source | ||
| Capital received from investors | 951,697,683 | |
| Total distributable earnings | 291,007,748 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,242,705,431 | 50,984,395 | $24.37 | ||
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Laudus International
MarketMasters Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $1,703,441) | $16,215,421 | |
| Expenses | ||
| Investment adviser and administrator fees | 16,485,323 | |
| Shareholder service fees | 2,063,304 | |
| Custodian fees | 501,594 | |
| Portfolio accounting fees | 162,283 | |
| Professional fees | 56,064* | |
| Shareholder reports | 53,270 | |
| Registration fees | 40,326 | |
| Transfer agent fees | 23,467 | |
| Independent trustees’ fees | 15,129 | |
| Other expenses | + | 61,599 |
| Total expenses | 19,462,359 | |
| Expense reduction by CSIM and its affiliates | – | 3,302,570* |
| Net expenses | – | 16,159,789 |
| Net investment income | 55,632 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on investments | 88,551,925 | |
| Net realized gains on futures contracts | 710,289 | |
| Net realized losses on foreign currency transactions | (58,655) | |
| Net realized losses on forward foreign currency exchange contracts | + | (18,397) |
| Net realized gains | 89,185,162 | |
| Net change in unrealized appreciation (depreciation) on investments | 24,050,690 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | (2,299,368) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | 86,075 | |
| Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | + | (79,393) |
| Net change in unrealized appreciation (depreciation) | + | 21,758,004 |
| Net realized and unrealized gains | 110,943,166 | |
| Increase in net assets resulting from operations | $110,998,798 | |
| * | Includes professional fees of $257 associated with the filing of tax claims in the European Union deemed to be non-routine expenses of the fund. See financial notes 2(d) and 4 for additional information. |
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Laudus International
MarketMasters Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $55,632 | $18,495,360 | ||
| Net realized gains (losses) | 89,185,162 | (5,592,579) | ||
| Net change in unrealized appreciation (depreciation) | + | 21,758,004 | 125,000,030 | |
| Increase in net assets from operations | 110,998,798 | 137,902,811 | ||
| Distributions to Shareholders1 | ||||
| Investor Shares | — | (34,719,762) | ||
| Select Shares | + | (27,899,553) | (99,317,431) | |
| Total distributions | ($27,899,553) | ($134,037,193) | ||
| Transactions in Fund Shares1 | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares Sold | ||||||||
| Investor Shares | — | $— | 103,775 | $2,181,854 | ||||
| Select Shares | + | 4,963,270 | 95,437,857 | 21,106,679 | 454,485,861 | |||
| Total shares sold | 4,963,270 | $95,437,857 | 21,210,454 | $456,667,715 | ||||
| Shares Reinvested | ||||||||
| Investor Shares | — | $— | 1,583,820 | $30,947,842 | ||||
| Select Shares | + | 891,003 | 21,116,755 | 3,532,129 | 68,841,189 | |||
| Total shares reinvested | 891,003 | $21,116,755 | 5,115,949 | $99,789,031 | ||||
| Shares Redeemed | ||||||||
| Investor Shares | — | $— | (19,296,537) | ($416,594,739) | ||||
| Select Shares | + | (16,594,568) | (369,846,702) | (12,155,331) | (261,429,704) | |||
| Total shares redeemed | (16,594,568) | ($369,846,702) | (31,451,868) | ($678,024,443) | ||||
| Net transactions in fund shares | (10,740,295) | ($253,292,090) | (5,125,465) | ($121,567,697) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 61,724,690 | $1,412,898,276 | 66,850,155 | $1,530,600,355 | ||||
| Total decrease | + | (10,740,295) | (170,192,845) | (5,125,465) | (117,702,079) | |||
| End of period | 50,984,395 | $1,242,705,431 | 61,724,690 | $1,412,898,276 | ||||
| 1 | Effective February 26, 2019, all outstanding Investor Shares (17,685,944 shares valued at $382,997,961) were consolidated into the Select Shares, resulting in a single class of shares of the fund. |
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notes
Laudus International
MarketMasters Fund
Financial Notes
1. Business Structure of the Fund:
Laudus
International MarketMasters Fund is a series of Schwab Capital Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940,
as amended (the 1940 Act). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:
| SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993) | |
| Laudus International MarketMasters Fund | Schwab Target 2040 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2045 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2050 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2055 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2060 Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Fundamental US Large Company Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Fundamental US Small Company Index Fund |
| Schwab International Index Fund® | Schwab Fundamental International Large Company Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Fundamental International Small Company Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Fundamental Global Real Estate Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2010 Index Fund |
| Schwab Balanced Fund | Schwab Target 2015 Index Fund |
| Schwab Core Equity Fund | Schwab Target 2020 Index Fund |
| Schwab Dividend Equity Fund | Schwab Target 2025 Index Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2030 Index Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2035 Index Fund |
| Schwab Hedged Equity Fund | Schwab Target 2040 Index Fund |
| Schwab Health Care Fund | Schwab Target 2045 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2020 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2025 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab Target 2035 Fund | |
The fund offers one share class. Shares are bought and sold at
closing net asset value per share (NAV), which is the price for all outstanding shares of the fund. Each share has a par value of 1/1,000 of a cent, and the fund’s Board of Trustees (the Board) may authorize the issuance of as many shares as
necessary.
The fund maintains its own account for
purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is
a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The fund invests in certain other investment
companies (underlying funds). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (SEC)
and are available on the SEC’s website at www.sec.gov.
(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 value. Among other things,
these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
The fund values
the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:
•
Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable.
For example, the fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market
is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that
the fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.
•
Foreign equity security fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the fund valuing its holdings. By fair
valuing securities whose prices may have been affected by events occurring after the close of trading, the 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 the fund’s portfolio holdings and the NAV 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 the fund and that of its comparative index or benchmark. The Board regularly reviews fair value determinations made by the fund pursuant to these procedures.
•
Futures contracts and forward foreign currency exchange contracts (forwards): Futures contracts are valued at their settlement prices as of the close of their exchanges. Forwards are valued based on that
day’s forward exchange rates or by using an interpolated forward exchange rate for contracts with interim settlement dates.
• Underlying funds: Mutual funds are valued at their respective NAVs.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to
valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the fund determines that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which
are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
provincial obligations. In addition,
international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board 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.
•
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of
investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When
observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the
original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3
prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may
significantly impact the resulting fair value and therefore the fund’s results of operations.
The inputs or methodology used for valuing securities are
not necessarily an indication of the risk associated with investing in those securities.
The levels associated with valuing the fund’s
investments as of October 31, 2020 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date.
The fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or
received by the fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures
contracts are traded publicly on exchanges, and their fair value may change daily.
Forward Foreign Currency Exchange Contracts: Forwards 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 appreciation or depreciation until the contracts settle, at which time the
gains or losses are realized.
(c) Security
Transactions:
Security transactions are recorded as
of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies
are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and
expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or
depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are
reported in foreign currency transactions or translations in the Statement of Operations. The fund does 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 fund on the sale of securities in
certain foreign countries may be subject to non-U.S. taxes. In those instances, the fund records a liability based on unrealized appreciation to provide for potential non-U.S. taxes payable upon the sale of these securities.
When the fund closes out a futures contract position, it
calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(d) Investment
Income:
Interest income is recorded as it accrues.
Dividends, in the form of cash or non-cash income such as in the form of additional securities, and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund
records certain foreign security dividends on the date the ex-dividend date is confirmed. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
Income received from foreign sources may result in
withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate
is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
The fund filed claims to recover taxes previously withheld
in certain European Union countries on the basis that those countries had purportedly violated certain provisions in the Treaty on the Functioning of the European Union. These filings are subject to various administrative and judicial proceedings
within these countries, and all professional fees associated with these filings have been paid by the investment adviser. For additional details see Affiliates and Affiliated Transactions in financial note 4, Other Affiliated Transactions.
(e) Expenses:
Expenses that are specific to the fund are charged directly
to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets.
(f) Distributions to Shareholders:
The fund makes distributions from net investment income and
net realized capital gains, if any, once a year.
(g)
Accounting Estimates:
The accounting policies
described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial
statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The fund intends to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its shareholders
each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The fund 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 fund invests. These foreign taxes, if any, are paid by the fund and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2020, if any, are reflected in the fund’s Statement of Assets and
Liabilities.
(j) Indemnification:
Under the fund’s organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide
general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to
these arrangements to be remote.
26
Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
3. Risk Factors:
Investing in the fund may involve certain risks, as
discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial
markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition,
the occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is tied to these markets, the value of an
investment in the fund will fluctuate, which means that an investor could lose money over short or long periods.
Investment Style Risk. CSIM
may attempt to reduce the impact of the performance of any given investment style by allocating to investment managers who invest in both value and growth style stocks. But whenever value stocks fall out of favor with investors, they may
underperform growth stocks, and vice versa.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to
fall over short or extended periods of time.
Management Risk. As with
all actively managed funds, the fund is subject to the risk that its investment adviser and investment managers will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its investment
objective. Poor stock selection or a focus on securities in a particular sector may cause the fund to underperform its benchmark or other funds with a similar investment objective.
Market Capitalization Risk.
Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall
behind other types of investments, the fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Mid-Cap Company Risk.
Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.
Small-Cap Company Risk.
Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.
Foreign Investment Risk.
The fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political,
regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing
accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of the fund’s investments, and could
impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in
value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged, resulting in the dollar value of the fund’s investment being adversely affected. To the extent
the fund’s investments in a single country or a limited number of countries represent a large percentage of the fund’s assets, the fund’s performance may be adversely affected by the economic, political, regulatory and social
conditions in those countries, and the fund’s price may be more volatile than the price of a fund that is geographically diversified.
Emerging Markets Risk.
Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting
requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in developed countries. As a result, there may
be an increased risk of illiquidity and price volatility associated with the fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar, and, at times, it may be difficult to
value such investments.
Currency Risk. As a result of the fund’s investments in securities denominated in, and/or receiving revenues in, foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline
in value relative to the U.S. dollar. If such an event occurs, the dollar value of an investment in the fund would be adversely affected.
27
Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
Derivatives Risk. The fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a
specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a
rate, index, instrument or certain securities and a predetermined amount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or
series of fixed payments.
The fund’s use
of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk, market risk and
management risk, are discussed elsewhere in this section. The fund’s use of derivatives is also subject to credit risk, leverage risk, lack of availability risk, valuation risk, correlation risk and tax risk. Credit risk is the risk that the
counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately large impact on the fund. Lack of availability risk is the
risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes
in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gains. The fund’s use of
derivatives could reduce the fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested. The use of derivatives, that are subject to regulation by the Commodity Futures Trading
Commission (CFTC), could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
Liquidity Risk. The fund
may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.
Multi-Manager Risk.
Although CSIM monitors and coordinates the overall management of the fund, each investment manager makes investment decisions independently, and it is possible that the investment styles of the investment managers may not complement one another. As
a result, the fund’s exposure to a given stock, industry or investment style could unintentionally be smaller or larger than if the fund had a single manager.
Please refer to the fund’s prospectus for a more
complete description of the principal risks of investing in the fund.
4. Affiliates and Affiliated Transactions:
Investment Adviser
Charles Schwab Investment Management, Inc. (CSIM or the
investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an investment advisory and administration agreement between CSIM and the trust.
For its advisory and administrative services to the fund, CSIM
is entitled to receive a graduated annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:
| First $500 million | 1.29% |
| $500 million to $1 billion | 1.275% |
| Over $1 billion | 1.25% |
For the period ended October 31,
2020, the aggregate advisory fees paid to CSIM by the fund was 1.28% as a percentage of the fund’s average daily net assets.
Shareholder Servicing
The Board has adopted a Shareholder Servicing Plan (the Plan)
on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc. (Schwab), a broker-dealer affiliate of CSIM, (together, service providers), of certain
account maintenance, customer liaison and shareholder services to the current shareholders of the fund.
Pursuant to the Plan, the fund’s shares are subject to an
annual shareholder servicing fee up to 0.20%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab, as distributor of the fund (or, in the case of payments made to Schwab acting as
a service provider, pursuant to Schwab’s written agreement with the fund), and the
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
fund will
pay no more than 0.20% of the average annual daily net asset value of the fund shares owned by shareholders holding shares through such service provider. Payments under the Plan are made as described above without regard to whether the fee is more
or less than the service provider’s actual cost of providing the services, and if more, such excess may be retained as profit by the service provider.
Expense Limitation
Although these agreements specify certain fees for these
services, CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual
fund operating expenses charged, excluding interest, taxes and certain non-routine expenses to 1.25%.
Investments from Affiliates
Certain funds in the Fund Complex (for definition refer to
Trustees and Officers section) may own shares of other funds in the Fund Complex. The table below reflects the percentage of shares of the fund in this report that are owned by other funds in the Fund Complex as of October 31, 2020, as
applicable:
| Underlying Fund | |
| Schwab Monthly Income Fund - Enhanced Payout | 0.6% |
| Schwab Monthly Income Fund - Maximum Payout | 0.4% |
| Schwab Monthly Income Fund - Moderate Payout | 0.4% |
| Schwab Target 2010 Fund | 0.3% |
| Schwab Target 2015 Fund | 0.4% |
| Schwab Target 2020 Fund | 3.2% |
| Schwab Target 2025 Fund | 4.6% |
| Schwab Target 2030 Fund | 9.1% |
| Schwab Target 2035 Fund | 5.1% |
| Schwab Target 2040 Fund | 11.3% |
| Schwab Target 2045 Fund | 2.2% |
| Schwab Target 2050 Fund | 2.4% |
| Schwab Target 2055 Fund | 1.4% |
| Schwab Target 2060 Fund | 0.3% |
Other Affiliated Transactions
The professional fees related to foreign withholding tax claims
discussed in financial note 2 were non-routine expenses. The investment adviser agreed to pay these professional fees, which are subject to reimbursement by the fund to the extent the fund is able to successfully recover taxes withheld in the
future.
The professional fees incurred by the fund were
$257 and the fund made no reimbursements to the investment adviser during the period ended October 31, 2020.
As of October 31, 2020, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the fund to the investment adviser was $27,682.
No other amounts for additional tax reclaims are reflected in
the financial statements due to the uncertainty surrounding the ultimate resolution of proceedings, the likelihood of receipt of these claims, and the potential timing of payment.
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the fund may
enter into interfund borrowing and lending transactions with other funds in the Fund Complex. All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and
the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The interfund lending facility is subject to the oversight and periodic review by the Board. The
fund had no interfund borrowing or lending activity during the period.
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Financial Notes
(continued)
5.
Board of Trustees:
The Board may include people who are
officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the
report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information regarding the
trustees, please refer to the Trustees and Officers table at the end of this report.
6. Borrowing from Banks:
During the period, the fund
was a participant with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by the fund, the fund paid a commitment
fee of 0.15% per annum on the fund’s proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the fund was a participant with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, the fund pays interest on the amount it borrows. There were no borrowings from either line of credit during the period.
The fund also has access to custodian overdraft facilities. The
fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds
Rate.
7. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| $795,709,915 | $1,078,652,515 |
8. Derivatives:
The fund entered into equity index
futures contracts during the report period. The fund invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at October 31, 2020 are presented on the Portfolio Holdings and
Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the fund’s accounting policies with
respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2020, the month-end average notional amounts of futures contracts held by the fund and the
month-end average number of contracts held were $39,441,306 and 507, respectively.
The fund invested in forwards in connection with the purchase
and sale of portfolio securities to minimize the uncertainty of changes in future foreign currency exchange rates and to hedge exposure to certain currencies. Refer to financial note 2(b) for the fund’s accounting policies with respect to
forwards and financial note 3 for disclosures concerning the risks of investing in forwards. During the period ended October 31, 2020, the month-end average forward foreign currency notional amount and the month-end average unrealized depreciation
were $2,519,850 and ($24,243), respectively.
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Financial Notes
(continued)
8.
Derivatives (continued):
As of October 31, 2020,
the derivatives contracts held by the fund, categorized by primary risk exposure, were:
| Asset Derivatives | Fair Value |
| Equity Index Futures Contracts1 | $— |
| Forward Foreign Currency Exchange Contracts2 | — |
| Liability Derivatives | Fair Value |
| Equity Index Futures Contracts3 | ($372,733) |
| Forward Foreign Currency Exchange Contracts4 | (63,783) |
| 1 | Includes cumulative unrealized appreciation of futures contracts as reported in the Portfolio Holdings. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| 2 | Statement of Assets and Liabilities location: Unrealized appreciation on forward foreign currency exchange contracts. |
| 3 | Includes cumulative unrealized depreciation of futures contracts as reported in the Portfolio Holdings. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| 4 | Statement of Assets and Liabilities location: Unrealized depreciation on forward foreign currency exchange contracts. |
The effects of the derivatives held by the fund in the
Statement of Operations for the period ended October 31, 2020 were:
| Equity Index Futures Contracts | |
| Realized gains1 | $710,289 |
| Net change in unrealized appreciation (depreciation)2 | (2,299,368) |
| Forward Foreign Currency Exchange Contracts | |
| Realized losses1 | ($18,397) |
| Net change in unrealized appreciation (depreciation)2 | (79,393) |
| 1 | Statement of Operations location: Net realized gains on futures contracts and net realized losses on forward foreign currency exchange contracts. |
| 2 | Statement of Operations location: Net change in unrealized appreciation (depreciation) on futures contracts and net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts. |
The fund’s forwards are entered into pursuant to
International Swaps and Derivatives Association, Inc. (ISDA) agreements which govern certain terms of derivative transactions. ISDA agreements typically contain, among other things, master netting provisions in the event of a default or other
termination event. Master netting provisions allow the fund and the counterparty, in the event of a default or other termination event, to offset payable and receivable amounts for each party related to derivative contracts to one net amount payable
by either the fund or the counterparty. The fund’s forwards, which are reported gross in the Statement of Assets and Liabilities, are presented in the table below. The following table presents the fund’s forwards, net of amounts
available for offset under a master netting agreement and net of any related collateral received by the fund for assets and pledged by the fund for liabilities as of October 31, 2020.
| Counterparty | Gross
Amounts of Liabilities Presented in the Statement of Assets and Liabilities |
Financial
Instruments Available for Offset |
Cash
Collateral Pledged |
Net
Amounts(a) | |||
| State Street Bank & Trust Co. | ($63,783) | $— | $— | ($63,783) | |||
| Total | ($63,783) | $— | $— | ($63,783) |
| a | Represents the net amount due to the counterparty in the event of default. |
9. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the fund’s investments and gross unrealized appreciation and depreciation were as follows:
| Tax cost | $990,920,149 |
| Gross unrealized appreciation | $318,558,295 |
| Gross unrealized depreciation | (113,199,326) |
| Net unrealized appreciation (depreciation) | $205,358,969 |
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Financial Notes
(continued)
9. Federal Income
Taxes (continued):
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| Undistributed long-term capital gains | $85,550,910 |
| Net unrealized appreciation (depreciation) on investments | 205,358,969 |
| Net other unrealized appreciation (depreciation) | 97,869 |
| Total | $291,007,748 |
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, realization for tax purposes of unrealized gains (losses) on futures contracts and the realization for tax purposes
of unrealized appreciation on investments in Passive Foreign Investment Companies (PFIC) and partnership investments. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect these
unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the fund had no capital loss carryforwards available to offset future net capital gains.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| Current fiscal year end distributions | |
| Ordinary income | $25,483,603 |
| Long-term capital gains | 2,415,950 |
| Prior fiscal year end distributions | |
| Ordinary income | $18,404,188 |
| Long-term capital gains | 115,633,005 |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, management has reviewed the tax
positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the
fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the fiscal year ended October 31, 2020, the fund did not incur
any interest or penalties.
10. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the fund for the past two fiscal
years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the fund’s financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
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Financial Notes
(continued)
11.
Subsequent Events:
Management has determined there are no
subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust and
Shareholders of Laudus International MarketMasters Fund:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statement of
assets and liabilities, including the portfolio holdings, of Laudus International MarketMasters Fund (the “Fund”), one of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related statement of operations,
statement of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of
the Fund as of October 31, 2020, and the results of its operations, the changes in its net assets, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. The
statement of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019 were audited by other auditors, whose report, dated December 16, 2019, expressed an
unqualified opinion on such statement of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The
Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing
procedures. We believe that our audit provides a reasonable basis for our opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Other Federal Tax Information (unaudited)
The Laudus International MarketMasters Fund elects to pass
through, under section 853 of the Internal Revenue Code, the foreign tax credit of $1,373,156 to its shareholders for the fiscal year ended October 31, 2020. The respective foreign source income on the fund is $17,581,757.
For the fiscal year ended October 31, 2020, the fund designates
$26,904,698 of the dividend distributions as qualified dividends for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2021 via IRS Form 1099 of the amounts for use in
preparing their 2020 income tax return.
Under section
852(b)(3)(C) of the Internal Revenue Code, the fund hereby designates $2,415,950 as long-term capital gain dividends for the fiscal year ended October 31, 2020.
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Liquidity Risk Management Program (Unaudited)
The Fund has adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Fund’s Board of Trustees (the “Board”) has designated the Fund’s investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Fund’s Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting the Fund were noted in the
report. In addition, CSIM provided its assessment that the program had been operating effectively in managing the Fund’s liquidity risk.
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Investment Advisory and Sub-Advisory Agreement Approval
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MarketMasters Fund
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Trustees and Officers
The tables below give information about the trustees and
officers of Schwab Capital Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust
and Laudus Trust. The Fund Complex includes 100 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 fund’s Statement of Additional Information, which is available free by calling 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
42
Laudus International MarketMasters Fund | Annual
Report
Laudus International
MarketMasters Fund
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
43
Laudus International MarketMasters Fund | Annual
Report
Laudus International
MarketMasters Fund
Glossary
44
Laudus International MarketMasters Fund | Annual
Report
Laudus International
MarketMasters Fund
Laudus Funds®
Laudus Funds offer investors access to some of the
world’s leading investment managers. With a rigorous manager selection process and ongoing oversight by Charles Schwab Investment Management, Laudus Funds offer single and multi-manager strategies as a complement to other funds managed by
Charles Schwab Investment Management. The list below shows all currently available Laudus Funds.
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 or, if available, the summary prospectus. Please call 1-877-824-5615 for a
prospectus for any Laudus 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 the Laudus Funds’ website at www.schwabfunds.com/laudusfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Laudus Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/laudusfunds_prospectus or the SEC’s
website at www.sec.gov.
Laudus Funds®
Annual
Report | October 31, 2020
Schwab Active Equity Funds
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity Fund
Schwab Health Care Fund
Schwab International Core Equity
Fund
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
This page is intentionally left blank.
Schwab Active Equity Funds
In
This Report
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 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
Schwab. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
1
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Performance at a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
All total returns on this page assume dividends
and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
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.
| 1 | 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. |
| 2 | 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. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
2
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Past performance is no guarantee of future
results.
Management views may have changed
since the report date.
3
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
The
Investment Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab Active Equity Funds | Annual Report
Schwab Active Equity Funds
The Investment
Environment (continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exhange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
5
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Fund Management
 |
Jonas Svallin, CFA, Vice President and Head of Active Equities, has overall responsibility for all aspects of the management of the funds and leads the Active Equities portfolio management and research team. 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 to 2009, Mr. Svallin was a principal and head portfolio manager at Algert Coldiron Investors LLC (now known as Algert Global). Prior to joining Algert, Mr. Svallin worked as a quantitative research associate at RCM Capital Management (now known as Allianz Global Investors) and a senior consultant at FactSet Research Systems. |
 |
Wei Li, Ph.D., CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2012, Ms. Li spent more than ten years at Barclays Global Investors (now known as BlackRock), where she held a number of positions. From 2001 to 2009, she worked in various roles in the global advanced active group, including portfolio management and quantitative research for both U.S. and international equity markets. After 2009, she worked in the defined contribution research and product development area for almost two years. |
 |
Iain Clayton, CFA, FRM, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Core Equity Fund, Schwab International Core Equity Fund and Schwab Health Care Fund. Prior to joining CSIM in 2013, Mr. Clayton spent more than five years at SSI Investment Management, where he was a portfolio manager and director of quantitative research. In these roles, Mr. Clayton co-managed multiple investment strategies and developed quantitative models and valuation approaches. From 2004 to 2008, he worked as a portfolio manager and director at RCM Capital Management (now known as Allianz Global Investors) and helped manage various equity portfolios and developed fundamental-based stock selection models. Prior to that, he was a vice president at Eureka Investment Advisors for almost three years and also served as a senior quantitative analyst and assistant portfolio manager. He has also worked as a quantitative research analyst at RCM Capital Management. |
 |
Holly Emerson, CFA, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Large-Cap Growth Fund and the Schwab Dividend Equity Fund. Prior to joining CSIM in 2014, Ms. Emerson spent nearly 10 years at Algert Coldiron Investors LLC (now known as Algert Global), a quantitative market-neutral hedge fund manager. She held a number of positions at Algert, including assistant portfolio manager and director of operations. In her various roles, she acted as the lead portfolio manager for the Canadian fund, conducted macroeconomic research, and managed relationships with prime brokerage investment banks. |
6
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund as of October 31, 2020
The Schwab Core Equity Fund
(the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily 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 at the time of purchase. 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.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline
with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March.
By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity
markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses.
Performance. The fund returned
4.65% for the 12-month reporting period ended October 31, 2020, underperforming the S&P 500® Index (the index), which the fund uses for
performance comparisons. The index returned 9.71% for the reporting period.
Positioning and Strategies.
The fund’s overweight investment in investment banking company Citigroup, Inc. weighed on the fund’s relative performance. The fund’s holdings of Citigroup returned approximately -40% for the reporting period, as many banks
struggled due to concerns around potential loan losses related to the COVID-19 pandemic, slower loan growth, rising credit risk, and the impact of low interest rates on their income.
Boston Properties, Inc., a real estate investment trust
company, was another detractor from the fund’s relative performance over the reporting period. The fund’s overweight investment in Boston Properties returned approximately -42% for the reporting period. Boston Properties, which owns
office space in cities across the country, was impacted by the shift to work from home related to the COVID-19 pandemic and the potential for reduced future demand for office space. The fund sold its position in Boston Properties in May 2020.
The fund’s performance relative to the index was
enhanced by an overweight to e-commerce company Amazon.com, Inc. The fund’s holdings of Amazon returned approximately 71% for the reporting period. Amazon benefitted from increased demand for cloud computing and work from home solutions
related to the COVID-19 pandemic, increased online shopping as stay-at-home orders were implemented, and a growing advertising presence.
The fund’s overweight position in technology company
Apple Inc. was another contributor to the fund’s relative performance as a result of the 5G iPhone release, consumer spending driven by fiscal stimulus payments, and the company pushing into providing services. The return of the fund’s
holdings of Apple was approximately 77% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
7
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Performance and
Fund Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1,2
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Core Equity Fund (7/1/96) | 4.65% | 8.59% | 11.24% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Fund Category: Morningstar Large Blend3 | 6.30% | 9.64% | 11.28% |
| Fund Expense Ratio4: 0.73% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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 | On September 7, 2012, the Schwab Premier Equity Fund merged into the fund. |
| 3 | 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. |
| 4 | As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
8
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Performance and
Fund Facts as of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets2
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
9
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund as of October 31, 2020
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 (including, for this purpose, any borrowings for investment purposes) in dividend
paying common and preferred stocks. 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.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Over the reporting period, growth stocks generally outperformed value, leading to the underperformance of high dividend-paying stocks compared to the broader stock market. Higher-yield stocks
generally underperformed as the market has been growth driven.
Performance. The fund returned
-13.30% for the 12-month reporting period ended October 31, 2020, underperforming the Russell 1000® Value Index (the index), which the fund uses for
performance comparisons. The index returned -7.57% for the reporting period.
As of October 31, 2020, the fund’s dividend yield was
3.12%, higher than the 2.51% dividend yield of the index. As of October 31, 2020, the fund’s 30-Day SEC yield was 2.12%.
Positioning and Strategies.
The fund’s position in insurance company Aviva plc weighed on the fund’s relative performance. The fund’s holdings of Aviva returned approximately -48% for the reporting period as insurance companies were impacted by low interest
rates, concerns about higher claims due to the COVID-19 pandemic, and suspension of dividends. Aviva was a non-index stock.
Investment banking company Citigroup, Inc. was another
detractor from the fund’s relative performance. The fund’s overweight investment in Citigroup returned approximately -40% for the reporting period as many banks struggled due to concerns around potential loan losses related to the
COVID-19 pandemic, slower loan growth, rising credit risk, and the impact of low interest rates on their income.
The fund’s performance relative to the index was
enhanced by the fund’s position in Cisco Systems, Inc., a multinational technology conglomerate. The fund held an overweight position in Cisco through June 2020, which had negatively impacted the relative performance of the fund. However, in
June, the weight of Cisco in the index increased significantly as part of its reconstitution. As a result, the fund ended up underweight in Cisco for the remainder of the reporting period, ultimately contributing to the fund’s relative
performance over the reporting period. The fund’s holdings of Cisco returned approximately -9% for the reporting period. Cisco was impacted by decreased enterprise spending as a result of the COVID-19 pandemic.
Information technology company Apple Inc. was another
contributor to the fund’s relative performance as a result of the 5G iPhone release, consumer spending driven by fiscal stimulus payments, and the company pushing into providing services. The return of the fund’s holdings of Apple was
approximately 77% for the reporting period. Apple was a non-index stock.
Management views and portfolio holdings may have changed
since the report date.
10
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund
Performance and Fund
Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1,2
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Dividend Equity Fund (9/2/03) | -13.30% | 2.63% | 7.60% |
| Russell 1000® Value Index | -7.57% | 5.82% | 9.48% |
| Dividend Equity Spliced Index | -7.57% | 5.82% | 9.68% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Fund Category: Morningstar Large Value3 | -7.37% | 5.38% | 8.64% |
| Fund Expense Ratio4: 0.89% | |||
Yields1
| 30-Day SEC Yield | 2.12% |
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
| 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 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 3 | 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. |
| 4 | As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
11
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund
Performance and Fund
Facts as of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets2
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
12
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund as of October 31, 2020
The Schwab Large-Cap Growth Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily in U.S. common stocks. Under normal circumstances, the fund invests at least 80% of its net assets (including, for
this purpose, any borrowings for investment purposes) 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.
Market Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market
indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for
the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, U.S. large-cap stocks outperformed small-cap stocks and growth stocks outperformed value
stocks.
Performance. The fund returned 21.60% for the 12-month reporting period ended October 31, 2020, underperforming the Russell 1000®
Growth Index (the index), which the fund uses for performance comparisons. The index returned 29.22% for the reporting period.
Positioning and Strategies.
The fund’s underweight investment in electric car company Tesla, Inc. weighed on the fund’s relative performance. The fund’s holdings of Tesla returned approximately 80% for the reporting period, benefitting from its large-cap and
growth characteristics. In addition, it saw solid demand from Chinese customers.
MasTec, Inc., an engineering company, was another detractor
from the fund’s relative performance. The fund’s holdings of MasTec returned approximately -43% for the reporting period. MasTec suffered from concerns about its oil and gas construction business. MasTec was a non-index stock.
The Boeing Co. contributed to the fund relative performance.
Boeing suffered from safety problems with the 737 MAX as well as decreased demand from airlines due to COVID-19 pandemic-related travel restrictions. The fund did not hold Boeing during the reporting period. Boeing was included in the index prior to
its reconstitution in June 2020.
The fund’s
overweight position in e-commerce company Amazon.com, Inc. was another contributor to the fund’s relative performance. The fund’s holdings of Amazon returned approximately 71% for the reporting period. Amazon benefitted from increased
demand for cloud computing and work from home solutions related to the COVID-19 pandemic, increased online shopping as stay-at-home orders were implemented, and a growing advertising presence.
Management views and portfolio holdings may have changed
since the report date.
13
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Large-Cap Growth Fund (10/3/05) | 21.60% | 12.91% | 13.46% |
| Russell 1000® Growth Index | 29.22% | 17.32% | 16.31% |
| Fund Category: Morningstar Large Growth2 | 25.92% | 14.64% | 14.19% |
| Fund Expense Ratios3: Net 0.99%; Gross 1.03% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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 the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
14
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
15
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund as of October 31, 2020
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 (including, for this purpose, any borrowings for investment purposes) 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.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline
with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March.
By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity
markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, U.S. large-cap stocks outperformed small-cap stocks.
Performance. The fund returned
-9.86% for the 12-month reporting period ended October 31, 2020, underperforming the Russell 2000® Index (the index), which the fund uses for
performance comparisons. The index returned -0.14% for the reporting period.
Positioning and Strategies.
The fund’s overweight investment in Atkore International Group, Inc. weighed on the fund’s relative performance. The fund’s holdings of Atkore International Group, a manufacturer and supplier of
metal products and electrical raceway solutions, returned approximately -40% for the reporting period. Atkore International Group underperformed due to pricing headwinds as well as a lack of a performance catalyst.
First Bancorp, a bank holding company, was another detractor
from the fund’s relative performance over the reporting period. The fund’s overweight investment in First Bancorp returned approximately -37% for the reporting period, underperforming other commercial banks partially as a result of it
being based in Puerto Rico which, as a U.S. territory and not a state, some investors view as riskier especially during times of market uncertainty.
The fund’s performance relative to the index was
enhanced by the fund’s holdings in Horizon Therapeutics plc, a biopharmaceutical company. The fund’s holdings of Horizon Therapeutics returned approximately 159% for the reporting period, as the company successfully transitioned from
primary care drugs to specialty drugs for rare diseases. Horizon Therapeutics was a non-index stock.
Multinational specialty biopharmaceutical company Emergent
BioSolutions, Inc. was another contributor to the fund’s relative performance as the company experienced momentum in contract development and manufacturing wins. The return of the fund’s overweight investment of Emergent BioSolutions was
approximately 57% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
16
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund
Performance and Fund
Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Small-Cap Equity Fund (7/1/03) | -9.86% | 3.16% | 9.19% |
| Russell 2000® Index | -0.14% | 7.27% | 9.64% |
| Fund Category: Morningstar Small Blend2 | -6.45% | 5.00% | 8.48% |
| Fund Expense Ratio3: 1.09% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
17
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund
Performance and Fund
Facts as of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets2
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 many other asset classes.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
18
Schwab Active Equity Funds | Annual Report
Schwab Hedged Equity Fund as of October 31, 2020
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 establishes 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 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.
Market Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market
indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for
the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses.
Performance. The fund returned
-9.33% for the 12-month reporting period ended October 31, 2020, underperforming the S&P 500® Index (the index), which the fund uses for
performance comparisons. The index returned 9.71% for the reporting period.
Positioning and Strategies.
Over the reporting period, stock selection within sectors detracted from the fund’s performance relative to the index. Allocation across sectors also detracted.
From a sector allocation standpoint, the fund’s short
positions in the information technology and consumer discretionary sectors and long positions in the real estate sector detracted from relative performance. Short positions in the energy, industrials, and financials sectors, however, contributed to
the fund’s relative performance.
Looking at stock
selection, long positions in the financials and industrials sectors and short positions in the industrials sector detracted from relative performance. Long positions in the real estate and energy sectors and short positions in the consumer staples
sector, however, contributed to the fund’s relative performance.
At the security level, the largest detractor from the total
return of the fund was the fund’s long position in financial services company Citigroup, Inc. Citigroup returned approximately -40% for the reporting period. In contrast, the fund’s long position in technology company Apple Inc.
contributed the most to the fund’s total return. The fund’s holdings of Apple returned approximately 77% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
19
Schwab Active Equity Funds | Annual Report
Schwab Hedged Equity Fund
Performance and Fund
Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Hedged Equity Fund (9/3/02) | -9.33% | 1.04% | 4.44% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Fund Category: Morningstar Long-Short Equity2 | 2.03% | 3.18% | 4.57% |
| Fund Expense Ratios3: Net 1.92%; Gross 1.94% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
The Schwab 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 | As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
20
Schwab Active Equity Funds | Annual Report
Schwab Hedged Equity Fund
Performance and Fund
Facts as of October 31, 2020 (continued)
Top Equity Short Holdings % of Net Assets1
Portfolio holdings may have changed since the report
date.
| 1 | This list is not a recommendation of any security by the investment adviser. |
21
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund as of October 31, 2020
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.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. U.S. health care stocks performed well over the reporting period, though slightly lagged the broader U.S. stock market. Health care stocks performed in line with the S&P 500® Index and performed better than the MSCI EAFE®
Index. Many health care stocks benefitted from COVID-19 related testing and diagnostic demands and the development of vaccines.
Performance. The fund returned
9.57% for the 12-month reporting period ended October 31, 2020, underperforming the Dow Jones Global Health Care Index (the index), which the fund uses for performance comparisons. The index returned 11.63% for the reporting period.
Positioning and Strategies.
The fund’s overweight investment in Merck & Co., Inc., a pharmaceutical company, weighed on the fund’s relative performance. The fund’s holdings of Merck returned approximately -11% for the reporting period, as a result of
concerns about the company’s increasing reliance on a single drug and the likelihood of merger and acquisitions in order to diversify pressured stock.
Biopharmaceutical company Regeneron Pharmaceutical, Inc. was
another detractor from the fund’s relative performance over the reporting period. The fund’s underweight investment in Regeneron Pharmaceutical returned approximately 19% for the reporting period. As the maker of an experimental COVID-19
antibody treatment, Regeneron Pharmaceutical performed well.
The fund’s performance relative to the index was
enhanced by an overweight investment in Horizon Therapeutics plc, a biopharmaceutical company. The fund’s holdings of Horizon Therapeutics returned approximately 159% for the reporting period, benefitting from strong demand for its major
drugs.
The fund’s overweight position in Thermo
Fisher Scientific, Inc., which manufactures scientific instruments, consumables, and chemicals, was another contributor to the fund’s relative performance, benefiting from COVID-19 related testing demand. The return of the fund’s
holdings of Thermo Fisher Scientific was approximately 57% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
22
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1,2
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Health Care Fund (7/3/00) | 9.57% | 7.76% | 13.79% |
| Dow Jones Global Health Care Index | 11.63% | 8.60% | 12.86% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Fund Category: Morningstar Health3 | 22.92% | 9.21% | 14.90% |
| Fund Expense Ratio4: 0.80% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Since the Schwab Health Care Fund focuses its investments on
companies involved in a specific sector, 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 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 3 | 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. |
| 4 | As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
23
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets1
Portfolio holdings may have changed since the report
date.
Source of Industry Classification: S&P and
MSCI.
| 1 | This list is not a recommendation of any security by the investment adviser. |
24
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund as of October 31, 2020
The Schwab International Core Equity Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily in the stocks of publicly traded companies located in developed market 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.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows and key U.S. market indices hit new record highs before falling back slightly by the end of the
reporting period, historic volatility remained and international equity markets lost steam during the final two months of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased
social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. The fund returned
-6.01% for the 12-month reporting period ended October 31, 2020, outperforming the MSCI EAFE® Index (Net) (the index), which the fund uses for
performance comparisons. The index returned -6.86% for the reporting period.
Positioning and Strategies.
The fund’s position in Tencent Holdings Ltd., a multinational technology conglomerate holding company, enhanced the fund’s relative performance. The fund’s holdings of Tencent Holdings returned approximately 87% in U.S. dollar
terms for the reporting period. Tencent benefitted from new game releases and an increase in gaming activity as people stayed home. Tencent Holdings was a non-index stock.
The fund’s overweight position in Sony Corp. was another
contributor to the fund’s relative performance as a result of an increase in demand for image sensors and excitement over the launch of a new PlayStation, the PS5. The return of the fund’s holdings of Sony was approximately 36% in U.S.
dollar terms for the reporting period.
The fund’s
position in Invincible Investment Corp., a real estate investment trust, weighed on the fund’s relative performance. The fund’s holdings of Invincible Investment returned approximately -53% in U.S. dollar terms for the reporting period,
impacted by the shutdown of global tourism and the postponement of the 2020 summer Olympics in Japan. Invincible Investment was a non-stock index. The fund sold its position in Invincible Investment Corp. in September 2020.
Insurance company Aviva plc was another detractor from the
fund’s relative performance. The fund’s overweight investment in Aviva returned approximately -29% in U.S. dollar terms for the reporting period as insurance companies were impacted by low interest rates, concerns about higher claims due
to the COVID-19 pandemic, and suspension of dividends. The fund sold its position in Aviva in September 2020.
Management views and portfolio holdings may have changed
since the report date.
25
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1,2
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab International Core Equity Fund (5/30/08) | -6.01% | 1.61% | 4.42% |
| MSCI EAFE® Index (Net)3 | -6.86% | 2.85% | 3.82% |
| Fund Category: Morningstar Foreign Large Blend4 | -4.19% | 3.23% | 3.65% |
| Fund Expense Ratios5: Net 0.86%; Gross 0.87% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date. |
| 5 | As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, refer to the financial highlights section of the financial statements. |
26
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Portfolio holdings may have changed since the
report date.
Source of Sector Classification:
S&P and MSCI.
International investments are
subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | This list is not a recommendation of any security by the investment adviser. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
27
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Fund Expenses
(Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202 | |
| Schwab Core Equity Fund | ||||
| Actual Return | 0.73% | $1,000.00 | $1,103.20 | $ 3.86 |
| Hypothetical 5% Return | 0.73% | $1,000.00 | $1,021.43 | $ 3.71 |
| Schwab Dividend Equity Fund | ||||
| Actual Return | 0.89% | $1,000.00 | $1,039.10 | $ 4.56 |
| Hypothetical 5% Return | 0.89% | $1,000.00 | $1,020.63 | $ 4.52 |
| Schwab Large-Cap Growth Fund | ||||
| Actual Return | 0.99% | $1,000.00 | $1,176.00 | $ 5.42 |
| Hypothetical 5% Return | 0.99% | $1,000.00 | $1,020.12 | $ 5.03 |
| Schwab Small-Cap Equity Fund | ||||
| Actual Return | 1.09% | $1,000.00 | $1,153.60 | $ 5.90 |
| Hypothetical 5% Return | 1.09% | $1,000.00 | $1,019.62 | $ 5.53 |
| Schwab Hedged Equity Fund3 | ||||
| Actual Return | 1.98% | $1,000.00 | $ 969.40 | $ 9.80 |
| Hypothetical 5% Return | 1.98% | $1,000.00 | $1,015.15 | $10.03 |
| Schwab Health Care Fund | ||||
| Actual Return | 0.80% | $1,000.00 | $1,036.30 | $ 4.09 |
| Hypothetical 5% Return | 0.80% | $1,000.00 | $1,021.08 | $ 4.06 |
| Schwab International Core Equity Fund | ||||
| Actual Return | 0.86% | $1,000.00 | $1,117.80 | $ 4.58 |
| Hypothetical 5% Return | 0.86% | $1,000.00 | $1,020.78 | $ 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 366 days of the fiscal year. |
| 3 | Schwab Hedged Equity Fund’s expense ratio includes non-recurring interest expense, stock loan fees and dividend expenses paid on securities sold short. |
28
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $21.87 | $22.40 | $24.36 | $19.65 | $23.10 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.20 | 0.21 | 0.26 | 0.34 | 0.38 | |
| Net realized and unrealized gains (losses) | 0.82 | 1.99 | 0.41 | 4.71 | (0.52) | |
| Total from investment operations | 1.02 | 2.20 | 0.67 | 5.05 | (0.14) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.20) | (0.27) | (0.34) | (0.34) | (0.36) | |
| Distributions from net realized gains | (0.45) | (2.46) | (2.29) | — | (2.95) | |
| Total distributions | (0.65) | (2.73) | (2.63) | (0.34) | (3.31) | |
| Net asset value at end of period | $22.24 | $21.87 | $22.40 | $24.36 | $19.65 | |
| Total return | 4.65% | 12.02% | 2.71% | 26.00% | (0.50%) | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.73% | 0.73% | 0.73% | 0.73% | 0.73% | |
| Gross operating expenses | 0.73% | 0.73% | 0.73% | 0.74% | 0.73% | |
| Net investment income (loss) | 0.91% | 1.01% | 1.12% | 1.53% | 1.93% | |
| Portfolio turnover rate | 97% | 98% | 101% | 86% | 80% | |
| Net assets, end of period (x 1,000,000) | $1,957 | $2,182 | $2,138 | $2,353 | $2,075 | |
1
Calculated based on the average shares outstanding during
the period.
29
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after calendar quarters on the fund’s website.
30
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
31
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $1,941,498,851 | $— | $— | $1,941,498,851 | |
| Other Investment Company1 | 12,873,240 | — | — | 12,873,240 | |
| Total | $1,954,372,091 | $— | $— | $1,954,372,091 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
32
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $1,490,583,697) | $1,954,372,091 | |
| Deposit with broker for futures contracts | 1,200,000 | |
| Receivables: | ||
| Dividends | 2,075,422 | |
| Fund shares sold | 1,199,628 | |
| Foreign tax reclaims | 374,104 | |
| Prepaid expenses | + | 18,797 |
| Total assets | 1,959,240,042 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser and administrator fees | 846,539 | |
| Shareholder service fees | 436,951 | |
| Fund shares redeemed | 915,251 | |
| Accrued expenses | + | 136,612 |
| Total liabilities | 2,335,353 | |
| Net Assets | ||
| Total assets | 1,959,240,042 | |
| Total liabilities | – | 2,335,353 |
| Net assets | $1,956,904,689 | |
| Net Assets by Source | ||
| Capital received from investors | 1,402,150,952 | |
| Total distributable earnings | 554,753,737 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,956,904,689 | 87,997,701 | $22.24 | ||
33
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $337,506) | $33,535,381 | |
| Securities on loan, net | + | 181,521 |
| Total investment income | 33,716,902 | |
| Expenses | ||
| Investment adviser and administrator fees | 9,713,496 | |
| Shareholder service fees | 5,019,597 | |
| Portfolio accounting fees | 70,325 | |
| Shareholder reports | 50,932 | |
| Professional fees | 42,554 | |
| Registration fees | 33,187 | |
| Transfer agent fees | 30,539 | |
| Independent trustees’ fees | 17,079 | |
| Custodian fees | 16,310 | |
| Other expenses | + | 26,057 |
| Total expenses | 15,020,076 | |
| Expense reduction by CSIM and its affiliates | – | 30,539 |
| Net expenses | – | 14,989,537 |
| Net investment income | 18,727,365 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on investments | 79,686,207 | |
| Net realized losses on futures contracts | + | (2,012,011) |
| Net realized gains | 77,674,196 | |
| Net change in unrealized appreciation (depreciation) on investments | + | (9,143,636) |
| Net realized and unrealized gains | 68,530,560 | |
| Increase in net assets resulting from operations | $87,257,925 | |
34
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $18,727,365 | $21,633,840 | ||
| Net realized gains | 77,674,196 | 45,629,093 | ||
| Net change in unrealized appreciation (depreciation) | + | (9,143,636) | 179,996,703 | |
| Increase in net assets from operations | 87,257,925 | 247,259,636 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($63,919,641) | ($258,813,892) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 4,154,672 | $86,639,129 | 11,415,378 | $217,630,660 | ||||
| Shares reinvested | 2,083,874 | 46,553,727 | 10,439,291 | 193,753,240 | ||||
| Shares redeemed | + | (18,036,297) | (381,670,564) | (17,535,305) | (356,277,403) | |||
| Net transactions in fund shares | (11,797,751) | ($248,477,708) | 4,319,364 | $55,106,497 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 99,795,452 | $2,182,044,113 | 95,476,088 | $2,138,491,872 | ||||
| Total increase or decrease | + | (11,797,751) | (225,139,424) | 4,319,364 | 43,552,241 | |||
| End of period | 87,997,701 | $1,956,904,689 | 99,795,452 | $2,182,044,113 | ||||
35
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.07 | $15.43 | $17.21 | $14.39 | $16.43 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.28 | 0.23 | 0.22 | 0.29 | 0.31 | |
| Net realized and unrealized gains (losses) | (2.15) | 0.93 | (0.27) | 2.75 | (0.29) | |
| Total from investment operations | (1.87) | 1.16 | (0.05) | 3.04 | 0.02 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.26) | (0.24) | (0.30) | (0.22) | (0.32) | |
| Distributions from net realized gains | (0.80) | (1.28) | (1.43) | — | (1.74) | |
| Total distributions | (1.06) | (1.52) | (1.73) | (0.22) | (2.06) | |
| Net asset value at end of period | $12.14 | $15.07 | $15.43 | $17.21 | $14.39 | |
| Total return | (13.30%) | 8.78% | (0.63%) | 21.19% | 0.26% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.89% | 0.89% | 0.88% | 0.88% | 0.88% | |
| Gross operating expenses | 0.90% | 0.89% | 0.88% | 0.88% | 0.89% | |
| Net investment income (loss) | 2.16% | 1.58% | 1.36% | 1.78% | 2.18% | |
| Portfolio turnover rate | 70% | 70% | 79% | 70% | 74% | |
| Net assets, end of period (x 1,000,000) | $577 | $847 | $1,249 | $1,469 | $1,560 | |
1
Calculated based on the average shares outstanding during
the period.
36
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after calendar quarters on the fund’s website.
37
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
38
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $283,934,834 | $— | $— | $283,934,834 | |
| Banks | 37,136,122 | 3,411,388 | — | 40,547,510 | |
| Capital Goods | 48,476,867 | 1,093,433 | — | 49,570,300 | |
| Diversified Financials | 40,758,817 | 1,020,994 | — | 41,779,811 | |
| Food & Staples Retailing | 6,731,739 | 2,038,582 | — | 8,770,321 | |
| Materials | 36,187,373 | 5,137,017 | — | 41,324,390 | |
| Media & Entertainment | 16,197,372 | 2,811,581 | — | 19,008,953 | |
| Pharmaceuticals, Biotechnology & Life Sciences | 33,459,787 | 10,787,865 | — | 44,247,652 | |
| Real Estate | 26,487,306 | 430,110 | — | 26,917,416 | |
| Technology Hardware & Equipment | 13,562,029 | 4,451,723 | — | 18,013,752 | |
| Short-Term Investment1 | — | 2,049,286 | — | 2,049,286 | |
| Total | $542,932,246 | $33,231,979 | $— | $576,164,225 |
| 1 | As categorized in Portfolio Holdings. |
39
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $544,457,368) | $576,164,225 | |
| Receivables: | ||
| Dividends | 1,149,503 | |
| Foreign tax reclaims | 137,095 | |
| Fund shares sold | 90,749 | |
| Prepaid expenses | + | 16,330 |
| Total assets | 577,557,902 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser and administrator fees | 309,324 | |
| Shareholder service fees | 126,686 | |
| Fund shares redeemed | 300,919 | |
| Accrued expenses | + | 119,585 |
| Total liabilities | 856,514 | |
| Net Assets | ||
| Total assets | 577,557,902 | |
| Total liabilities | – | 856,514 |
| Net assets | $576,701,388 | |
| Net Assets by Source | ||
| Capital received from investors | 572,705,412 | |
| Total distributable earnings | 3,995,976 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $576,701,388 | 47,518,830 | $12.14 | ||
40
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $123,534) | $21,051,847 | |
| Interest | 10,512 | |
| Securities on loan, net | + | 26,772 |
| Total investment income | 21,089,131 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,297,978 | |
| Shareholder service fees | 1,658,499 | |
| Portfolio accounting fees | 87,228 | |
| Shareholder reports | 37,827 | |
| Professional fees | 37,108 | |
| Registration fees | 28,948 | |
| Custodian fees | 26,186 | |
| Transfer agent fees | 16,855 | |
| Independent trustees’ fees | 10,951 | |
| Other expenses | + | 13,359 |
| Total expenses | 6,214,939 | |
| Expense reduction by CSIM and its affiliates | – | 44,623 |
| Net expenses | – | 6,170,316 |
| Net investment income | 14,918,815 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (28,811,207) | |
| Net realized gains on futures contracts | 103,224 | |
| Net realized losses on foreign currency transactions | + | (37,666) |
| Net realized losses | (28,745,649) | |
| Net change in unrealized appreciation (depreciation) on investments | (91,572,168) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 8,729 |
| Net change in unrealized appreciation (depreciation) | + | (91,563,439) |
| Net realized and unrealized losses | (120,309,088) | |
| Decrease in net assets resulting from operations | ($105,390,273) | |
41
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $14,918,815 | $14,944,406 | ||
| Net realized gains (losses) | (28,745,649) | 43,656,520 | ||
| Net change in unrealized appreciation (depreciation) | + | (91,563,439) | 7,941,778 | |
| Increase (decrease) in net assets from operations | (105,390,273) | 66,542,704 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($57,745,153) | ($116,674,245) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 3,025,001 | $39,046,505 | 4,035,151 | $55,294,907 | ||||
| Shares reinvested | 3,317,070 | 46,974,063 | 5,687,633 | 76,661,106 | ||||
| Shares redeemed | + | (15,016,968) | (193,138,459) | (34,473,540) | (483,993,577) | |||
| Net transactions in fund shares | (8,674,897) | ($107,117,891) | (24,750,756) | ($352,037,564) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 56,193,727 | $846,954,705 | 80,944,483 | $1,249,123,810 | ||||
| Total decrease | + | (8,674,897) | (270,253,317) | (24,750,756) | (402,169,105) | |||
| End of period | 47,518,830 | $576,701,388 | 56,193,727 | $846,954,705 | ||||
42
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $18.07 | $18.04 | $18.65 | $15.20 | $17.68 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.00 2 | 0.06 | 0.06 | 0.08 | 0.20 | |
| Net realized and unrealized gains (losses) | 3.76 | 1.79 | 0.75 | 4.04 | (0.12) | |
| Total from investment operations | 3.76 | 1.85 | 0.81 | 4.12 | 0.08 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.03) | (0.07) | (0.07) | (0.17) | (0.20) | |
| Distributions from net realized gains | (0.95) | (1.75) | (1.35) | (0.50) | (2.36) | |
| Total distributions | (0.98) | (1.82) | (1.42) | (0.67) | (2.56) | |
| Net asset value at end of period | $20.85 | $18.07 | $18.04 | $18.65 | $15.20 | |
| Total return | 21.60% | 12.18% | 4.46% | 28.10% | 0.54% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.99% | 0.99% | 0.99% | 0.99% | 1.00% 3 | |
| Gross operating expenses | 1.02% | 1.03% | 1.02% | 1.04% | 1.04% | |
| Net investment income (loss) | 0.01% | 0.34% | 0.30% | 0.48% | 1.32% | |
| Portfolio turnover rate | 65% | 67% | 88% | 81% | 84% | |
| Net assets, end of period (x 1,000,000) | $210 | $181 | $243 | $257 | $219 | |
1
Calculated based on the average shares outstanding during
the period.
2
Per-share amount was less than $0.005.
3
The ratio of net operating expenses would have been 0.99%,
if certain non-routine expenses had not been incurred.
43
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after calendar quarters on the fund’s website.
44
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
45
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $207,858,993 | $— | $— | $207,858,993 | |
| Short-Term Investment1 | — | 1,958,394 | — | 1,958,394 | |
| Liabilities | |||||
| Futures Contracts2 | (75,079) | — | — | (75,079) | |
| Total | $207,783,914 | $1,958,394 | $— | $209,742,308 |
| 1 | As categorized in Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
46
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $118,845,988) | $209,817,387 | |
| Deposit with broker for futures contracts | 216,000 | |
| Receivables: | ||
| Fund shares sold | 274,422 | |
| Dividends | 40,945 | |
| Foreign tax reclaims | 4,379 | |
| Prepaid expenses | + | 16,779 |
| Total assets | 210,369,912 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser and administrator fees | 138,329 | |
| Shareholder service fees | 45,241 | |
| Fund shares redeemed | 74,964 | |
| Variation margin on futures contracts | 22,560 | |
| Accrued expenses | + | 55,806 |
| Total liabilities | 336,900 | |
| Net Assets | ||
| Total assets | 210,369,912 | |
| Total liabilities | – | 336,900 |
| Net assets | $210,033,012 | |
| Net Assets by Source | ||
| Capital received from investors | 116,703,274 | |
| Total distributable earnings | 93,329,738 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $210,033,012 | 10,071,245 | $20.85 | ||
47
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $26,198) | $1,914,036 | |
| Interest | 1,419 | |
| Securities on loan, net | + | 6,093 |
| Total investment income | 1,921,548 | |
| Expenses | ||
| Investment adviser and administrator fees | 1,390,170 | |
| Shareholder service fees | 456,926 | |
| Professional fees | 33,642 | |
| Registration fees | 24,674 | |
| Portfolio accounting fees | 24,181 | |
| Independent trustees’ fees | 8,610 | |
| Shareholder reports | 7,392 | |
| Custodian fees | 7,064 | |
| Transfer agent fees | 6,708 | |
| Other expenses | + | 5,180 |
| Total expenses | 1,964,547 | |
| Expense reduction by CSIM and its affiliates | – | 52,937 |
| Net expenses | – | 1,911,610 |
| Net investment income | 9,938 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on investments | 2,261,164 | |
| Net realized gains on futures contracts | + | 397,107 |
| Net realized gains | 2,658,271 | |
| Net change in unrealized appreciation (depreciation) on investments | 34,128,924 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (75,079) |
| Net change in unrealized appreciation (depreciation) | + | 34,053,845 |
| Net realized and unrealized gains | 36,712,116 | |
| Increase in net assets resulting from operations | $36,722,054 | |
48
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $9,938 | $658,429 | ||
| Net realized gains | 2,658,271 | 9,266,572 | ||
| Net change in unrealized appreciation (depreciation) | + | 34,053,845 | 8,686,239 | |
| Increase in net assets from operations | 36,722,054 | 18,611,240 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($9,705,767) | ($24,256,179) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 2,205,536 | $41,760,250 | 1,083,640 | $17,768,963 | ||||
| Shares reinvested | 459,787 | 8,322,151 | 1,033,263 | 15,729,023 | ||||
| Shares redeemed | + | (2,598,754) | (47,874,418) | (5,570,871) | (89,814,641) | |||
| Net transactions in fund shares | 66,569 | $2,207,983 | (3,453,968) | ($56,316,655) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 10,004,676 | $180,808,742 | 13,458,644 | $242,770,336 | ||||
| Total increase or decrease | + | 66,569 | 29,224,270 | (3,453,968) | (61,961,594) | |||
| End of period | 10,071,245 | $210,033,012 | 10,004,676 | $180,808,742 | ||||
49
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.68 | $20.87 | $23.58 | $18.81 | $21.19 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.03 | 0.02 | 0.01 | (0.00) 2 | 0.07 | |
| Net realized and unrealized gains (losses) | (1.67) | (0.35) 3 | 0.32 | 4.86 | 0.12 | |
| Total from investment operations | (1.64) | (0.33) | 0.33 | 4.86 | 0.19 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.02) | (0.01) | — | (0.09) | (0.04) | |
| Distributions from net realized gains | — | (3.85) | (3.04) | — | (2.53) | |
| Total distributions | (0.02) | (3.86) | (3.04) | (0.09) | (2.57) | |
| Net asset value at end of period | $15.02 | $16.68 | $20.87 | $23.58 | $18.81 | |
| Total return | (9.86%) | 0.08% | 1.37% | 25.87% | 1.47% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 1.09% | 1.09% | 1.09% | 1.10% | 1.09% | |
| Gross operating expenses | 1.10% | 1.09% | 1.09% | 1.10% | 1.10% | |
| Net investment income (loss) | 0.17% | 0.09% | 0.06% | (0.01%) | 0.37% | |
| Portfolio turnover rate | 113% | 117% | 111% | 99% | 85% | |
| Net assets, end of period (x 1,000,000) | $491 | $579 | $573 | $645 | $571 | |
1
Calculated based on the average shares outstanding during
the period.
2
Per-share amount was less than $0.005.
3
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
50
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after calendar quarters on the fund’s website.
51
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
52
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
53
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2020 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $490,064,441 | $— | $— | $490,064,441 | |
| Other Investment Company1 | 4,699,616 | — | — | 4,699,616 | |
| Short-Term Investment1 | — | 1,441,419 | — | 1,441,419 | |
| Total | $494,764,057 | $1,441,419 | $— | $496,205,476 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments
in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
54
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $464,903,020) including securities on loan of $4,391,370 | $491,505,860 | |
| Collateral invested for securities on loan, at value (cost $4,699,616) | 4,699,616 | |
| Receivables: | ||
| Investments sold | 1,103,163 | |
| Dividends | 312,892 | |
| Fund shares sold | 188,453 | |
| Income from securities on loan | 5,742 | |
| Prepaid expenses | + | 13,225 |
| Total assets | 497,828,951 | |
| Liabilities | ||
| Collateral held for securities on loan | 4,699,616 | |
| Payables: | ||
| Investments bought | 853,748 | |
| Investment adviser and administrator fees | 366,449 | |
| Shareholder service fees | 109,891 | |
| Fund shares redeemed | 230,626 | |
| Accrued expenses | + | 90,701 |
| Total liabilities | 6,351,031 | |
| Net Assets | ||
| Total assets | 497,828,951 | |
| Total liabilities | – | 6,351,031 |
| Net assets | $491,477,920 | |
| Net Assets by Source | ||
| Capital received from investors | 555,166,855 | |
| Total distributable loss | (63,688,935) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $491,477,920 | 32,728,480 | $15.02 | ||
55
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $26,395) | $6,247,102 | |
| Interest | 5,581 | |
| Securities on loan, net | + | 73,783 |
| Total investment income | 6,326,466 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,069,530 | |
| Shareholder service fees | 1,225,007 | |
| Portfolio accounting fees | 55,376 | |
| Professional fees | 36,211 | |
| Registration fees | 29,805 | |
| Shareholder reports | 26,484 | |
| Custodian fees | 18,987 | |
| Transfer agent fees | 11,177 | |
| Independent trustees’ fees | 10,047 | |
| Other expenses | + | 10,960 |
| Total expenses | 5,493,584 | |
| Expense reduction by CSIM and its affiliates | – | 11,177 |
| Net expenses | – | 5,482,407 |
| Net investment income | 844,059 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (49,609,654) | |
| Net realized gains on futures contracts | + | 668,950 |
| Net realized losses | (48,940,704) | |
| Net change in unrealized appreciation (depreciation) on investments | + | (5,706,272) |
| Net realized and unrealized losses | (54,646,976) | |
| Decrease in net assets resulting from operations | ($53,802,917) | |
56
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $844,059 | $521,857 | ||
| Net realized losses | (48,940,704) | (40,911,996) | ||
| Net change in unrealized appreciation (depreciation) | + | (5,706,272) | 43,145,274 | |
| Increase (decrease) in net assets from operations | (53,802,917) | 2,755,135 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($635,564) | ($105,061,725) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 5,747,653 | $80,000,238 | 8,709,089 | $139,266,609 | ||||
| Shares reinvested | 28,552 | 496,524 | 5,236,122 | 80,112,670 | ||||
| Shares redeemed | + | (7,764,392) | (113,723,120) | (6,703,704) | (111,336,125) | |||
| Net transactions in fund shares | (1,988,187) | ($33,226,358) | 7,241,507 | $108,043,154 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 34,716,667 | $579,142,759 | 27,475,160 | $573,406,195 | ||||
| Total increase or decrease | + | (1,988,187) | (87,664,839) | 7,241,507 | 5,736,564 | |||
| End of period | 32,728,480 | $491,477,920 | 34,716,667 | $579,142,759 | ||||
57
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.49 | $16.89 | $17.65 | $16.25 | $17.46 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | (0.01) | 0.07 | 0.08 | 0.03 | 0.03 | |
| Net realized and unrealized gains (losses) | (1.42) | (0.34) | 0.24 | 1.85 | 0.49 | |
| Total from investment operations | (1.43) | (0.27) | 0.32 | 1.88 | 0.52 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.10) | (0.08) | (0.01) | — | (0.12) | |
| Distributions from net realized gains | — | (1.05) | (1.07) | (0.48) | (1.61) | |
| Total distributions | (0.10) | (1.13) | (1.08) | (0.48) | (1.73) | |
| Net asset value at end of period | $13.96 | $15.49 | $16.89 | $17.65 | $16.25 | |
| Total return | (9.33%) | (1.31%) | 1.75% | 11.71% | 3.55% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses (including dividend expense on short sales) | 1.92% | 1.93% | 1.66% | 1.64% | 1.85% | |
| Net operating expenses (excluding dividend expense on short sales) | 1.34% 2 | 1.34% 2 | 1.33% | 1.33% | 1.57% 3 | |
| Gross operating expenses | 1.96% | 1.95% | 1.67% | 1.65% | 1.87% | |
| Net investment income (loss) | (0.04%) | 0.46% | 0.43% | 0.16% | 0.22% | |
| Portfolio turnover rate | 168% | 176% | 180% | 163% | 142% | |
| Net assets, end of period (x 1,000,000) | $67 | $182 | $300 | $252 | $204 | |
1
Calculated based on the average shares outstanding during
the period.
2
The ratios of net operating expenses would have been 1.33%,
if interest expense had not been incurred.
3
The ratios of net operating expenses would have been 1.33%,
if stock loan fees on short sales had not been incurred.
58
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Portfolio
Holdings as of October 31, 2020
This section shows all the securities in the fund’s
portfolio and their values as of the report date.
The
fund files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after calendar quarters on the fund’s website.
59
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
60
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| Synopsys, Inc. *(a) | 4,697 | 1,004,500 |
| Visa, Inc., Class A | 1,029 | 186,980 |
| 9,747,967 | ||
| Technology Hardware & Equipment 7.8% | ||
| Apple Inc. (a) | 32,113 | 3,495,821 |
| Ciena Corp. * | 11,389 | 448,613 |
| Jabil, Inc. (a) | 24,622 | 815,973 |
| SYNNEX Corp. | 3,551 | 467,454 |
| 5,227,861 | ||
| Telecommunication Services 0.5% | ||
| AT&T, Inc. | 9,321 | 251,853 |
| CenturyLink, Inc. | 9,740 | 83,959 |
| 335,812 | ||
| Transportation 2.2% | ||
| Air Transport Services Group, Inc. * | 15,320 | 429,573 |
| Atlas Air Worldwide Holdings, Inc. * | 1,227 | 72,589 |
| Marten Transport Ltd. | 21,704 | 333,048 |
| Old Dominion Freight Line, Inc. | 193 | 36,741 |
| Werner Enterprises, Inc. | 9,904 | 376,550 |
| XPO Logistics, Inc. * | 2,426 | 218,340 |
| 1,466,841 | ||
| Utilities 2.6% | ||
| Entergy Corp. | 5,477 | 554,382 |
| NRG Energy, Inc. (a) | 29,916 | 945,944 |
| Vistra Corp. (a) | 15,583 | 270,677 |
| 1,771,003 | ||
| Total Common Stock | ||
| (Cost $56,263,093) | 66,802,072 | |
| Preferred Stock 0.1% of net assets | ||
| Retailing 0.1% | ||
| Qurate Retail, Inc. | 453 | 44,312 |
| Total Preferred Stock | ||
| (Cost $42,510) | 44,312 | |
61
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
62
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $66,802,072 | $— | $— | $66,802,072 | |
| Preferred Stock1 | 44,312 | — | — | 44,312 | |
| Liabilities | |||||
| Short Sales1 | (26,224,667) | — | — | (26,224,667) | |
| Total | $40,621,717 | $— | $— | $40,621,717 |
| 1 | As categorized in Portfolio Holdings. |
63
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $56,305,603) | $66,846,384 | |
| Deposit with broker for short sales | 26,738,574 | |
| Receivables: | ||
| Investments sold | 273,221 | |
| Dividends | 48,625 | |
| Fund shares sold | 753 | |
| Prepaid expenses | + | 13,192 |
| Total assets | 93,920,749 | |
| Liabilities | ||
| Securities sold short, at value (proceeds $26,792,419) | 26,224,667 | |
| Payables: | ||
| Investments bought | 103,964 | |
| Investment adviser and administrator fees | 64,201 | |
| Shareholder service fees | 12,209 | |
| Due to custodian | 60,559 | |
| Fund shares redeemed | 45,494 | |
| Dividends on short sales | 19,826 | |
| Accrued expenses | + | 124,592 |
| Total liabilities | 26,655,512 | |
| Net Assets | ||
| Total assets | 93,920,749 | |
| Total liabilities | – | 26,655,512 |
| Net assets | $67,265,237 | |
| Net Assets by Source | ||
| Capital received from investors | 77,227,254 | |
| Total distributable loss | (9,962,017) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $67,265,237 | 4,817,227 | $13.96 | ||
64
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $24,964) | $1,975,201 | |
| Rebates on short sales, net of fees | 194,374 | |
| Securities on loan, net | + | 215 |
| Total investment income | 2,169,790 | |
| Expenses | ||
| Investment adviser and administrator fees | 1,213,594 | |
| Shareholder service fees | 242,891 | |
| Dividends on short sales | 666,460 | |
| Professional fees | 38,923 | |
| Portfolio accounting fees | 25,856 | |
| Registration fees | 25,414 | |
| Custodian fees | 9,293 | |
| Interest expense | 8,560 | |
| Independent trustees’ fees | 8,316 | |
| Transfer agent fees | 7,960 | |
| Shareholder reports | 6,824 | |
| Other expenses | + | 4,937 |
| Total expenses | 2,259,028 | |
| Expense reduction by CSIM and its affiliates | – | 46,789 |
| Net expenses | – | 2,212,239 |
| Net investment loss | (42,449) | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (381,875) | |
| Net realized gains on futures contracts | 376,569 | |
| Net realized losses on short sales | + | (4,821,374) |
| Net realized losses | (4,826,680) | |
| Net change in unrealized appreciation (depreciation) on investments | (4,949,781) | |
| Net change in unrealized appreciation (depreciation) on short sales | + | (1,090,069) |
| Net change in unrealized appreciation (depreciation) | + | (6,039,850) |
| Net realized and unrealized losses | (10,866,530) | |
| Decrease in net assets resulting from operations | ($10,908,979) | |
65
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Hedged Equity Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income (loss) | ($42,449) | $1,100,935 | ||
| Net realized losses | (4,826,680) | (15,812,685) | ||
| Net change in unrealized appreciation (depreciation) | + | (6,039,850) | 7,919,579 | |
| Decrease in net assets from operations | (10,908,979) | (6,792,171) | ||
| Distributions to Shareholders | ||||
| Total distributions | ($1,081,623) | ($19,341,478) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 805,921 | $12,059,020 | 3,932,131 | $60,687,628 | ||||
| Shares reinvested | 39,687 | 632,208 | 1,047,501 | 15,597,289 | ||||
| Shares redeemed | + | (7,802,666) | (115,824,167) | (10,987,256) | (168,052,659) | |||
| Net transactions in fund shares | (6,957,058) | ($103,132,939) | (6,007,624) | ($91,767,742) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 11,774,285 | $182,388,778 | 17,781,909 | $300,290,169 | ||||
| Total decrease | + | (6,957,058) | (115,123,541) | (6,007,624) | (117,901,391) | |||
| End of period | 4,817,227 | $67,265,237 | 11,774,285 | $182,388,778 | ||||
66
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $25.08 | $25.85 | $25.44 | $21.56 | $26.68 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.26 | 0.26 | 0.23 | 0.21 | 0.19 | |
| Net realized and unrealized gains (losses) | 2.11 | 1.27 | 1.96 | 4.24 | (1.52) | |
| Total from investment operations | 2.37 | 1.53 | 2.19 | 4.45 | (1.33) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.29) | (0.24) | (0.24) | (0.20) | (0.16) | |
| Distributions from net realized gains | (0.89) | (2.06) | (1.54) | (0.37) | (3.63) | |
| Total distributions | (1.18) | (2.30) | (1.78) | (0.57) | (3.79) | |
| Net asset value at end of period | $26.27 | $25.08 | $25.85 | $25.44 | $21.56 | |
| Total return | 9.57% | 6.51% | 9.13% | 21.10% | (5.78%) | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.80% | 0.80% | 0.80% | 0.81% | 0.80% | |
| Gross operating expenses | 0.80% | 0.80% | 0.80% | 0.81% | 0.80% | |
| Net investment income (loss) | 1.01% | 1.05% | 0.91% | 0.89% | 0.82% | |
| Portfolio turnover rate | 73% | 45% | 45% | 42% | 54% | |
| Net assets, end of period (x 1,000,000) | $746 | $779 | $826 | $853 | $853 | |
1
Calculated based on the average shares outstanding during
the period.
67
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after calendar quarters on the fund’s website.
68
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $614,278,035 | $— | $— | $614,278,035 | |
| Australia | — | 3,635,612 | — | 3,635,612 | |
| China | — | 4,381,059 | — | 4,381,059 | |
| Denmark | — | 7,363,422 | — | 7,363,422 | |
| France | 5,968,008 | 2,589,402 | — | 8,557,410 | |
| Germany | — | 4,315,312 | — | 4,315,312 | |
| Hong Kong | — | 4,680,670 | — | 4,680,670 | |
| Italy | — | 4,812,068 | — | 4,812,068 | |
| Japan | — | 18,082,865 | — | 18,082,865 | |
| Luxembourg | — | 796,320 | — | 796,320 | |
| New Zealand | — | 7,379,359 | — | 7,379,359 | |
| Republic of Korea | — | 8,274,157 | — | 8,274,157 | |
| Spain | — | 378,577 | — | 378,577 | |
| Sweden | 1,663,284 | 7,757,015 | — | 9,420,299 | |
| Switzerland | — | 34,837,511 | — | 34,837,511 | |
| Taiwan | — | 4,186,116 | — | 4,186,116 | |
| United Kingdom | — | 6,221,324 | — | 6,221,324 | |
| Total | $621,909,327 | $119,690,789 | $— | $741,600,116 |
| 1 | As categorized in Portfolio Holdings. |
69
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $516,900,992) | $741,600,116 | |
| Foreign currency, at value (cost $2,223,436) | 2,216,970 | |
| Receivables: | ||
| Investments sold | 7,634,050 | |
| Foreign tax reclaims | 1,376,118 | |
| Dividends | 914,311 | |
| Fund shares sold | 415,913 | |
| Prepaid expenses | + | 16,107 |
| Total assets | 754,173,585 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 7,306,987 | |
| Investment adviser and administrator fees | 362,889 | |
| Shareholder service fees | 155,438 | |
| Fund shares redeemed | 522,440 | |
| Due to custodian | 8,048 | |
| Accrued expenses | + | 112,490 |
| Total liabilities | 8,468,292 | |
| Net Assets | ||
| Total assets | 754,173,585 | |
| Total liabilities | – | 8,468,292 |
| Net assets | $745,705,293 | |
| Net Assets by Source | ||
| Capital received from investors | 438,126,307 | |
| Total distributable earnings | 307,578,986 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $745,705,293 | 28,385,542 | $26.27 | ||
70
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $420,688) | $13,845,217 | |
| Interest | 10,758 | |
| Securities on loan, net | + | 50,127 |
| Total investment income | 13,906,102 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,101,607 | |
| Shareholder service fees | 1,776,076 | |
| Portfolio accounting fees | 84,580 | |
| Custodian fees | 39,531 | |
| Shareholder reports | 37,425 | |
| Professional fees | 34,647 | |
| Registration fees | 30,665 | |
| Transfer agent fees | 23,712 | |
| Independent trustees’ fees | 11,200 | |
| Other expenses | + | 22,061 |
| Total expenses | 6,161,504 | |
| Expense reduction by CSIM and its affiliates | – | 23,712 |
| Net expenses | – | 6,137,792 |
| Net investment income | 7,768,310 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on investments | 77,453,384 | |
| Net realized gains on futures contracts | 49,223 | |
| Net realized gains on foreign currency transactions | + | 22,011 |
| Net realized gains | 77,524,618 | |
| Net change in unrealized appreciation (depreciation) on investments | (16,843,543) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 86,702 |
| Net change in unrealized appreciation (depreciation) | + | (16,756,841) |
| Net realized and unrealized gains | 60,767,777 | |
| Increase in net assets resulting from operations | $68,536,087 | |
71
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $7,768,310 | $8,419,505 | ||
| Net realized gains | 77,524,618 | 26,005,472 | ||
| Net change in unrealized appreciation (depreciation) | + | (16,756,841) | 14,471,726 | |
| Increase in net assets from operations | 68,536,087 | 48,896,703 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($35,647,551) | ($73,744,967) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 2,950,067 | $75,727,246 | 2,837,228 | $69,277,171 | ||||
| Shares reinvested | 1,220,267 | 31,165,636 | 2,764,704 | 64,998,182 | ||||
| Shares redeemed | + | (6,832,001) | (172,829,403) | (6,495,890) | (156,442,620) | |||
| Net transactions in fund shares | (2,661,667) | ($65,936,521) | (893,958) | ($22,167,267) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 31,047,209 | $778,753,278 | 31,941,167 | $825,768,809 | ||||
| Total decrease | + | (2,661,667) | (33,047,985) | (893,958) | (47,015,531) | |||
| End of period | 28,385,542 | $745,705,293 | 31,047,209 | $778,753,278 | ||||
72
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $10.04 | $9.64 | $11.27 | $9.20 | $9.62 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.14 | 0.24 | 0.24 | 0.22 | 0.22 | |
| Net realized and unrealized gains (losses) | (0.71) | 0.41 | (1.58) | 2.08 | (0.45) | |
| Total from investment operations | (0.57) | 0.65 | (1.34) | 2.30 | (0.23) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.36) | (0.25) | (0.26) | (0.23) | (0.19) | |
| Distributions from net realized gains | — | — | (0.03) | — | — | |
| Total distributions | (0.36) | (0.25) | (0.29) | (0.23) | (0.19) | |
| Net asset value at end of period | $9.11 | $10.04 | $9.64 | $11.27 | $9.20 | |
| Total return | (6.01%) | 7.08% | (12.18%) | 25.58% | (2.41%) | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.86% | 0.86% | 0.86% | 0.86% | 0.86% | |
| Gross operating expenses | 0.88% | 0.87% | 0.89% | 0.90% | 0.91% | |
| Net investment income (loss) | 1.51% | 2.44% | 2.22% | 2.15% | 2.40% | |
| Portfolio turnover rate | 97% | 91% | 98% | 85% | 90% | |
| Net assets, end of period (x 1,000,000) | $664 | $976 | $1,166 | $1,227 | $772 | |
1
Calculated based on the average shares outstanding during
the period.
73
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2020
This
section shows all the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with
the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after calendar quarters on the fund’s website.
74
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2020 (continued)
75
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| RELX plc | 65,498 | 1,296,068 |
| Royal Dutch Shell plc, A Shares | 308,850 | 3,885,172 |
| Spirent Communications plc | 1,025,133 | 3,848,595 |
| Standard Chartered plc * | 376,915 | 1,722,428 |
| Unilever plc | 234,670 | 13,373,566 |
| Vodafone Group plc | 379,071 | 505,669 |
| 78,452,483 | ||
| Total Common Stock | ||
| (Cost $593,481,507) | 659,721,341 | |
| Other Investment Company 0.0% of net assets | ||
| Securities Lending Collateral 0.0% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (b) | 315,008 | 315,008 |
| Total Other Investment Company | ||
| (Cost $315,008) | 315,008 | |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $300,595. |
| (b) | The rate shown is the 7-day yield. |
| REIT — | Real Estate Investment Trust |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $352,027,448 | $— | $352,027,448 | |
| Austria | 4,859,044 | 1,435,697 | — | 6,294,741 | |
| Canada | 6,578,110 | — | — | 6,578,110 | |
| France | 6,367,701 | 62,659,646 | — | 69,027,347 | |
| Germany | 7,566,768 | 37,316,290 | — | 44,883,058 | |
| Japan | 4,072,783 | 176,837,854 | — | 180,910,637 | |
| Other Investment Company1 | 315,008 | — | — | 315,008 | |
| Total | $29,759,414 | $630,276,935 | $— | $660,036,349 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
76
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $593,481,507) including securities on loan of $300,595 | $659,721,341 | |
| Collateral invested for securities on loan, at value (cost $315,008) | 315,008 | |
| Foreign currency, at value (cost $981,629) | 965,703 | |
| Deposit with broker for futures contracts | 387,200 | |
| Receivables: | ||
| Investments sold | 2,348,983 | |
| Foreign tax reclaims | 1,778,724 | |
| Dividends | 1,712,031 | |
| Fund shares sold | 118,610 | |
| Income from securities on loan | 48 | |
| Prepaid expenses | + | 15,827 |
| Total assets | 667,363,475 | |
| Liabilities | ||
| Collateral held for securities on loan | 315,008 | |
| Payables: | ||
| Investments bought | 1,035,453 | |
| Investment adviser and administrator fees | 358,963 | |
| Shareholder service fees | 148,188 | |
| Due to custodian | 584,747 | |
| Fund shares redeemed | 157,034 | |
| Accrued expenses | + | 277,522 |
| Total liabilities | 2,876,915 | |
| Net Assets | ||
| Total assets | 667,363,475 | |
| Total liabilities | – | 2,876,915 |
| Net assets | $664,486,560 | |
| Net Assets by Source | ||
| Capital received from investors | 772,870,132 | |
| Total distributable loss | (108,383,572) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $664,486,560 | 72,971,719 | $9.11 | ||
77
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $2,251,471) | $18,691,393 | |
| Securities on loan, net | + | 94,261 |
| Total investment income | 18,785,654 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,607,643 | |
| Shareholder service fees | 1,943,806 | |
| Custodian fees | 164,498 | |
| Portfolio accounting fees | 83,365 | |
| Professional fees | 43,222* | |
| Registration fees | 32,065 | |
| Transfer agent fees | 31,855 | |
| Shareholder reports | 25,693 | |
| Independent trustees’ fees | 11,383 | |
| Other expenses | + | 30,221 |
| Total expenses | 6,973,751 | |
| Expense reduction by CSIM and its affiliates | – | 133,246* |
| Net expenses | – | 6,840,505 |
| Net investment income | 11,945,149 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (49,468,365) | |
| Net realized gains on futures contracts | 89,571 | |
| Net realized losses on foreign currency transactions | + | (99,924) |
| Net realized losses | (49,478,718) | |
| Net change in unrealized appreciation (depreciation) on investments | (22,787,222) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 108,919 |
| Net change in unrealized appreciation (depreciation) | + | (22,678,303) |
| Net realized and unrealized losses | (72,157,021) | |
| Decrease in net assets resulting from operations | ($60,211,872) | |
| * | Includes professional fees of $304 associated with the filing of tax claims in the European Union deemed to be non-routine expenses of the fund. See financial notes 2(d) and 4 for additional information. |
78
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $11,945,149 | $25,716,639 | ||
| Net realized losses | (49,478,718) | (113,223,498) | ||
| Net change in unrealized appreciation (depreciation) | + | (22,678,303) | 154,448,499 | |
| Increase (decrease) in net assets from operations | (60,211,872) | 66,941,640 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($34,016,026) | ($29,979,566) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 10,774,447 | $93,817,527 | 16,140,498 | $153,928,560 | ||||
| Shares reinvested | 2,656,064 | 26,826,251 | 2,751,748 | 24,710,692 | ||||
| Shares redeemed | + | (37,617,681) | (337,440,372) | (42,745,841) | (406,370,048) | |||
| Net transactions in fund shares | (24,187,170) | ($216,796,594) | (23,853,595) | ($227,730,796) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 97,158,889 | $975,511,052 | 121,012,484 | $1,166,279,774 | ||||
| Total decrease | + | (24,187,170) | (311,024,492) | (23,853,595) | (190,768,722) | |||
| End of period | 72,971,719 | $664,486,560 | 97,158,889 | $975,511,052 | ||||
79
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Active Equity
Funds
Financial Notes
1. Business Structure of the Funds:
Each of
the funds 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 Core Equity Fund | Schwab Target 2040 Fund |
| Schwab Dividend Equity Fund | Schwab Target 2045 Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2050 Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2055 Fund |
| Schwab Hedged Equity Fund | Schwab Target 2060 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 | Schwab Fundamental International Large Company Index Fund |
| Schwab Small-Cap Index Fund® | Schwab Fundamental International Small Company Index Fund |
| Schwab Total Stock Market Index Fund® | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Fundamental Global Real Estate Index Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Target 2010 Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Target 2015 Index Fund |
| Schwab International Index Fund® | Schwab Target 2020 Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Target 2025 Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Target 2030 Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Target 2035 Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2040 Index Fund |
| Laudus International MarketMasters Fund™ | Schwab Target 2045 Index Fund |
| Schwab Balanced Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2020 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2025 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab Target 2035 Fund | |
Each fund in this report offers one share class. Shares are
bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. 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:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The funds invest in certain other investment
companies (underlying funds). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (SEC)
and are available on the SEC’s website at www.sec.gov.
(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 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.
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Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
•
Foreign equity security 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 NAV 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. The Board regularly reviews fair value determinations made by the funds pursuant to these procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
• Underlying funds: Mutual funds are valued at their respective NAVs.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which
are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency
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Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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.
•
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, 2020 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 a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received
by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures contracts are
traded publicly on exchanges, and their fair value may change daily.
Securities Lending: Under
the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued
or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the
current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of
securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the
funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement.
Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and
broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending agent. The aggregate fair value
of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan. Securities lending fees paid to the unaffiliated lending agents start at 10% of gross lending revenue, with
subsequent breakpoints to a low of 7.5%. In this context, the gross lending revenue equals the income received from the investment of cash collateral and fees paid by borrowers less any rebates paid to the borrowers. Any expenses charged by the cash
collateral fund are in addition to these fees. All remaining revenue is retained by the fund, as applicable. No portion of lending revenue is paid to or retained by Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) or any
affiliate of CSIM.
As of October 31, 2020,
certain funds had securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of October 31, 2020, if any, are disclosed in each fund’s Portfolio Holdings and Statement
of Assets and Liabilities.
Cash Management
Transactions: The funds may subscribe to the Brown Brothers Harriman & Co. (BBH) Cash Management Service Sweep (CMS Sweep). The BBH CMS Sweep is an investment product that automatically sweeps the funds’
cash balances into overnight offshore time deposits with either the BBH Grand Cayman branch or a branch of a pre-approved commercial bank. This
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Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
fully automated
program allows the funds to earn interest on cash balances. Excess cash invested with deposit institutions domiciled outside of the U.S., as with any offshore deposit, may be subject to sovereign actions in the jurisdiction of the deposit
institution including, but not limited to, freeze, seizure or diminution. The funds bear the risk associated with the repayment of principal and payment of interest on such instruments by the institution with which the deposit is ultimately
placed.
Short Sales:
Dividends declared on short positions are recorded on the ex-date as an expense. 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:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies
are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and
expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or
depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are
reported in foreign currency transactions or translations 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.
If a 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 a 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 a fund’s records and presented in the Statement of Operations. A fund may also incur stock loan fees which represent the cost of borrowing securities used
for short sale transactions. A fund may also earn rebates as an element of the broker arrangement, which are recorded as an offset to stock loan fees on short sales transactions. The stock loan fees on short sales are recognized on the Statement of
Operations. In the event that rebates exceed the stock loan fees on short sales, the net rebates are recognized as a component of investment income on the Statement of Operations.
Gains realized by the funds on the sale of securities in
certain foreign countries may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized appreciation to provide for potential non-U.S. taxes payable upon the sale of these securities.
When a fund closes out a futures contract or forward
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.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends, in
the form of cash or non-cash income such as in the form of additional securities, and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the date the ex-dividend date is confirmed. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
Income received from foreign sources may result in
withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate
is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
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Schwab Active Equity
Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
The Schwab
International Core Equity Fund filed claims to recover taxes previously withheld in certain European Union countries on the basis that those countries had purportedly violated certain provisions in the Treaty on the Functioning of the European
Union. These filings are subject to various administrative and judicial proceedings within these countries, and all professional fees associated with these filings have been paid by the investment adviser. For additional details see Affiliates and
Affiliated Transactions in financial note 4, Other Affiliated Transactions.
(e) Expenses:
Expenses that are specific to a fund are charged directly
to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets.
(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 distributions. The funds make distributions from net realized capital gains, if any, once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform to
GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that
once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2020, if any, are reflected in each fund’s Statement of Assets and
Liabilities.
(j) Indemnification:
Under the funds’ organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide
general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to
these arrangements to be remote.
3. Risk Factors:
Investing in the funds may involve
certain risks, as discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets
rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition, the
occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is tied to these markets, the value of an
investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to
fall over short or extended periods of time.
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Funds
Financial Notes
(continued)
3. Risk
Factors (continued):
Management Risk. 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.
Market Capitalization Risk.
Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall
behind other types of investments, a fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Mid-Cap Company Risk.
Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.
Small-Cap Company Risk.
Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.
Growth Investing Risk.
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.
Dividend Paying Stock Risk.
To the extent that a fund invests in dividend paying stocks, the fund’s performance will correlate 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.
Derivatives Risk. The
principal type of derivative used by a fund is a futures contract. A futures contract is an agreement to buy or sell a financial instrument at a specific price on a specific day. The use of derivatives that are subject to regulation by the Commodity
Futures Trading Commission (CFTC), could cause a fund to become a commodity pool, which would require the fund to comply with certain CFTC rules. A fund’s use of derivative instruments involves risks different from, or possibly greater than,
the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk, market risk and management risk, are discussed elsewhere in this section. A fund’s use of derivatives
is also subject to lack of availability risk, credit risk, leverage risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk
management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a
disproportionately large impact on 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 a fund to realize higher amounts of short-term capital gains. A fund’s use of derivatives could reduce the fund’s performance, increase its volatility, and
could cause the fund to lose more than the initial amount invested.
Liquidity Risk. A fund may
be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.
Exchange-Traded Fund (ETF) Risk. When a fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile than the
underlying portfolio of securities.
REITs Risk. 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.
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Schwab Active Equity
Funds
Financial Notes
(continued)
3. Risk
Factors (continued):
Short Sales Risk. 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. The price of a borrowed security in a short sale transaction may be more or less than the price at which the security was sold by the fund. 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 and could result in a loss to the fund.
Foreign Investment Risk. A
fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political,
regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing
accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of a fund’s investments, and could
impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in
value relative to the U.S. dollar. To the extent a fund’s investments in a single country or a limited number of countries represent a large percentage of the fund’s assets, the fund’s performance may be adversely affected by the
economic, political, regulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that is geographically diversified.
Emerging Markets Risk.
Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting
requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in developed countries. As a result, there may
be an increased risk of illiquidity and price volatility associated with a fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar, and, at times, it may be difficult to
value such investments.
Concentration Risk. 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 Risk.
Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Portfolio Turnover Risk.
The funds buy and sell portfolio securities actively. This may cause a fund’s portfolio turnover rate and transaction costs to rise, which may lower a fund’s performance and may increase the likelihood
of capital gains distributions.
Please refer
to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between CSIM and the trust.
For its advisory and administrative services to the funds, CSIM
is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:
| % of Average Daily Net Assets | Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund |
Schwab
International Core Equity Fund |
| Flat rate | 0.47% | 0.62% | 0.72% | 0.81% | 1.05% | 0.58% |
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Funds
Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
| % of Average Daily Net Assets | Schwab
Health Care Fund |
| First $500 million | 0.54% |
| $500 million to $1 billion | 0.515% |
| Over $1 billion | 0.49% |
For the period ended October 31,
2020, the aggregate advisory fee paid to CSIM by the Schwab Health Care Fund was 0.53%, as a percentage of the fund’s average daily net assets.
Shareholder Servicing
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 financial intermediaries, including Charles Schwab & Co., Inc. (Schwab), a broker-dealer affiliate of CSIM (together, service providers), of certain
shareholder services to the current shareholders of the funds.
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, as distributor of the funds (or, in the case of payments made to Schwab
acting as a service provider, pursuant to Schwab’s written agreement with the funds), and a fund 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 provider. Payments under the Plan are made as described above without regard to whether the fee is more or less than the service provider’s actual cost of providing the services, and if more, such excess may be retained as profit by
the service provider.
Expense Limitation
Although these agreements specify certain fees for these
services, CSIM and its affiliates have made an additional agreement 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 charged, excluding interest, taxes and certain non-routine expenses (expense limitation). The expense limitation as a percentage of average daily net assets is as follows:
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund |
Schwab
Health Care Fund |
Schwab
International Core Equity Fund |
| 0.75% | 0.89% | 0.99% | 1.12% | 1.33%* | 0.82% | 0.86% |
| * | Excludes dividend expenses and stock loan fees paid on securities sold short. |
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Funds
Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Investments from
Affiliates
Certain funds in the Fund Complex (for
definition refer to Trustees and Officers section) may own shares of other funds in the Fund Complex. The table below reflects the percentages of shares of each fund in this report that are owned by other funds in the Fund Complex as of October 31,
2020, as applicable:
| Underlying Funds | |||||||
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Small-Cap Equity Fund |
Schwab
International Core Equity Fund | ||||
| Schwab Balanced Fund | 10.0% | —% | 12.2% | —% | |||
| Schwab Monthly Income Fund - Enhanced Payout | —% | 2.8% | —% | —% | |||
| Schwab Monthly Income Fund - Maximum Payout | —% | 1.8% | —% | —% | |||
| Schwab Monthly Income Fund - Moderate Payout | —% | 2.1% | —% | —% | |||
| Schwab Target 2010 Fund | 0.1% | 0.0%* | 0.1% | 0.3% | |||
| Schwab Target 2015 Fund | 0.2% | 0.0%* | 0.2% | 0.4% | |||
| Schwab Target 2020 Fund | 1.4% | 0.1% | 1.4% | 3.1% | |||
| Schwab Target 2025 Fund | 2.4% | 0.2% | 2.5% | 4.9% | |||
| Schwab Target 2030 Fund | 4.7% | 1.3% | 5.9% | 10.0% | |||
| Schwab Target 2035 Fund | 2.6% | 1.2% | 3.6% | 5.5% | |||
| Schwab Target 2040 Fund | 5.8% | 3.4% | 8.7% | 12.6% | |||
| Schwab Target 2045 Fund | 1.1% | 0.7% | 1.7% | 2.5% | |||
| Schwab Target 2050 Fund | 1.2% | 0.9% | 1.9% | 2.6% | |||
| Schwab Target 2055 Fund | 0.7% | 0.5% | 1.1% | 1.6% | |||
| Schwab Target 2060 Fund | 0.1% | 0.1% | 0.2% | 0.3% | |||
| * | Less than 0.05% |
Other Affiliated Transactions
The professional fees related to foreign withholding tax claims
discussed in financial note 2 were non-routine expenses. The investment adviser agreed to pay these professional fees, which are subject to reimbursement by the Schwab International Core Equity Fund to the extent the fund is able to successfully
recover taxes withheld in the future.
The professional
fees incurred by the Schwab International Core Equity Fund were $304 and the fund made no reimbursement to the investment adviser during the period ended October 31, 2020.
As of October 31, 2020, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the fund to the investment adviser was $19,475 for the Schwab International Core Equity Fund.
No other amounts for additional tax reclaims are reflected in
the financial statements due to the uncertainty surrounding the ultimate resolution of proceedings, the likelihood of receipt of these claims, and the potential timing of payment.
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the funds may
enter into interfund borrowing and lending transactions with other funds in the Fund Complex. All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and
the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. 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.
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Schwab Active Equity
Funds
Financial Notes
(continued)
5.
Board of Trustees:
The Board may include people who are
officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the
report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on each fund’s Statement of Operations. For information regarding the
trustees, please refer to the Trustees and Officers table at the end of this report.
6. Borrowing from Banks:
During the period, the funds
were participants with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment
fee of 0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, each fund pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft facilities. A
fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds
Rate.
7. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| Schwab Core Equity Fund | $1,978,478,108 | $2,283,423,385 |
| Schwab Dividend Equity Fund | 477,020,466 | 626,895,003 |
| Schwab Large-Cap Growth Fund | 124,220,884 | 132,960,796 |
| Schwab Small-Cap Equity Fund | 561,532,378 | 591,942,091 |
| Schwab Hedged Equity Fund* | 193,640,978 | 251,117,671 |
| Schwab Health Care Fund | 555,524,784 | 646,692,776 |
| Schwab International Core Equity Fund | 761,016,151 | 999,732,177 |
| * | Including securities sold short. |
8. Derivatives:
The funds entered into equity index
futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at October 31, 2020, if any, are presented on the Portfolio Holdings
and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting policies
with
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
8.
Derivatives (continued):
respect to futures
contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2020, the month-end average notional amounts of futures contracts held by the funds and the month-end average
number of contracts held were as follows:
| Notional Amounts | Number of Contracts | |
| Schwab Core Equity Fund | $1,979,005 | 12 |
| Schwab Dividend Equity Fund | 193,458 | 1 |
| Schwab Large-Cap Growth Fund | 1,176,115 | 7 |
| Schwab Small-Cap Equity Fund | 1,179,737 | 19 |
| Schwab Hedged Equity Fund | 124,000 | 1 |
| Schwab Health Care Fund | 74,564 | 0* |
| Schwab International Core Equity Fund | 534,065 | 6 |
| * | Less than 0.5 |
9. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund |
Schwab
Health Care Fund |
Schwab
International Core Equity Fund | |||||||
| Tax cost | $1,494,739,283 | $544,918,166 | $118,835,822 | $470,233,990 | $29,767,357 | $518,340,673 | $595,885,510 | ||||||
| Gross unrealized appreciation | $513,905,415 | $67,149,039 | $93,689,248 | $67,986,367 | $16,377,024 | $232,467,443 | $93,792,642 | ||||||
| Gross unrealized depreciation | (54,272,607) | (35,902,980) | (2,782,762) | (42,014,881) | (5,522,664) | (9,208,000) | (29,641,803) | ||||||
| Net unrealized appreciation (depreciation) | $459,632,808 | $31,246,059 | $90,906,486 | $25,971,486 | $10,854,360 | $223,259,443 | $64,150,839 |
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund | |||||
| Undistributed ordinary income | $14,352,526 | $1,465,256 | $— | $729,099 | $— | ||||
| Undistributed long-term capital gains | 80,768,403 | — | 2,529,980 | — | — | ||||
| Net unrealized appreciation (depreciation) on investments | 459,632,808 | 31,246,059 | 90,906,486 | 25,971,486 | 10,854,360 | ||||
| Net other unrealized appreciation (depreciation) | — | 8,729 | — | — | — | ||||
| Total | $554,753,737 | $32,720,044 | $93,436,466 | $26,700,585 | $10,854,360 |
| Schwab
Health Care Fund |
Schwab
International Core Equity Fund | ||
| Undistributed ordinary income | $6,243,172 | $6,772,256 | |
| Undistributed long-term capital gains | 78,003,865 | — | |
| Net unrealized appreciation (depreciation) on investments | 223,259,443 | 64,150,839 | |
| Net other unrealized appreciation (depreciation) | 72,506 | 104,535 | |
| Total | $307,578,986 | $71,027,630 |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
9. Federal Income
Taxes (continued):
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, realization for tax purposes of unrealized gains (losses) on futures contracts and the realization for
tax purposes of unrealized appreciation on investments in Passive Foreign Investment Companies (PFIC) and partnership investments. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect
these unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the funds had capital loss carryforwards available to offset future net capital gains as follows:
| Expiration Date | Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund | ||||
| No expiration | $— | $28,724,068 | $— | $90,389,520 | $20,528,902 | ||||
| Total | $— | $28,724,068 | $— | $90,389,520 | $20,528,902 |
| Expiration Date | Schwab
Health Care Fund |
Schwab
International Core Equity Fund | |
| No expiration | $— | $179,411,202 | |
| Total | $— | $179,411,202 |
For tax purposes, late-year ordinary
losses may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended October 31, 2020, the funds had ordinary losses deferred as follows:
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund | |
| Ordinary losses deferred | $— | $— | $106,728 | $— | $280,648 |
| Schwab
Health Care Fund |
Schwab
International Core Equity Fund | |
| Ordinary losses deferred | $— | $— |
For the fiscal year ended October
31, 2020, the Schwab Hedged Equity Fund had other accumulated losses of $6,827.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| Schwab
Core Equity Fund |
Schwab
Dividend Equity Fund |
Schwab
Large-Cap Growth Fund |
Schwab
Small-Cap Equity Fund |
Schwab
Hedged Equity Fund | |
| Current fiscal year end distributions | |||||
| Ordinary income | $19,826,971 | $13,605,187 | $244,834 | $635,564 | $1,081,623 |
| Long-term capital gains | 44,092,670 | 44,139,966 | 9,460,933 | — | — |
| Prior fiscal year end distributions | |||||
| Ordinary income | $50,106,445 | $17,703,109 | $6,863,262 | $47,742,964 | $2,154,010 |
| Long-term capital gains | 208,707,447 | 98,971,136 | 17,392,917 | 57,318,761 | 17,187,468 |
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Schwab Active Equity
Funds
Financial Notes
(continued)
9. Federal Income
Taxes (continued):
| Schwab
Health Care Fund |
Schwab
International Core Equity Fund | |
| Current fiscal year end distributions | ||
| Ordinary income | $8,653,407 | $34,016,026 |
| Long-term capital gains | 26,994,144 | — |
| Prior fiscal year end distributions | ||
| Ordinary income | $13,608,829 | $29,979,566 |
| Long-term capital gains | 60,136,138 | — |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, 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 fiscal year ended October 31, 2020, the funds did not incur
any interest or penalties.
10. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the funds for the past two
fiscal years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the funds’ financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
11. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Active Equity
Funds
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust 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 Health Care Fund and Schwab International Core Equity Fund:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statements of
assets and liabilities, including the portfolio holdings, of Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Health Care Fund and Schwab
International Core Equity Fund (the “Funds”), seven of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related statements of operations, statements of changes in net assets, and the financial highlights for
the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2020, and the results of their
operations, the changes in their net assets, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. The statements of changes in net assets for the year ended
October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019 were audited by other auditors, whose report, dated December 16, 2019, expressed an unqualified opinion on such statements of changes in
net assets and financial highlights.
Basis for
Opinion
These financial statements and financial
highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement,
whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
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 $1,864,197 to its shareholders for the fiscal year ended October 31, 2020. The respective foreign source income on the fund is $20,933,662.
For corporate shareholders, the following percentage of the
funds’ dividend distributions paid during the fiscal year ended October 31, 2020, 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 | 100.00 |
| Schwab Hedged Equity Fund | 100.00 |
| Schwab Health Care Fund | 100.00 |
| Schwab International Core Equity Fund | — |
For the fiscal year ended October
31, 2020, 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 2021 via IRS
Form 1099 of the amounts for use in preparing their 2020 income tax return.
| Schwab Core Equity Fund | $19,826,971 |
| Schwab Dividend Equity Fund | 13,605,187 |
| Schwab Large-Cap Growth Fund | 244,834 |
| Schwab Small-Cap Equity Fund | 635,564 |
| Schwab Hedged Equity Fund | 1,081,623 |
| Schwab Health Care Fund | 8,653,407 |
| Schwab International Core Equity Fund | 32,386,919 |
Under section 852(b)(3)(C) of the
Internal Revenue Code, the funds hereby designate the following amounts as long-term capital gain dividends for the fiscal year ended October 31, 2020:
| Schwab Core Equity Fund | $44,092,670 |
| Schwab Dividend Equity Fund | 44,139,966 |
| Schwab Large-Cap Growth Fund | 9,460,933 |
| Schwab Small-Cap Equity Fund | — |
| Schwab Hedged Equity Fund | — |
| Schwab Health Care Fund | 26,994,144 |
| Schwab International Core Equity Fund | — |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Liquidity Risk Management Program (Unaudited)
The Funds have adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Funds’ Board of Trustees (the “Board”) has designated the Funds’ investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Funds’ Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting any of the Funds were noted in
the report. In addition, CSIM provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Investment Advisory Agreement Approval
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
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 and Laudus Trust. The Fund Complex includes 100 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 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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Funds
| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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Schwab Active Equity Funds | Annual Report
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Funds
| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
101
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
102
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Charles Schwab Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Annual
Report | October 31, 2020
Schwab Balanced Fund
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
Schwab Balanced Fund
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM)
Distributor: Charles Schwab & Co., Inc. (Schwab)
1
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Performance at
a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2020 | |
| Schwab Balanced Fund (Ticker Symbol: SWOBX) | 8.58% |
| Balanced Blended Index | 7.91% |
| Fund Category: Morningstar Allocation—50% to 70% Equity1 | 3.88% |
| Performance Details | pages 7-9 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
The components that make up the composite
index may vary over time. For index definition, please see the Glossary.
Fund expenses may have been partially absorbed by CSIM and its
affiliates. Without these reductions, the 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.
| 1 | 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. |
2
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Past performance is no guarantee of future
results.
Diversification and asset allocation
strategies do not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report
date.
3
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
The Investment
Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% for the reporting period and the MSCI Emerging Markets Index (Net)* returned 8.25% for the reporting period. Fixed-income markets were particularly strong over the period with the Bloomberg
Barclays US Aggregate Bond Index returning 6.19% and the FTSE non-US Dollar World Government Bond Index returning 4.99% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
The Investment
Environment (continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S.
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exchange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
Throughout most of the reporting period, bond prices rose on
strong demand, driving yields down. (Bond prices and bond yields typically move in opposite directions.) Corporate credit markets were particularly strong. At the end of March 2020, as equity markets plummeted, as investors sought the perceived
safety of asset classes such as fixed-income securities, and as the Fed implemented additional rate cuts, demand for U.S. Treasuries soared, driving yields to historic lows. The yield on the 10-year U.S. Treasury fell from 1.69% at the beginning of
the reporting period to 0.88% at the end of the reporting period. The yield on the three-month U.S. Treasury fell from 1.54% to 0.09% over the reporting period. Yields on longer-term U.S. Treasuries trended upward late in the reporting period in
anticipation of a new fiscal aid package and hope for economic improvement in 2021.
5
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Fund
Management
 |
Zifan Tang, Ph.D., CFA, Senior Portfolio Manager, is responsible for the co-management of the fund. Prior to joining CSIM in January 2012, Ms. Tang was a product manager at Thomson Reuters and from 1997 to 2009 worked as a portfolio manager at Barclays Global Investors (now known as BlackRock). |
 |
Patrick Kwok, CFA, Portfolio Manager, is responsible for the co-management of the fund. Previously, Mr. Kwok served as an associate portfolio manager with CSIM from 2012 to 2016. Prior to that, he worked as a fund administration manager for CSIM, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration for the Charles Schwab Trust Bank Collective Investment Trusts and Schwab’s multi-asset mutual funds. Prior to joining CSIM in 2008, Mr. Kwok spent two years as an asset operations specialist at Charles Schwab Trust Company. He also worked for one year at State Street Bank & Trust as a portfolio accountant and pricing specialist. |
6
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
The Schwab Balanced Fund (the
fund) seeks capital growth and income. To pursue its goal, the fund generally invests in a diversified group of other affiliated Schwab and/or Laudus Funds, in accordance with its target portfolio allocation. Normally, the fund invests 55% to 65% of
its assets in equity securities (including stocks and equity funds) and 35% to 45% in fixed-income securities (including bonds and fixed-income funds) and cash and cash equivalents (including money market funds). The fund’s allocation is
designed to provide a mix of the growth opportunities of stock investing with the income opportunities of bonds and other fixed-income securities. For more information concerning the fund’s investment objective, strategies, and risks, please
see the fund’s prospectus.
Market Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with
several major market indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting
in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in
just 22 trading days in late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The
extraordinary response prompted a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as
COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international
currencies, generally increasing the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the fund returned 8.58%. The fund’s internally calculated comparative index, the Balanced Blended Index (the index), returned 7.91%.
Positioning and Strategies.
Over the reporting period, the fund’s asset allocations were broadly in line with those of the index.
The fund’s U.S. large-cap equity exposure contributed
positively to total return and relative performance. The Laudus U.S. Large Cap Growth Fund contributed to the fund’s total return, returning approximately 31.3% for the reporting period. The Schwab Core Equity Fund also contributed to the
fund’s total return, returning approximately 4.7% for the reporting period but dragged on relative performance with its comparative index, the S&P
500® Index, returning approximately 9.7%.
The fund’s fixed-income allocation also contributed to
the fund’s total return. The Schwab U.S. Aggregate Bond Index Fund returned approximately 6.1% for the reporting period, while its comparative benchmark, the Bloomberg Barclays US Aggregate Bond Index, returned approximately 6.2%.
The U.S. small-cap equity allocation detracted from the total
return of the fund. The Schwab Small-Cap Equity Fund returned approximately -9.9% for the reporting period, underperforming its comparative index, the Russell 2000® Index, which returned approximately -0.1%.
Management views and portfolio holdings may have changed
since the report date.
7
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Performance and
Fund Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Balanced Fund (11/18/96) | 8.58% | 7.66% | 8.51% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Balanced Blended Index | 7.91% | 8.40% | 8.98% |
| Fund Category: Morningstar Allocation—50% to 70% Equity2 | 3.88% | 6.23% | 7.13% |
| Fund Expense Ratios3: Net 0.51%; Gross 0.55% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.51% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
8
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Performance and
Fund Facts as of October 31, 2020 (continued)
Top Holdings % of Net Assets2,3
Portfolio holdings may have changed since the report
date.
Small-company stocks are subject to greater
volatility than many other asset classes.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The holdings listed exclude any temporary liquidity investments. |
9
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1,2 |
Effective
Expense Ratio (Annualized)3,4 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202,5 |
Effective
Expenses Paid During Period 5/1/20-10/31/204,5 | |
| Schwab Balanced Fund | ||||||
| Actual Return | 0.00% | 0.50% | $1,000.00 | $1,087.70 | $0.00 | $2.62 |
| Hypothetical 5% Return | 0.00% | 0.50% | $1,000.00 | $1,025.10 | $0.00 | $2.54 |
| 1 | Based on the most recent six-month expense ratio. |
| 2 | Excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 3 | Based on the most recent six-month acquired fund fees and expense ratio; may differ from the acquired fund fees and expense ratio in the prospectus. |
| 4 | Includes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 5 | 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. |
10
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.99 | $15.41 | $15.60 | $14.51 | $15.40 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.20 | 0.24 | 0.23 | 0.21 | 0.19 | |
| Net realized and unrealized gains (losses) | 1.13 | 1.32 | 0.08 2 | 1.96 | 0.00 3 | |
| Total from investment operations | 1.33 | 1.56 | 0.31 | 2.17 | 0.19 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.22) | (0.37) | (0.48) | (0.22) | (0.32) | |
| Distributions from net realized gains | (0.60) | (0.61) | (0.02) | (0.86) | (0.76) | |
| Total distributions | (0.82) | (0.98) | (0.50) | (1.08) | (1.08) | |
| Net asset value at end of period | $16.50 | $15.99 | $15.41 | $15.60 | $14.51 | |
| Total return | 8.58% | 11.19% | 1.94% | 15.90% | 1.41% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% 5 | |
| Gross operating expenses4 | 0.03% | 0.04% | 0.04% | 0.06% | 0.06% | |
| Net investment income (loss) | 1.26% | 1.55% | 1.44% | 1.39% | 1.34% | |
| Portfolio turnover rate | 18% | 32% | 6% | 28% 6 | 19% | |
| Net assets, end of period (x 1,000,000) | $577 | $526 | $447 | $386 | $282 | |
1
Calculated based on the average shares outstanding during
the period.
2
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
3
Less than $0.005.
4
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
5
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses and/or interest expense had not been incurred.
6
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 7% without including these transactions. There were no transaction costs
associated with these transactions.
11
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
Below is a summary of the fund’s
transactions with its affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus U.S. Large Cap Growth Fund | $77,612,608 | $10,892,605 | ($14,980,000) | $1,080,265 | $14,836,697 | $89,442,175 | 3,300,449 | $6,512,605 |
| Schwab Core Equity Fund | 185,648,795 | 32,049,605 | (24,037,000) | (2,934,224) | 5,365,850 | 196,093,026 | 8,817,133 | 5,485,605 |
| Schwab Small-Cap Equity Fund | 53,323,240 | 15,449,781 | (4,810,000) | (1,528,961) | (2,517,538) | 59,916,522 | 3,989,116 | 59,781 |
| Schwab U.S. Aggregate Bond Index Fund | 193,852,620 | 59,705,777 | (45,450,263) | 1,165,277 | 5,063,802 | 214,337,213 | 19,956,910 | 4,925,055 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 12,118,997 | 4,100,816 | (6,000,000) | (718) | (2,296) | 10,216,799 | 10,212,714 | 90,317 |
| Total | $522,556,260 | $122,198,584 | ($95,277,263) | ($2,218,361) | $22,746,515 | $570,005,735 | $17,073,363 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
At October 31, 2020, all of the fund’s
investment securities were classified as Level 1. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level
1, Level 2 or Level 3 (see financial note 2(a) for additional information).
12
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $500,157,347) | $570,005,735 | |
| Investments in unaffiliated underlying funds, at value (cost $7,186,601) | 7,186,601 | |
| Receivables: | ||
| Investments sold | 600,000 | |
| Fund shares sold | 977,922 | |
| Dividends | 409,643 | |
| Due from investment adviser | 13,129 | |
| Prepaid expenses | + | 28,114 |
| Total assets | 579,221,144 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 1,409,517 | |
| Fund shares redeemed | 320,545 | |
| Accrued expenses | + | 63,984 |
| Total liabilities | 1,794,046 | |
| Net Assets | ||
| Total assets | 579,221,144 | |
| Total liabilities | – | 1,794,046 |
| Net assets | $577,427,098 | |
| Net Assets by Source | ||
| Capital received from investors | 501,221,439 | |
| Total distributable earnings | 76,205,659 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $577,427,098 | 34,990,159 | $16.50 | ||
13
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $6,832,776 | |
| Dividends received from unaffiliated underlying funds | + | 26,536 |
| Total investment income | 6,859,312 | |
| Expenses | ||
| Registration fees | 47,995 | |
| Shareholder reports | 44,872 | |
| Portfolio accounting fees | 26,141 | |
| Professional fees | 23,278 | |
| Transfer agent fees | 19,082 | |
| Independent trustees’ fees | 10,165 | |
| Custodian fees | 902 | |
| Other expenses | + | 8,627 |
| Total expenses | 181,062 | |
| Expense reduction by CSIM and its affiliates | – | 181,062 |
| Net expenses | – | — |
| Net investment income | 6,859,312 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 10,240,587 | |
| Net realized losses on sales of affiliated underlying funds | + | (2,218,361) |
| Net realized gains | 8,022,226 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | + | 22,746,515 |
| Net realized and unrealized gains | 30,768,741 | |
| Increase in net assets resulting from operations | $37,628,053 | |
14
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $6,859,312 | $7,461,092 | ||
| Net realized gains | 8,022,226 | 21,204,175 | ||
| Net change in unrealized appreciation (depreciation) | + | 22,746,515 | 20,529,722 | |
| Increase in net assets from operations | 37,628,053 | 49,194,989 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($27,287,501) | ($28,049,773) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 11,812,461 | $187,887,955 | 11,096,629 | $169,470,196 | ||||
| Shares reinvested | 1,536,645 | 24,202,165 | 1,812,747 | 24,889,012 | ||||
| Shares redeemed | + | (11,266,936) | (171,177,405) | (8,978,575) | (135,957,018) | |||
| Net transactions in fund shares | 2,082,170 | $40,912,715 | 3,930,801 | $58,402,190 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 32,907,989 | $526,173,831 | 28,977,188 | $446,626,425 | ||||
| Total increase | + | 2,082,170 | 51,253,267 | 3,930,801 | 79,547,406 | |||
| End of period | 34,990,159 | $577,427,098 | 32,907,989 | $526,173,831 | ||||
15
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Financial
Notes
1. Business Structure of the Fund:
Schwab
Balanced Fund is a series of Schwab Capital Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the
1940 Act). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:
| SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993) | |
| Schwab Balanced Fund | Schwab Target 2040 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2045 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2050 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2055 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2060 Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Fundamental US Large Company Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Fundamental US Small Company Index Fund |
| Schwab International Index Fund® | Schwab Fundamental International Large Company Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Fundamental International Small Company Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Fundamental Global Real Estate Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2010 Index Fund |
| Laudus International MarketMasters Fund™ | Schwab Target 2015 Index Fund |
| Schwab Core Equity Fund | Schwab Target 2020 Index Fund |
| Schwab Dividend Equity Fund | Schwab Target 2025 Index Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2030 Index Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2035 Index Fund |
| Schwab Hedged Equity Fund | Schwab Target 2040 Index Fund |
| Schwab Health Care Fund | Schwab Target 2045 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2020 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2025 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab Target 2035 Fund | |
The Schwab Balanced Fund is a single class “fund of
funds” which seeks to achieve its investment objective by investing in a diversified group of other affiliated Schwab and/or Laudus Funds (the underlying funds), but also may invest in other unaffiliated, third party mutual funds, including
exchange-traded funds (ETFs). In addition, the fund may invest a portion of its assets directly in equity and fixed-income securities to maintain its allocations.
The fund offers one share class. Shares are bought and sold at
closing net asset value per share (NAV), which is the price for all outstanding shares of the fund. Each share has a par value of 1/1,000 of a cent, and the fund’s Board of Trustees (the Board) may authorize the issuance of as many shares as
necessary.
The fund maintains its own account for
purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is
a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The financial statements of the fund should be
read in conjunction with the underlying funds’ financial statements. For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the
U.S. Securities and Exchange Commission (SEC) and are available on the SEC’s website at www.sec.gov.
16
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(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 value.
Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The fund values the securities in its portfolio every
business day. The fund uses the following policies to value various types of securities:
• Underlying funds: Mutual funds are valued at their respective NAVs.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable.
For example, the fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market
is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that
the fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to
valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the fund determines that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. Investments in mutual funds are valued daily at their NAVs, which are classified as Level
1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations.
•
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of
investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When
observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the
original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3
prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may
significantly impact the resulting fair value and therefore the fund’s results of operations.
The inputs or methodology used for valuing securities are
not necessarily an indication of the risk associated with investing in those securities.
17
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(b) Security
Transactions:
Security transactions are recorded as
of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
(c) Investment Income:
Interest income is recorded as it accrues. Dividends and
distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date). Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated
by the underlying funds.
(d) Expenses:
Expenses that are specific to the fund are charged directly
to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets. The fund bears its share of the acquired fund fees and expenses of the underlying
funds, which are indirect expenses incurred by the fund through its investments in the underlying funds. Such expenses are reflected in the net asset values of the underlying funds.
(e) Distributions to Shareholders:
The fund makes distributions from net investment income and
net realized capital gains, if any, once a year.
(f)
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.
(g) Federal Income Taxes:
The fund intends to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its shareholders
each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(h) Indemnification:
Under the fund’s organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide
general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to
these arrangements to be remote.
3. Risk Factors:
Investing in the fund may involve
certain risks, as discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Asset Allocation Risk. The fund
is subject to the risk that the selection of the underlying funds and the allocation of the fund’s assets among the various asset classes and market segments may cause the fund to underperform other funds with a similar investment
objective.
Conflicts of Interest Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds and ETFs may create a conflict of interest because the fees paid to it and
its affiliates by some underlying funds are higher than the fees paid by other underlying funds. The investment adviser also may have an incentive to select an affiliated underlying fund for other reasons, including to increase assets under
management or to support new investment strategies. In addition, other conflicts of interest may exist where the best interests of the affiliated underlying fund may not be aligned with those of the fund. However, the investment adviser is a
fiduciary to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds.
18
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and
other government actions. In addition, the occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is
tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose money over short or long periods.
Direct Investment Risk. The
fund may invest directly in cash, cash equivalents and equity and fixed-income securities, including money market securities, to maintain its allocations. The fund’s direct investment in these securities is subject to the same or similar risks
as an underlying fund’s investment in the same securities.
Underlying Fund Investment Risk. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest, which include any combination of the risks described below.
•
Investment Risk. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
•
Management Risk. Generally, the underlying funds are actively managed mutual funds. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser(s)) will select or
allocate assets that could cause the fund to underperform or otherwise not meet its objective. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the underlying fund, but
there can be no guarantee that they will produce the desired results.
•
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition,
equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.
•
Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a
particular market capitalization fall behind other types of investments, an underlying fund’s performance could be impacted.
•
Growth Investing Risk. An underlying fund’s investments in 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.
•
Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. A change in a central bank’s monetary policy or economic conditions,
among other things, may result in a change in interest rates. A rise in interest rates could cause an underlying fund’s share price to fall. The credit quality of a portfolio investment could also cause an underlying fund’s share price
to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or otherwise honor its obligations. Fixed income
securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade
bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.
•
ETF Risk. When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its
value being more volatile than the underlying portfolio of securities.
•
Money Market Fund Risk. The fund may invest in underlying money market funds that either seek to maintain a stable $1 net asset value (“stable share price money market funds”) or that have a
share price that fluctuates (“variable share price money market funds”). Although an underlying stable share price money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in such a money
market fund. Because the share price of an underlying variable share price money market fund will fluctuate, when the fund sells the shares it owns they may be worth more or less than what the fund originally paid for them. In addition, neither type
of money market fund is designed to offer capital appreciation. Certain underlying money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability to sell shares if such fund’s liquidity falls below required
minimums.
19
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
•
Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S.
issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the
imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may
negatively impact the value or liquidity of an underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that
investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar.
•
Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market
countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be
more precarious than in developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated with an underlying fund’s investments in emerging market countries, which may be magnified by currency
fluctuations relative to the U.S. dollar, and, at times, it may be difficult to value such investments.
•
Derivatives Risk. An underlying fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the
right to buy or sell an instrument at a specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment
streams calculated in relation to a rate, index, instrument or certain securities and a predetermined amount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified credit event in
exchange for a fixed payment or series of fixed payments.
An underlying fund’s use of
derivative instruments involves risks different from or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as leverage risk, liquidity risk, market risk
and management risk, are discussed elsewhere in this section. An underlying fund’s use of derivatives is also subject to 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. 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 an underlying fund to realize higher amounts of short-term capital gains. An underlying
fund’s use of derivatives could reduce the underlying fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested. The use of derivatives that are subject to regulation by the
Commodity Futures Trading Commission (CFTC) by an underlying fund could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
•
Leverage Risk. Certain underlying fund transactions, such as derivatives transactions, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may
expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately
large impact on the underlying fund.
•
Liquidity Risk. An underlying fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the underlying fund may have to sell them at a loss.
•
Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the
underlying fund’s performance and may increase the likelihood of capital gains distributions.
•
Securities Lending Risk. An underlying fund may lend its portfolio securities to brokers, dealers, and other financial institutions. Securities lending involves the risk of loss of rights in, or delay in
recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
•
Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S.
government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt
securities when interest rates decline, but are subject to similar or greater risk of decline in market value during periods of rising interest rates. Because of prepayment and
20
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
extension risk, mortgage-backed
securities react differently to changes in interest rates than other bonds. Small movements in interest rates — both increases and decreases — may quickly and significantly affect the value of certain mortgage-backed securities.
Transactions in mortgage pass-through securities often occur through to-be-announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction could expose an underlying fund to possible losses because of an adverse market
action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction.
•
Mortgage Dollar Rolls Risk. Mortgage dollar rolls are transactions in which an underlying fund sells mortgage-backed securities to a dealer and simultaneously agrees to repurchase similar securities in the
future at a predetermined price. An underlying fund’s mortgage dollar rolls could lose money if the price of the mortgage-backed securities sold falls below the agreed upon repurchase price, or if the counterparty is unable to honor the
agreement.
Please refer to the fund’s
prospectus for a more complete description of the principal risks of investing in the fund.
4. Affiliates and Affiliated Transactions:
Investment Adviser
Charles Schwab Investment Management, Inc. (CSIM or the
investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between CSIM and the trust. The
investment adviser does not receive a fee for the services it performs for the fund. However, the investment adviser is entitled to receive an annual management fee from each of the affiliated Schwab Funds and/or Laudus Funds that serve as
underlying funds.
Shareholder Servicing
The Board has adopted a Shareholder Servicing Plan (the Plan)
on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc., a broker-dealer affiliate of CSIM (together, service providers), of certain
shareholder services to the current shareholders of the fund. The fund is not subject to any fee under the Plan.
Expense Limitation
CSIM and its affiliates have agreed with the fund, for so long
as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses to
0.00%.
The agreement to limit the fund’s total
expenses charged is limited to the fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in the underlying funds.
Investments in Affiliates
The fund may engage in certain transactions involving related
parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. As of October 31, 2020, the fund’s ownership percentages of other related funds’ shares are:
| Laudus U.S. Large Cap Growth Fund | 3.3% |
| Schwab Core Equity Fund | 10.0% |
| Schwab Small-Cap Equity Fund | 12.2% |
| Schwab U.S. Aggregate Bond Index Fund | 4.5% |
| Schwab Variable Share Price Money Fund, Ultra Shares | 0.3% |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Interfund
Borrowing and Lending
Pursuant to an exemptive order
issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest
rate to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The
interfund lending facility is subject to the oversight and periodic review by the Board. The fund had no interfund borrowing or lending activity during the period.
5. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations
throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information
regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
6. Borrowing from Banks:
During the period, the fund
was a participant with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by the fund, the fund paid a commitment
fee of 0.15% per annum on the fund’s proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the fund was a participant with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, the fund pays interest on the amount it borrows. There were no borrowings from either line of credit during the period.
The fund also has access to custodian overdraft facilities. The
fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds
Rate.
7. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities |
| $122,198,584 | $95,277,263 |
8. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the fund’s investments and gross unrealized appreciation and depreciation were as follows:
| Tax cost | $516,983,016 |
| Gross unrealized appreciation | $70,991,449 |
| Gross unrealized depreciation | (10,782,129) |
| Net unrealized appreciation (depreciation) | $60,209,320 |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
8. Federal Income
Taxes (continued):
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | $4,674,444 |
| Undistributed long-term capital gains | 11,321,895 |
| Net unrealized appreciation (depreciation) on investments | 60,209,320 |
| Total | $76,205,659 |
The primary difference between book
basis and tax basis unrealized appreciation or unrealized depreciation of investments is the tax deferral of losses on wash sales. The tax cost of the fund’s investments, disclosed above, has been adjusted from the book amounts to reflect
these unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the fund had no capital loss carryforwards available to offset future net capital gains.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| Current fiscal year end distributions | |
| Ordinary income | $7,431,786 |
| Long-term capital gains | 19,855,715 |
| Prior fiscal year end distributions | |
| Ordinary income | $10,526,518 |
| Long-term capital gains | 17,523,255 |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, management has reviewed the tax
positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the
fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the fiscal year ended October 31, 2020, the fund did not incur
any interest or penalties.
9. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the fund for the past two fiscal
years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the fund’s financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
10. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
23
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Report of
Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust and
Shareholders of Schwab Balanced Fund:
Opinion on the
Financial Statements and Financial Highlights
We have
audited the accompanying statement of assets and liabilities, including the portfolio holdings, of Schwab Balanced Fund (the “Fund”), one of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related statement
of operations, statement of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial
position of the Fund as of October 31, 2020, and the results of its operations, the changes in its net assets, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of
America. The statement of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019 were audited by other auditors, whose report, dated December 16, 2019,
expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The
Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and transfer agent. We believe that our audit provides a reasonable basis for our
opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
24
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Other Federal
Tax Information (unaudited)
For corporate shareholders, 25.28% of the fund’s
dividend distributions paid during the fiscal year ended October 31, 2020, qualify for the corporate dividends received deduction.
For the fiscal year ended October 31, 2020, the fund designates
$2,086,542 of the dividend distributions as qualified dividends for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2021 via IRS Form 1099 of the amounts for use in
preparing their 2020 income tax return.
Under section
852(b)(3)(C) of the Internal Revenue Code, the fund hereby designates $19,855,715 as long-term capital gain dividends for the fiscal year ended October 31, 2020.
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Liquidity Risk
Management Program (Unaudited)
The Fund has adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Fund’s Board of Trustees (the “Board”) has designated the Fund’s investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Fund’s Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting the Fund were noted in the
report. In addition, CSIM provided its assessment that the program had been operating effectively in managing the Fund’s liquidity risk.
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Trustees and
Officers
The tables below give information about the trustees and
officers of Schwab Capital Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust
and Laudus Trust. The Fund Complex includes 100 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 fund’s Statement of Additional Information, which is available free by calling 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
33
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Charles Schwab
Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Annual
Report | October 31, 2020
Schwab Equity Index Funds®
Schwab S& P 500 Index Fund
Schwab 1000 Index® Fund
Schwab Small-Cap Index Fund®
Schwab Total Stock Market Index Fund®
Schwab U.S. Large-Cap Growth
Index Fund
Index Fund
Schwab U.S. Large-Cap
Value
Index Fund
Index Fund
Schwab U.S.
Mid-Cap Index Fund
Schwab
International Index Fund®
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
This page is intentionally left blank.
Eight cost-efficient ways to tap into the power of the stock
market for long-term growth potential.
In This Report
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 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
Schwab. The Industry classifications used in the schedules of Condensed Portfolio Holdings are sub-categories of Sector classifications.
1
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Performance at
a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
All total returns on this page assume dividends
and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Performance does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or on the redemption of fund shares.
| 1 | 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. |
| 2 | 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. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
2
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Past performance is no guarantee of future
results.
Management views may have changed
since the report date.
3
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
The Investment
Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
The Investment
Environment (continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exhange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
5
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Fund
Management
 |
Christopher Bliss, CFA, Vice President and Head of Passive Equity Strategies, leads the portfolio management team for Schwab’s passive equity mutual funds and ETFs. He also has overall responsibility for all aspects of the management of the funds. Before joining CSIM in 2016, Mr. Bliss spent 12 years at BlackRock (formerly Barclays Global Investors) managing and leading institutional index teams, most recently as a managing director and the head of the Americas institutional index team. Prior to BlackRock, he worked as an equity analyst and portfolio manager for Harris Bretall and before that, as a research analyst for JP Morgan. |
 |
Jeremy Brown, Portfolio Manager, is responsible for the day-to-day co-management of the the funds, except for the Schwab International Index Fund. Prior to joining CSIM in 2017, Mr. Brown spent six years with ALPS Advisors, Inc. in Denver, most recently as a senior analyst on the ETF portfolio management and research team where he performed portfolio management, trading, and analytics/research functions for ALPS ETFs and passive funds. Additionally, Mr. Brown led a number of investment research, commentary, industry trend analysis, and sales and marketing support initiatives. |
 |
Chuck Craig, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab International Index Fund. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc. |
 |
Ferian Juwono, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the the funds, except for the Schwab International Index Fund. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors) where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California. |
 |
Jane Qin, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab International Index Fund. Prior to joining CSIM in 2012, Ms. Qin spent more than four years at The Bank of New York Mellon Corporation. During that time, Ms. Qin spent more than two years as an associate equity portfolio manager and nearly two years as a performance analyst. She also worked at Wells Fargo Funds Management as a mutual fund analyst and at CIGNA Reinsurance in the risk management group as a risk analyst. |
 |
David Rios, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab International Index Fund. Prior to this role, Mr. Rios was an associate portfolio manager on the Schwab equity index strategies team for four years. His first role with CSIM was as a trade operations specialist. Prior to joining CSIM in 2008, Mr. Rios was a senior fund accountant at Investors Bank & Trust (subsequently acquired by State Street Corporation). |
 |
Sabya Sinha, Portfolio Manager, is responsible for the day-to-day co-management of the the funds, except for the Schwab International Index Fund. Prior to joining CSIM in 2015, Mr. Sinha spent a year at F-Squared Investments on the product development and analytics team. Prior to F-Squared, he worked at IndexIQ Advisors as a senior index portfolio manager for three years and for Bank of America’s Columbia Management subsidiary as a portfolio manager for three years. |
6
Schwab Equity Index Funds | Annual Report
Schwab S&P 500
Index Fund as of October 31, 2020
The Schwab S&P 500 Index Fund’s (the fund) goal is 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 goal, the fund seeks to replicate the performance of the index by giving the same weight to a given stock as the index does. For more information concerning the
fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline
with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March.
By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity
markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the information technology and consumer discretionary sectors outperformed over the 12-month
reporting period, while the energy and financials sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 9.69% for the 12-month reporting period ended October 31, 2020, compared with the index, which returned 9.71%. Differences between the return of the fund and the return of the
index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the financials sector were the largest detractors from the total return of the fund. Financials stocks represented an average weight of approximately 11% of the fund’s investments
and returned approximately -15% for the reporting period. One example from this sector is Wells Fargo & Co. The fund’s holdings of Wells Fargo & Co. returned approximately -57% for the reporting period.
The energy sector also detracted from the total return of the
fund. Energy stocks represented an average weight of approximately 3% of the fund’s investments and returned approximately -46% for the reporting period.
The fund’s holdings in the information technology sector
were the largest contributors to the total return of the fund. Information technology stocks represented an average weight of approximately 26% of the fund’s investments and returned approximately 34% for the reporting period. The fund’s
holdings of Apple Inc. are one example from this sector, returning approximately 77% for the reporting period.
Stocks in the consumer discretionary sector also contributed
to the total return of the fund. Consumer discretionary stocks represented an average weight of approximately 10% of the fund’s investments and returned approximately 25% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
7
Schwab Equity Index Funds | Annual Report
Schwab S&P 500
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab S&P 500 Index Fund (5/19/97) | 9.69% | 11.65% | 12.93% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Fund Category: Morningstar Large Blend2 | 6.30% | 9.64% | 11.28% |
| Fund Expense Ratio3: 0.02% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Index ownership – “Standard & Poor’s®,” “S&P®,” and
“S&P 500®” are registered trademarks of Standard & Poor’s Financial Services LLC (S&P), and “Dow Jones®” is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones) and have been licensed for use by S& P Dow Jones Indices LLC and
its affiliates and sublicensed for certain purposes by CSIM. The “S&P 500® Index” is a product of S&P Dow Jones Indices LLC or
its affiliates, and has been licensed for use by CSIM. The Schwab S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones
Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in the fund.
| 1 | Performance does 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. |
8
Schwab Equity Index Funds | Annual Report
Schwab S&P 500
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
9
Schwab Equity Index Funds | Annual Report
Schwab 1000
Index Fund as of October 31, 2020
The Schwab 1000 Index Fund’s (the fund) goal is to match the total return of the Schwab 1000 Index® (the index), which includes the 1,000 largest
stocks of publicly traded companies in the U.S., with size being determined by market capitalization (total market value of all shares outstanding). To pursue its goal, the fund seeks to replicate the performance of the index by giving the same
weight to a given stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market
decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global
equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the information technology and consumer discretionary sectors outperformed over the 12-month
reporting period, while the energy and financials sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 10.60% for the 12-month reporting period ended October 31, 2020, compared with the index, which returned 10.65%. Differences between the return of the fund and the return of the
index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the financials sector were the largest detractors from the total return of the fund. The financials sector represented an average weight of approximately 11% of the fund’s
investments and returned approximately -15% for the reporting period. One example from this sector is Wells Fargo & Co. The fund’s holdings of Wells Fargo & Co. returned approximately -57% for the reporting period.
The energy sector also detracted from the total return of the
fund. Energy stocks represented an average weight of approximately 3% of the fund’s investments and returned approximately -47% for the reporting period.
The fund’s holdings in the information technology sector
were the largest contributors to the total return of the fund. Information technology stocks represented an average weight of approximately 25% of the fund’s investments and returned approximately 35% for the reporting period. The fund’s
holdings of Apple Inc. are one example from this sector, returning approximately 77% for the reporting period.
Stocks in the consumer discretionary sector were another
contributor to the total return of the fund. Consumer discretionary stocks represented an average weight of approximately 11% of the fund’s investments and returned approximately 33% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
10
Schwab Equity Index Funds | Annual Report
Schwab 1000
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab 1000 Index Fund (4/2/91) | 10.60% | 11.60% | 12.74% |
| Schwab 1000 Index® | 10.65% | 11.70% | 12.94% |
| Russell 1000® Index | 10.87% | 11.79% | 13.05% |
| Fund Category: Morningstar Large Blend2 | 6.30% | 9.64% | 11.28% |
| Fund Expense Ratio3: 0.05% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 1 | Performance does 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. |
11
Schwab Equity Index Funds | Annual Report
Schwab 1000
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets4
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | As a result of the Schwab 1000 Index®’s once per year reconstitution and the effects of certain corporate actions, the fund may hold more or less than 1,000 securities. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 4 | This list is not a recommendation of any security by the investment adviser. |
12
Schwab Equity Index Funds | Annual Report
Schwab Small-Cap Index Fund as of October 31, 2020
The Schwab Small-Cap Index Fund’s (the fund) goal is to track the performance of a benchmark index that measures the total return of small-capitalization U.S. stocks. To pursue its investment objective, the fund generally invests in stocks that are
included in the Russell 2000® Index (the index). To pursue its goal, the fund seeks to replicate the performance of the index by giving the same
weight to a given stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market
decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global
equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the health care and consumer discretionary sectors outperformed over the 12-month reporting
period, while the energy and real estate sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 0.00% for the 12-month reporting period ended October 31, 2020, compared with the index, which returned -0.14%.
Contributors and Detractors.
The fund’s holdings in the health care sector were the largest contributors to the total return of the fund. Health care stocks represented an average weight of approximately 20% of the fund’s investments and returned approximately 34%
for the reporting period. The fund’s holdings of Teladoc Health, Inc., a multinational telemedicine and virtual healthcare company, are one example from this sector, returning approximately 152% for the reporting period.
Stocks in the information technology sector also contributed
to the total return of the fund. Information technology stocks represented an average weight of approximately 14% of the fund’s investments and returned approximately 9% for the reporting period.
The fund’s holdings in the financials sector were the
largest detractors from the total return of the fund. Financials stocks represented an average weight of approximately 16% of the fund’s investments and returned approximately -19% for the reporting period. One example from this sector is
Invesco Mortgage Capital, Inc. The fund’s holdings of Invesco Mortgage Capital, Inc. returned approximately -79% over the reporting period.
Stocks in the real estate sector also detracted from the total
return of the fund. Real estate stocks represented an average weight of approximately 7% of the fund’s investments and returned approximately -24% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
13
Schwab Equity Index Funds | Annual Report
Schwab Small-Cap Index Fund
Performance and Fund
Facts as of October 31, 2020
The performance data quoted represents past performance. Past
performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Small-Cap Index Fund (5/19/97) | 0.00% | 7.33% | 9.83% |
| Russell 2000® Index | -0.14% | 7.27% | 9.64% |
| Small-Cap Spliced Index | -0.14% | 7.27% | 9.79% |
| Fund Category: Morningstar Small Blend2 | -6.45% | 5.00% | 8.48% |
| Fund Expense Ratio3: 0.04% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
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 | Performance does 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. |
14
Schwab Equity Index Funds | Annual Report
Schwab Small-Cap Index Fund
Performance and Fund
Facts as of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
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 many other asset classes.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
15
Schwab Equity Index Funds | Annual Report
Schwab Total Stock Market
Index Fund as of October 31, 2020
The Schwab Total Stock Market Index Fund’s (the fund) goal is to track the total return of the entire U.S. stock market, as measured by the Dow Jones U.S. Total Stock Market IndexSM (the index), which includes all publicly traded stocks of companies headquartered in the U.S. for which pricing information is readily available. To
pursue its investment objective, the fund uses a sampling investment approach that involves investing in a representative sample of securities included in the index that, when taken together, are expected to perform similarly to the index as a
whole. Due to the use of representative sampling, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s
prospectus.
Market Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market
indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for
the fastest U.S. market decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response
prompted a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates
spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the information technology and consumer discretionary sectors
outperformed over the 12-month reporting period, while the energy and real estate sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 9.94% for the 12-month reporting period ended October 31, 2020, compared with the index, which returned 9.99%. Differences between the return of the fund and the return of the
index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the financials sector were the largest detractors from the total return of the fund. The financials sector represented an average weight of approximately 12% of the fund’s
investments and returned approximately -15% for the reporting period. One example from this sector is Wells Fargo & Co. The fund’s holdings of Wells Fargo & Co. returned approximately -57% for the reporting period.
The energy sector also detracted from the total return of the
fund. Energy stocks represented an average weight of approximately 3% of the fund’s investments and returned approximately -47% for the reporting period.
The fund’s holdings in the information technology sector
were the largest contributors to the total return of the fund. Information technology stocks represented an average weight of approximately 25% of the fund’s investments and returned approximately 34% for the reporting period. The fund’s
holdings of Apple Inc. are one example from this sector, returning approximately 77% for the reporting period.
Stocks in the consumer discretionary sector also contributed
to the total return of the fund. Consumer discretionary stocks represented an average weight of approximately 11% of the fund’s investments and returned approximately 31% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
16
Schwab Equity Index Funds | Annual Report
Schwab Total Stock Market
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Total Stock Market Index Fund (6/1/99) | 9.94% | 11.37% | 12.72% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Fund Category: Morningstar Large Blend2 | 6.30% | 9.64% | 11.28% |
| Fund Expense Ratio3: 0.03% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Index ownership – “Standard & Poor’s®” and “S&P®” are registered
trademarks of Standard & Poor’s Financial Services LLC (S&P), and “Dow Jones®” is a registered trademark of Dow Jones
Trademark Holdings LLC (Dow Jones) and have been licensed for use by S& P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by CSIM. The “Dow Jones U.S. Total Stock Market IndexSM” is a product of S&P Dow Jones Indices LLC or its affiliates, and has been licensed for use by CSIM. The Schwab Total Stock Market Index Fund is
not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation
regarding the advisability of investing in the fund.
| 1 | Performance does 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. |
17
Schwab Equity Index Funds | Annual Report
Schwab Total Stock Market
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
18
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Growth
Index Fund as of October 31, 2020
The Schwab U.S. Large-Cap Growth Index Fund’s (the fund) goal is to track the performance of a benchmark index that measures the total return of large-capitalization U.S. growth stocks. To pursue its investment objective, the fund generally invests in stocks that
are included in the Russell 1000® Growth Index (the index). The fund seeks to replicate the performance of the index by giving the same weight to a
given stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market
decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global
equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the information technology and consumer discretionary sectors outperformed over the 12-month
reporting period, while the energy and industrials sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 29.16% during the 12-month reporting period ended October 31, 2020, compared with the index, which returned 29.22%. Differences between the return of the fund and the return of
the index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the industrials sector were the largest detractors from the total return of the fund. The industrials sector represented an average weight of 7% of the fund’s investments and
returned approximately -1% for the reporting period. One example from this sector is The Boeing Co. The fund’s holdings of The Boeing Co. returned approximately -49% for the reporting period.
The energy sector also detracted from the total return of the
fund. Energy stocks represented an average weight of less than 1% of the fund’s investments and returned approximately -29% for the reporting period.
The fund’s holdings in the information technology sector
were the largest contributors to the total return of the fund. Information technology stocks represented an average weight of approximately 41% of the fund’s investments and returned approximately 43% for the reporting period. The fund’s
holdings of Apple Inc. are one example from this sector, returning approximately 77% for the reporting period.
Stocks in the consumer discretionary sector also contributed
to the total return of the fund. Consumer discretionary stocks represented an average weight of approximately 15% of the fund’s investments and returned approximately 45% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
19
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Growth
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2020)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | Since Inception |
| Fund: Schwab U.S. Large-Cap Growth Index Fund (12/20/17) | 29.16% | 17.85% |
| Russell 1000® Growth Index | 29.22% | 17.91% |
| Fund Category: Morningstar Large Growth2 | 25.92% | N/A |
| Fund Expense Ratio3: 0.035% | ||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Index ownership – The Russell 1000® Growth Index is a registered mark of the Frank Russell Company (Russell) and has been licensed for use by the Schwab U.S. Large-Cap Growth Index Fund.
The Schwab U.S. Large-Cap Growth 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 | Performance does 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. |
20
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Growth
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
21
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Value
Index Fund as of October 31, 2020
The Schwab U.S. Large-Cap Value Index Fund’s (the fund) goal is to track the performance of a benchmark index that measures the total return of large-capitalization U.S. value stocks. To pursue its investment objective, the fund generally invests in stocks that are
included in the Russell 1000® Value Index (the index). The fund seeks to replicate the performance of the index by giving the same weight to a given
stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market
decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global
equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the health care and materials sectors outperformed over the 12-month reporting period, while
the energy and real estate sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -7.69% during the 12-month reporting period ended October 31, 2020, compared with the index, which returned -7.57%. Differences between the return of the fund and the return of
the index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the financials sector were the largest detractors from the total return of the fund. The financials sector represented an average weight of approximately 21% of the fund’s
investments and returned approximately -18% for the reporting period. One example from this sector is Wells Fargo & Co. The fund’s holdings of Wells Fargo & Co. returned approximately -57% for the reporting period.
The energy sector also detracted from the total return of the
fund. Energy stocks represented an average weight of approximately 6% of the fund’s investments and returned approximately -46% for the reporting period.
The fund’s holdings in the health care sector were the
largest contributors to the total return of the fund. Health care stocks represented an average weight of approximately 14% of the fund’s investments and returned approximately 11% for the reporting period. The fund’s holdings of Danaher
Corp., a designer and manufacturer of medical, industrial, and commercial products and services, are one example from this sector, returning approximately 67% for the reporting period.
Stocks in the materials sector also contributed to the total
return of the fund. The fund’s holdings in the materials sector represented an average weight of approximately 4% of the fund’s investments and returned approximately 9% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
22
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Value
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2020)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | Since Inception |
| Fund: Schwab U.S. Large-Cap Value Index Fund (12/20/17) | -7.69% | 0.44% |
| Russell 1000® Value Index | -7.57% | 0.55% |
| Fund Category: Morningstar Large Value2 | -7.37% | N/A |
| Fund Expense Ratio3: 0.035% | ||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Index ownership – The Russell 1000® Value Index is a registered mark of the Frank Russell Company (Russell) and has been licensed for use by the Schwab U.S. Large-Cap Value Index Fund.
The Schwab U.S. Large-Cap Value 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 | Performance does 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. |
23
Schwab Equity Index Funds | Annual Report
Schwab U.S. Large-Cap Value
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
24
Schwab Equity Index Funds | Annual Report
Schwab U.S. Mid-Cap Index Fund as of October 31, 2020
The Schwab U.S. Mid-Cap Index Fund’s (the fund) goal is to track the performance of a benchmark index that measures the total return of mid-capitalization U.S. stocks. To pursue its investment objective, the fund generally invests in securities that are
included in the Russell Midcap® Index (the index). The fund seeks to replicate the performance of the index by giving the same weight to a given
security as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market
decline. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global
equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. From a sector standpoint within the index, the health care and information technology sectors outperformed over the 12-month reporting
period, while the energy and real estate sectors underperformed.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 4.04% during the 12-month reporting period ended October 31, 2020, compared with the index, which returned 4.12%. Differences between the return of the fund and the return of
the index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The fund’s holdings in the real estate sector were the largest detractors from the total return of the fund. The real estate sector represented an average weight of approximately 9% of the fund’s investments and returned approximately
-23% for the reporting period. One example from this sector is Equity Residential. The fund’s holdings of Equity Residential, a real estate investment trust, returned approximately -45% for the reporting period.
The financials sector also detracted from the total return of
the fund. Financials stocks represented an average weight of approximately 12% of the fund’s investments and returned approximately -13% for the reporting period.
The fund’s holdings in the information technology sector
were the largest contributors to the total return of the fund. Information technology stocks represented an average weight of approximately 19% of the fund’s investments and returned approximately 23% for the reporting period. The fund’s
Class A holdings of Twilio, Inc., which develops and publishes internet infrastructure solutions, are one example from this sector, returning approximately 189% for the reporting period.
Stocks in the health care sector also contributed to the total
return of the fund. Health care stocks represented an average weight of approximately 12% of the fund’s investments and returned approximately 31% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
25
Schwab Equity Index Funds | Annual Report
Schwab U.S. Mid-Cap Index
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2020)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | Since Inception |
| Fund: Schwab U.S. Mid-Cap Index Fund (12/20/17) | 4.04% | 5.59% |
| Russell Midcap® Index | 4.12% | 5.67% |
| Fund Category: Morningstar Mid-Cap Blend2 | -0.89% | N/A |
| Fund Expense Ratio3: 0.04% | ||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Index ownership – The Russell Midcap® Index is a registered mark of the Frank Russell Company (Russell) and has been licensed for use by the Schwab U.S. Mid-Cap Index Fund. The Schwab U.S.
Mid-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 | Performance does 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. |
26
Schwab Equity Index Funds | Annual Report
Schwab U.S. Mid-Cap Index
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
27
Schwab Equity Index Funds | Annual Report
Schwab International
Index Fund as of October 31, 2020
The Schwab International Index Fund’s (the fund) goal is to track the performance of a benchmark index that measures the total return of large, publicly traded non-U.S. companies from countries with developed equity markets outside of the U.S. To pursue its
investment objective, the fund generally invests in stocks that are included in the MSCI EAFE® Index (Net) (the index), which includes stocks from
developed markets in Europe, Australasia and the Far East. To pursue its goal, the fund seeks to replicate the performance of the index by giving the same weight to a given stock as the index does. For more information concerning the fund’s
investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months
of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign
currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -6.56% for the 12-month reporting period ended October 31, 2020, compared with the index, which returned -6.86%. Timing differences in foreign exchange calculations slightly
detracted and fair valuation of the fund’s holdings slightly contributed to the fund’s relative performance.1
Contributors and Detractors.
From a country perspective, stocks from Denmark contributed the most to the total return of the fund. Representing an average weight of approximately 2% of the fund’s investments, Danish stocks returned
approximately 34% in U.S. dollar terms for the reporting period. One example from Denmark is the fund’s Class B holdings of Novo Nordisk A/S, a multinational pharmaceutical company, which returned approximately 20% in U.S. dollar terms for the
reporting period.
Stocks from Switzerland also
contributed to the total return of the fund. Representing an average weight of approximately 10% of the fund’s investments, Swiss stocks returned approximately 4% in U.S. dollar terms for the reporting period.
Stocks from the United Kingdom detracted the most from the
fund’s total return. Representing an average weight of approximately 15% of the fund’s investments, stocks from the United Kingdom returned approximately -21% in U.S. dollar terms for the reporting period. One example from the United
Kingdom is HSBC Holdings plc, a multinational investment bank and financial services holding company, which returned approximately -44% in U.S. dollar terms for the reporting period.
Stocks from France also detracted from the total return of the
fund. Representing an average weight of approximately 11% of the fund’s investments, French stocks returned approximately -12% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
| 1 | 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. |
28
Schwab Equity Index Funds | Annual Report
Schwab International
Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1,2
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab International Index Fund (5/19/97) | -6.56% | 3.08% | 3.88% |
| MSCI EAFE® Index (Net)3 | -6.86% | 2.85% | 3.82% |
| International Spliced Index | -6.86% | 2.85% | 3.90% |
| Fund Category: Morningstar Foreign Large Blend4 | -4.19% | 3.23% | 3.65% |
| Fund Expense Ratio5: 0.06% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
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 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date. |
| 5 | As stated in the prospectus. |
29
Schwab Equity Index Funds | Annual Report
Schwab International
Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Portfolio holdings may have changed since the
report date.
Source of Sector Classification:
S&P and MSCI.
International investments are
subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | Excludes derivatives. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
30
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202 | |
| Schwab S&P 500 Index Fund | ||||
| Actual Return | 0.02% | $1,000.00 | $1,132.80 | $0.11 |
| Hypothetical 5% Return | 0.02% | $1,000.00 | $1,025.00 | $0.10 |
| Schwab 1000 Index Fund | ||||
| Actual Return | 0.05% | $1,000.00 | $1,148.30 | $0.27 |
| Hypothetical 5% Return | 0.05% | $1,000.00 | $1,024.85 | $0.25 |
| Schwab Small-Cap Index Fund | ||||
| Actual Return | 0.04% | $1,000.00 | $1,181.70 | $0.22 |
| Hypothetical 5% Return | 0.04% | $1,000.00 | $1,024.90 | $0.20 |
| Schwab Total Stock Market Index Fund | ||||
| Actual Return | 0.03% | $1,000.00 | $1,150.60 | $0.16 |
| Hypothetical 5% Return | 0.03% | $1,000.00 | $1,024.95 | $0.15 |
| Schwab U.S. Large-Cap Growth Index Fund | ||||
| Actual Return | 0.035% | $1,000.00 | $1,217.70 | $0.20 |
| Hypothetical 5% Return | 0.035% | $1,000.00 | $1,024.92 | $0.18 |
| Schwab U.S. Large-Cap Value Index Fund | ||||
| Actual Return | 0.035% | $1,000.00 | $1,069.00 | $0.18 |
| Hypothetical 5% Return | 0.035% | $1,000.00 | $1,024.92 | $0.18 |
| Schwab U.S. Mid-Cap Index Fund | ||||
| Actual Return | 0.04% | $1,000.00 | $1,177.80 | $0.22 |
| Hypothetical 5% Return | 0.04% | $1,000.00 | $1,024.90 | $0.20 |
| Schwab International Index Fund | ||||
| Actual Return | 0.06% | $1,000.00 | $1,094.30 | $0.32 |
| Hypothetical 5% Return | 0.06% | $1,000.00 | $1,024.80 | $0.31 |
| 1 | Based on the most recent six-month expense ratio. |
| 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 366 days of the fiscal year. |
31
Schwab Equity Index Funds | Annual Report
Schwab S&P 500 Index
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $47.17 | $42.41 | $40.23 | $33.38 | $33.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 1.02 | 0.92 | 0.80 | 0.74 | 0.69 | |
| Net realized and unrealized gains (losses) | 3.52 | 4.86 | 2.12 | 6.99 | 0.69 | |
| Total from investment operations | 4.54 | 5.78 | 2.92 | 7.73 | 1.38 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.87) | (0.84) | (0.72) | (0.69) | (0.68) | |
| Distributions from net realized gains | (0.09) | (0.18) | (0.02) | (0.19) | (0.32) | |
| Total distributions | (0.96) | (1.02) | (0.74) | (0.88) | (1.00) | |
| Net asset value at end of period | $50.75 | $47.17 | $42.41 | $40.23 | $33.38 | |
| Total return | 9.69% | 14.30% | 7.29% | 23.57% | 4.40% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.02% | 0.02% 2 | 0.03% | 0.05% 3 | 0.09% | |
| Net operating expenses | N/A | N/A | N/A 4 | 0.05% 3 | 0.09% | |
| Net investment income (loss) | 2.11% | 2.11% | 1.88% | 2.01% | 2.12% | |
| Portfolio turnover rate | 4% | 3% | 2% | 2% | 2% | |
| Net assets, end of period (x 1,000,000) | $44,184 | $40,232 | $34,410 | $29,999 | $22,675 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective December 20, 2018, the annual operating expense
ratio was reduced to 0.02%. The ratio presented for period ended 10/31/19 is a blended ratio.
3
Effective March 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
4
Effective March 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
32
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
33
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The fund owns shares of an affiliate, The Charles
Schwab Corp., since that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $74,967,791 | $23,287,026 | ($2,600,906) | ($1,027,037) | $3,667,588 | $98,294,462 | 2,391,011 | $1,316,874 |
34
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $43,962,680,898 | $— | $— | $43,962,680,898 | |
| Other Investment Company1 | 26,288,917 | — | — | 26,288,917 | |
| Short-Term Investments1 | — | 98,222,299 | — | 98,222,299 | |
| Liabilities | |||||
| Futures Contracts2 | (3,964,109) | — | — | (3,964,109) | |
| Total | $43,985,005,706 | $98,222,299 | $— | $44,083,228,005 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
35
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investment in affiliated issuer, at value (cost $58,970,924) | $98,294,462 | |
| Investments in unaffiliated issuers, at value (cost $20,633,673,215) including securities on loan of $25,808,897 | 43,962,608,735 | |
| Collateral invested for securities on loan, at value (cost $26,288,917) | 26,288,917 | |
| Deposit with broker for futures contracts | 17,340,000 | |
| Receivables: | ||
| Fund shares sold | 101,513,339 | |
| Dividends | 43,845,463 | |
| Income from securities on loan | 17,131 | |
| Interest | + | 55 |
| Total assets | 44,249,908,102 | |
| Liabilities | ||
| Collateral held for securities on loan | 26,288,917 | |
| Payables: | ||
| Investment adviser fees | 807,365 | |
| Fund shares redeemed | 36,480,703 | |
| Variation margin on futures contracts | + | 2,072,624 |
| Total liabilities | 65,649,609 | |
| Net Assets | ||
| Total assets | 44,249,908,102 | |
| Total liabilities | – | 65,649,609 |
| Net assets | $44,184,258,493 | |
| Net Assets by Source | ||
| Capital received from investors | 20,534,552,723 | |
| Total distributable earnings | 23,649,705,770 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $44,184,258,493 | 870,563,401 | $50.75 | ||
36
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $1,316,874 | |
| Dividends received from unaffiliated issuers | 899,795,340 | |
| Interest | 366,683 | |
| Securities on loan, net | + | 370,393 |
| Total investment income | 901,849,290 | |
| Expenses | ||
| Investment adviser fees | 8,499,556 | |
| Total expenses | – | 8,499,556 |
| Net investment income | 893,349,734 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (1,027,037) | |
| Net realized losses on unaffiliated issuers | (302,975,744) | |
| Net realized gains on futures contracts | + | 12,210,279 |
| Net realized losses | (291,792,502) | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 3,667,588 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | 3,168,428,504 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (6,049,994) |
| Net change in unrealized appreciation (depreciation) | + | 3,166,046,098 |
| Net realized and unrealized gains | 2,874,253,596 | |
| Increase in net assets resulting from operations | $3,767,603,330 | |
37
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $893,349,734 | $777,902,944 | ||
| Net realized gains (losses) | (291,792,502) | 16,453,205 | ||
| Net change in unrealized appreciation (depreciation) | + | 3,166,046,098 | 4,213,657,469 | |
| Increase in net assets from operations | 3,767,603,330 | 5,008,013,618 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($829,255,576) | ($835,129,475) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 236,073,289 | $11,084,108,165 | 185,382,757 | $8,015,175,116 | ||||
| Shares reinvested | 13,928,557 | 685,702,860 | 18,929,002 | 700,551,667 | ||||
| Shares redeemed | + | (232,288,137) | (10,755,681,037) | (162,770,508) | (7,066,557,661) | |||
| Net transactions in fund shares | 17,713,709 | $1,014,129,988 | 41,541,251 | $1,649,169,122 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 852,849,692 | $40,231,780,751 | 811,308,441 | $34,409,727,486 | ||||
| Total increase | + | 17,713,709 | 3,952,477,742 | 41,541,251 | 5,822,053,265 | |||
| End of period | 870,563,401 | $44,184,258,493 | 852,849,692 | $40,231,780,751 | ||||
38
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $68.68 | $64.19 | $62.61 | $52.40 | $53.67 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 1.38 | 1.38 | 1.18 | 1.08 | 0.95 | |
| Net realized and unrealized gains (losses) | 5.81 | 6.73 | 3.05 | 10.96 | 0.92 | |
| Total from investment operations | 7.19 | 8.11 | 4.23 | 12.04 | 1.87 | |
| Less distributions: | ||||||
| Distributions from net investment income | (1.29) | (1.28) | (1.10) | (0.97) | (0.96) | |
| Distributions from net realized gains | (0.85) | (2.34) | (1.55) | (0.86) | (2.18) | |
| Total distributions | (2.14) | (3.62) | (2.65) | (1.83) | (3.14) | |
| Net asset value at end of period | $73.73 | $68.68 | $64.19 | $62.61 | $52.40 | |
| Total return | 10.60% | 14.20% | 6.84% | 23.52% | 3.87% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.05% | 0.05% | 0.05% | 0.14% 2 | 0.33% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.12% 2 | 0.29% | |
| Net investment income (loss) | 1.97% | 2.15% | 1.82% | 1.87% | 1.86% | |
| Portfolio turnover rate | 4% | 5% | 4% | 5% | 3% | |
| Net assets, end of period (x 1,000,000) | $9,774 | $9,346 | $7,909 | $7,681 | $6,432 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective March 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective March 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
39
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Condensed
Portfolio Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
40
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Condensed
Portfolio Holdings as of October 31, 2020 (continued)
The fund owns shares of an affiliate, The Charles
Schwab Corp., since that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $15,595,187 | $1,594,082 | ($1,049,005) | ($6,418) | $3,040,310 | $19,174,156 | 466,411 | $264,536 |
41
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Condensed
Portfolio Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $9,736,264,912 | $— | $— | $9,736,264,912 | |
| Other Investment Companies1 | 32,084,004 | — | — | 32,084,004 | |
| Liabilities | |||||
| Futures Contracts2 | (1,323,653) | — | — | (1,323,653) | |
| Total | $9,767,025,263 | $— | $— | $9,767,025,263 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
42
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investment in affiliated issuer, at value (cost $3,294,045) | $19,174,156 | |
| Investments in unaffiliated issuers, at value (cost $2,558,754,656) including securities on loan of $5,675,853 | 9,743,354,160 | |
| Collateral invested for securities on loan, at value (cost $5,820,600) | 5,820,600 | |
| Deposit with broker for futures contracts | 2,844,000 | |
| Receivables: | ||
| Investments sold | 373,727 | |
| Dividends | 8,829,736 | |
| Fund shares sold | 8,286,881 | |
| Income from securities on loan | + | 4,927 |
| Total assets | 9,788,688,187 | |
| Liabilities | ||
| Collateral held for securities on loan | 5,820,600 | |
| Payables: | ||
| Investments bought | 3,315,253 | |
| Investment adviser fees | 447,582 | |
| Fund shares redeemed | 4,764,399 | |
| Variation margin on futures contracts | + | 399,938 |
| Total liabilities | 14,747,772 | |
| Net Assets | ||
| Total assets | 9,788,688,187 | |
| Total liabilities | – | 14,747,772 |
| Net assets | $9,773,940,415 | |
| Net Assets by Source | ||
| Capital received from investors | 2,283,611,583 | |
| Total distributable earnings | 7,490,328,832 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $9,773,940,415 | 132,568,023 | $73.73 | ||
43
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $264,536 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $4,519) | 191,469,491 | |
| Securities on loan, net | + | 153,520 |
| Total investment income | 191,887,547 | |
| Expenses | ||
| Investment adviser fees | 4,756,649 | |
| Total expenses | – | 4,756,649 |
| Net investment income | 187,130,898 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (6,418) | |
| Net realized gains on unaffiliated issuers | 111,568,510 | |
| Net realized gains on futures contracts | + | 6,175,964 |
| Net realized gains | 117,738,056 | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 3,040,310 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | 640,546,681 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (1,652,329) |
| Net change in unrealized appreciation (depreciation) | + | 641,934,662 |
| Net realized and unrealized gains | 759,672,718 | |
| Increase in net assets resulting from operations | $946,803,616 | |
44
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $187,130,898 | $181,692,334 | ||
| Net realized gains | 117,738,056 | 111,070,500 | ||
| Net change in unrealized appreciation (depreciation) | + | 641,934,662 | 831,678,079 | |
| Increase in net assets from operations | 946,803,616 | 1,124,440,913 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($290,754,043) | ($445,433,607) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 13,800,508 | $925,426,862 | 20,231,558 | $1,297,409,694 | ||||
| Shares reinvested | 3,367,064 | 238,859,473 | 6,798,612 | 365,978,493 | ||||
| Shares redeemed | + | (20,677,471) | (1,392,525,764) | (14,175,603) | (905,415,456) | |||
| Net transactions in fund shares | (3,509,899) | ($228,239,429) | 12,854,567 | $757,972,731 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 136,077,922 | $9,346,130,271 | 123,223,355 | $7,909,150,234 | ||||
| Total increase or decrease | + | (3,509,899) | 427,810,144 | 12,854,567 | 1,436,980,037 | |||
| End of period | 132,568,023 | $9,773,940,415 | 136,077,922 | $9,346,130,271 | ||||
45
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $28.84 | $30.48 | $31.45 | $25.60 | $26.29 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.35 | 0.40 | 0.43 | 0.38 | 0.39 | |
| Net realized and unrealized gains (losses) | (0.23) | 0.54 | 0.20 | 6.62 | 0.59 | |
| Total from investment operations | 0.12 | 0.94 | 0.63 | 7.00 | 0.98 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.42) | (0.40) | (0.39) | (0.39) | (0.36) | |
| Distributions from net realized gains | (1.36) | (2.18) | (1.21) | (0.76) | (1.31) | |
| Total distributions | (1.78) | (2.58) | (1.60) | (1.15) | (1.67) | |
| Net asset value at end of period | $27.18 | $28.84 | $30.48 | $31.45 | $25.60 | |
| Total return | 0.00% | 4.95% | 1.93% | 27.84% | 4.17% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.04% | 0.04% 2 | 0.05% | 0.10% 3 | 0.20% | |
| Net operating expenses | N/A | N/A | N/A 4 | 0.09% 3 | 0.17% | |
| Net investment income (loss) | 1.31% | 1.43% | 1.33% | 1.31% | 1.60% | |
| Portfolio turnover rate | 21% | 14% | 17% | 11% | 17% | |
| Net assets, end of period (x 1,000,000) | $3,988 | $4,187 | $3,874 | $3,531 | $2,619 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective December 20, 2018, the annual operating expense
ratio was reduced to 0.04%. The ratio presented for period ended 10/31/19 is a blended ratio.
3
Effective March 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
4
Effective March 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
46
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
47
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
48
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $3,809,688,619 | $— | $— | $3,809,688,619 | |
| Materials | 165,843,322 | — | — * | 165,843,322 | |
| Rights 1 | |||||
| Capital Goods | — | — | — * | — | |
| Media & Entertainment | — | — | 14,883 | 14,883 | |
| Pharmaceuticals, Biotechnology & Life Sciences | — | — | 254,263 * | 254,263 | |
| Warrants 1 | |||||
| Energy | — | — | 9,962 | 9,962 | |
| Other Investment Company1 | 57,653,589 | — | — | 57,653,589 | |
| Short-Term Investment1 | — | 13,572,108 | — | 13,572,108 | |
| Liabilities | |||||
| Futures Contracts2 | (514,409) | — | — | (514,409) | |
| Total | $4,032,671,121 | $13,572,108 | $279,108 | $4,046,522,337 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are
classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
49
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $3,203,396,666) including securities on loan of $53,460,251 | $3,989,383,157 | |
| Collateral invested for securities on loan, at value (cost $57,653,589) | 57,653,589 | |
| Deposit with broker for futures contracts | 1,410,500 | |
| Receivables: | ||
| Investments sold | 331,369 | |
| Fund shares sold | 4,274,240 | |
| Dividends | 1,148,368 | |
| Income from securities on loan | 560,773 | |
| Foreign tax reclaims | + | 888 |
| Total assets | 4,054,762,884 | |
| Liabilities | ||
| Collateral held for securities on loan | 57,653,589 | |
| Payables: | ||
| Investments bought | 2,330,996 | |
| Investment adviser fees | 137,352 | |
| Fund shares redeemed | 6,237,449 | |
| Variation margin on futures contracts | + | 231,943 |
| Total liabilities | 66,591,329 | |
| Net Assets | ||
| Total assets | 4,054,762,884 | |
| Total liabilities | – | 66,591,329 |
| Net assets | $3,988,171,555 | |
| Net Assets by Source | ||
| Capital received from investors | 3,212,453,051 | |
| Total distributable earnings | 775,718,504 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $3,988,171,555 | 146,713,114 | $27.18 | ||
50
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $60,214) | $48,336,155 | |
| Interest | 50,283 | |
| Securities on loan, net | + | 5,318,547 |
| Total investment income | 53,704,985 | |
| Expenses | ||
| Investment adviser fees | 1,594,282 | |
| Total expenses | – | 1,594,282 |
| Net investment income | 52,110,703 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on investments | 17,480,900 | |
| Net realized losses on futures contracts | + | (1,171,165) |
| Net realized gains | 16,309,735 | |
| Net change in unrealized appreciation (depreciation) on investments | (65,407,073) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (802,666) |
| Net change in unrealized appreciation (depreciation) | + | (66,209,739) |
| Net realized and unrealized losses | (49,900,004) | |
| Increase in net assets resulting from operations | $2,210,699 | |
51
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $52,110,703 | $57,367,678 | ||
| Net realized gains | 16,309,735 | 164,782,862 | ||
| Net change in unrealized appreciation (depreciation) | + | (66,209,739) | (24,103,919) | |
| Increase in net assets from operations | 2,210,699 | 198,046,621 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($258,984,423) | ($331,678,196) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 42,497,497 | $1,056,026,388 | 34,352,492 | $953,623,893 | ||||
| Shares reinvested | 7,453,061 | 217,331,235 | 12,063,839 | 284,224,067 | ||||
| Shares redeemed | + | (48,388,038) | (1,215,269,449) | (28,348,900) | (791,168,893) | |||
| Net transactions in fund shares | 1,562,520 | $58,088,174 | 18,067,431 | $446,679,067 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 145,150,594 | $4,186,857,105 | 127,083,163 | $3,873,809,613 | ||||
| Total increase or decrease | + | 1,562,520 | (198,685,550) | 18,067,431 | 313,047,492 | |||
| End of period | 146,713,114 | $3,988,171,555 | 145,150,594 | $4,186,857,105 | ||||
52
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $53.42 | $48.38 | $46.25 | $38.19 | $37.69 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 1.07 | 0.99 | 0.88 | 0.80 | 0.75 | |
| Net realized and unrealized gains (losses) | 4.21 | 5.18 | 2.12 | 8.19 | 0.75 | |
| Total from investment operations | 5.28 | 6.17 | 3.00 | 8.99 | 1.50 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.94) | (0.90) | (0.76) | (0.74) | (0.70) | |
| Distributions from net realized gains | (0.14) | (0.23) | (0.11) | (0.19) | (0.30) | |
| Total distributions | (1.08) | (1.13) | (0.87) | (0.93) | (1.00) | |
| Net asset value at end of period | $57.62 | $53.42 | $48.38 | $46.25 | $38.19 | |
| Total return | 9.94% | 13.37% | 6.51% | 23.89% | 4.19% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.03% | 0.03% | 0.03% | 0.05% 2 | 0.10% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.05% 2 | 0.09% | |
| Net investment income (loss) | 1.96% | 1.99% | 1.80% | 1.89% | 2.03% | |
| Portfolio turnover rate | 4% | 3% | 4% | 2% | 1% | |
| Net assets, end of period (x 1,000,000) | $11,487 | $10,220 | $8,410 | $6,720 | $4,850 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective March 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective March 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
53
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
54
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
55
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The fund owns shares of an affiliate, The Charles
Schwab Corp., since that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $15,925,101 | $4,347,073 | ($421,136) | ($78,452) | $1,366,012 | $21,138,598 | 514,196 | $282,384 |
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $10,119,344,124 | $— | $— | $10,119,344,124 | |
| Automobiles & Components | 158,878,137 | — | 57,379 | 158,935,516 | |
| Health Care Equipment & Services | 754,258,764 | — | 2,708,993 | 756,967,757 | |
| Real Estate | 372,856,413 | — | — * | 372,856,413 | |
| Rights 1 | |||||
| Capital Goods | — | — | — * | — | |
| Media & Entertainment | — | — | 1,566 | 1,566 | |
| Pharmaceuticals, Biotechnology & Life Sciences | — | — | 17,337 * | 17,337 | |
| Warrants 1 | |||||
| Energy | — | — | 1,219 | 1,219 | |
| Other Investment Company1 | 18,771,910 | — | — | 18,771,910 | |
| Short-Term Investment1 | — | 53,766,597 | — | 53,766,597 | |
| Futures Contracts2 | 105,271 | — | — | 105,271 | |
| Liabilities | |||||
| Futures Contracts2 | (1,624,776) | — | — | (1,624,776) | |
| Total | $11,422,589,843 | $53,766,597 | $2,786,494 | $11,479,142,934 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are
classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
56
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investment in affiliated issuer, at value (cost $15,612,346) | $21,138,598 | |
| Investments in unaffiliated issuers, at value (cost $6,492,559,571) including securities on loan of $17,807,791 | 11,440,751,931 | |
| Collateral invested for securities on loan, at value (cost $18,771,910) | 18,771,910 | |
| Deposit with broker for futures contracts | 5,674,999 | |
| Receivables: | ||
| Investments sold | 488,093 | |
| Fund shares sold | 16,385,725 | |
| Dividends | 9,874,920 | |
| Income from securities on loan | 146,956 | |
| Foreign tax reclaims | 159 | |
| Interest | + | 45 |
| Total assets | 11,513,233,336 | |
| Liabilities | ||
| Collateral held for securities on loan | 18,771,910 | |
| Payables: | ||
| Investments bought | 1,166,947 | |
| Investment adviser fees | 291,264 | |
| Fund shares redeemed | 4,721,387 | |
| Variation margin on futures contracts | + | 844,058 |
| Total liabilities | 25,795,566 | |
| Net Assets | ||
| Total assets | 11,513,233,336 | |
| Total liabilities | – | 25,795,566 |
| Net assets | $11,487,437,770 | |
| Net Assets by Source | ||
| Capital received from investors | 6,454,783,428 | |
| Total distributable earnings | 5,032,654,342 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $11,487,437,770 | 199,376,459 | $57.62 | ||
57
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $282,384 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $16,788) | 214,139,541 | |
| Interest | 90,763 | |
| Securities on loan, net | + | 1,244,377 |
| Total investment income | 215,757,065 | |
| Expenses | ||
| Investment adviser fees | 3,259,136 | |
| Total expenses | – | 3,259,136 |
| Net investment income | 212,497,929 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (78,452) | |
| Net realized losses on unaffiliated issuers | (31,263,854) | |
| Net realized gains on futures contracts | + | 5,938,005 |
| Net realized losses | (25,404,301) | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 1,366,012 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | 847,824,605 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (1,503,468) |
| Net change in unrealized appreciation (depreciation) | + | 847,687,149 |
| Net realized and unrealized gains | 822,282,848 | |
| Increase in net assets resulting from operations | $1,034,780,777 | |
58
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $212,497,929 | $184,998,541 | ||
| Net realized gains (losses) | (25,404,301) | 606,877 | ||
| Net change in unrealized appreciation (depreciation) | + | 847,687,149 | 1,012,024,065 | |
| Increase in net assets from operations | 1,034,780,777 | 1,197,629,483 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($207,148,798) | ($199,442,079) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 47,954,413 | $2,507,068,155 | 41,564,151 | $2,031,277,091 | ||||
| Shares reinvested | 2,723,498 | 151,971,124 | 3,549,021 | 149,293,091 | ||||
| Shares redeemed | + | (42,603,146) | (2,219,143,615) | (27,643,143) | (1,368,397,596) | |||
| Net transactions in fund shares | 8,074,765 | $439,895,664 | 17,470,029 | $812,172,586 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 191,301,694 | $10,219,910,127 | 173,831,665 | $8,409,550,137 | ||||
| Total increase | + | 8,074,765 | 1,267,527,643 | 17,470,029 | 1,810,359,990 | |||
| End of period | 199,376,459 | $11,487,437,770 | 191,301,694 | $10,219,910,127 | ||||
59
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
12/20/17
1– 10/31/18 |
||||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $49.06 | $42.37 | $40.00 | |||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.55 | 0.57 | 0.46 | |||
| Net realized and unrealized gains (losses) | 13.65 | 6.52 | 1.91 3 | |||
| Total from investment operations | 14.20 | 7.09 | 2.37 | |||
| Less distributions: | ||||||
| Distributions from net investment income | (0.50) | (0.40) | — | |||
| Net asset value at end of period | $62.76 | $49.06 | $42.37 | |||
| Total return | 29.16% | 17.04% | 5.93% 4 | |||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.035% | 0.035% 5 | 0.040% 6,7 | |||
| Net operating expenses | N/A | N/A | 0.02% 6,7 | |||
| Net investment income (loss) | 0.97% | 1.27% | 1.23% 6 | |||
| Portfolio turnover rate | 41% | 46% | 23% 4 | |||
| Net assets, end of period (x 1,000,000) | $487 | $166 | $93 | |||
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
4
Not annualized.
5
Effective December 20, 2018, the annual operating expense
ratio was reduced to 0.035%. The ratio presented for period ended 10/31/19 is a blended ratio.
6
Annualized.
7
The investment adviser voluntarily agreed to waive the
fund’s management fees to 0.00% beginning with the fund’s commencement of operations through June 30, 2018. The ratio presented for period ended 10/31/18 is a blended ratio.
60
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
61
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
62
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
During the period, the fund held shares of an affiliate, The
Charles Schwab Corp., since that company was included in its index.Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $328,652 | $487,415 | ($658,489) | ($185,704) | $28,126 | $— | — | $5,963 |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $455,878,121 | $— | $— | $455,878,121 | |
| Health Care Equipment & Services | 28,893,814 | — | 202,153 | 29,095,967 | |
| Other Investment Companies1 | 4,026,482 | — | — | 4,026,482 | |
| Liabilities | |||||
| Futures Contracts2 | (63,535) | — | — | (63,535) | |
| Total | $488,734,882 | $— | $202,153 | $488,937,035 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds and ETFs are
classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
63
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $364,891,917) including securities on loan of $17,700 | $488,981,970 | |
| Collateral invested for securities on loan, at value (cost $18,600) | 18,600 | |
| Deposit with broker for futures contracts | 112,800 | |
| Receivables: | ||
| Investments sold | 64,346 | |
| Fund shares sold | 1,491,713 | |
| Dividends | 191,747 | |
| Income from securities on loan | + | 264 |
| Total assets | 490,861,440 | |
| Liabilities | ||
| Collateral held for securities on loan | 18,600 | |
| Payables: | ||
| Investments bought | 2,798,047 | |
| Investment adviser fees | 15,587 | |
| Fund shares redeemed | 788,205 | |
| Variation margin on futures contracts | + | 36,007 |
| Total liabilities | 3,656,446 | |
| Net Assets | ||
| Total assets | 490,861,440 | |
| Total liabilities | – | 3,656,446 |
| Net assets | $487,204,994 | |
| Net Assets by Source | ||
| Capital received from investors | 375,282,029 | |
| Total distributable earnings | 111,922,965 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $487,204,994 | 7,763,241 | $62.76 | ||
64
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $5,963 | |
| Dividends received from unaffiliated issuers | 3,381,295 | |
| Securities on loan, net | + | 4,016 |
| Total investment income | 3,391,274 | |
| Expenses | ||
| Investment adviser fees | 118,739 | |
| Total expenses | – | 118,739 |
| Net investment income | 3,272,535 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (185,704) | |
| Net realized losses on unaffiliated issuers | (11,032,513) | |
| Net realized gains on futures contracts | + | 726,432 |
| Net realized losses | (10,491,785) | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 28,126 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | 98,499,456 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (62,964) |
| Net change in unrealized appreciation (depreciation) | + | 98,464,618 |
| Net realized and unrealized gains | 87,972,833 | |
| Increase in net assets resulting from operations | $91,245,368 | |
65
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $3,272,535 | $1,673,328 | ||
| Net realized losses | (10,491,785) | (3,852,313) | ||
| Net change in unrealized appreciation (depreciation) | + | 98,464,618 | 25,108,024 | |
| Increase in net assets from operations | 91,245,368 | 22,929,039 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($1,890,344) | ($949,803) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 8,242,661 | $434,758,920 | 2,776,749 | $120,542,470 | ||||
| Shares reinvested | 30,207 | 1,571,983 | 22,696 | 838,591 | ||||
| Shares redeemed | + | (3,889,701) | (204,300,295) | (1,608,317) | (70,292,844) | |||
| Net transactions in fund shares | 4,383,167 | $232,030,608 | 1,191,128 | $51,088,217 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 3,380,074 | $165,819,362 | 2,188,946 | $92,751,909 | ||||
| Total increase | + | 4,383,167 | 321,385,632 | 1,191,128 | 73,067,453 | |||
| End of period | 7,763,241 | $487,204,994 | 3,380,074 | $165,819,362 | ||||
66
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
12/20/17
1– 10/31/18 |
||||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $43.06 | $39.51 | $40.00 | |||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 1.00 | 1.13 | 0.82 | |||
| Net realized and unrealized gains (losses) | (4.07) | 3.10 | (1.31) | |||
| Total from investment operations | (3.07) | 4.23 | (0.49) | |||
| Less distributions: | ||||||
| Distributions from net investment income | (1.06) | (0.62) | — | |||
| Distributions from net realized gains | (0.84) | (0.06) | — | |||
| Total distributions | (1.90) | (0.68) | — | |||
| Net asset value at end of period | $38.09 | $43.06 | $39.51 | |||
| Total return | (7.69%) | 11.08% | (1.23%) 3 | |||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.035% | 0.035% 4 | 0.040% 5,6 | |||
| Net operating expenses | N/A | N/A | 0.02% 5,6 | |||
| Net investment income (loss) | 2.57% | 2.79% | 2.36% 5 | |||
| Portfolio turnover rate | 50% | 22% | 22% 3 | |||
| Net assets, end of period (x 1,000,000) | $331 | $212 | $70 | |||
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Effective December 20, 2018, the annual operating expense
ratio was reduced to 0.035%. The ratio presented for period ended 10/31/19 is a blended ratio.
5
Annualized.
6
The investment adviser voluntarily agreed to waive the
fund’s management fees to 0.00% beginning with the fund’s commencement of operations through June 30, 2018. The ratio presented for period ended 10/31/18 is a blended ratio.
67
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
68
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
69
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The fund owns shares of an affiliate, The Charles Schwab Corp.,
since that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $293,723 | $937,495 | ($106,717) | ($15,581) | $220,989 | $1,329,909 | 32,350 | $8,996 |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $330,224,187 | $— | $— | $330,224,187 | |
| Other Investment Companies1 | 1,347,015 | — | — | 1,347,015 | |
| Liabilities | |||||
| Futures Contracts2 | (58,424) | — | — | (58,424) | |
| Total | $331,512,778 | $— | $— | $331,512,778 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds and ETFs are
classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
70
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investment in affiliated issuer, at value (cost $1,104,535) | $1,329,909 | |
| Investments in unaffiliated issuers, at value (cost $308,183,495) including securities on loan of $349,151 | 329,884,543 | |
| Collateral invested for securities on loan, at value (cost $356,750) | 356,750 | |
| Deposit with broker for futures contracts | 106,000 | |
| Receivables: | ||
| Dividends | 482,685 | |
| Fund shares sold | 410,843 | |
| Income from securities on loan | + | 280 |
| Total assets | 332,571,010 | |
| Liabilities | ||
| Collateral held for securities on loan | 356,750 | |
| Payables: | ||
| Investments bought | 93,390 | |
| Investment adviser fees | 10,550 | |
| Fund shares redeemed | 785,297 | |
| Variation margin on futures contracts | + | 2,636 |
| Total liabilities | 1,248,623 | |
| Net Assets | ||
| Total assets | 332,571,010 | |
| Total liabilities | – | 1,248,623 |
| Net assets | $331,322,387 | |
| Net Assets by Source | ||
| Capital received from investors | 329,958,653 | |
| Total distributable earnings | 1,363,734 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $331,322,387 | 8,698,237 | $38.09 | ||
71
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $8,996 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $316) | 7,062,218 | |
| Securities on loan, net | + | 5,530 |
| Total investment income | 7,076,744 | |
| Expenses | ||
| Investment adviser fees | 95,176 | |
| Total expenses | – | 95,176 |
| Net investment income | 6,981,568 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on affiliated issuer | (15,581) | |
| Net realized losses on unaffiliated issuers | (24,809,148) | |
| Net realized gains on futures contracts | + | 34,355 |
| Net realized losses | (24,790,374) | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 220,989 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | 6,994,920 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (58,390) |
| Net change in unrealized appreciation (depreciation) | + | 7,157,519 |
| Net realized and unrealized losses | (17,632,855) | |
| Decrease in net assets resulting from operations | ($10,651,287) | |
72
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $6,981,568 | $4,561,029 | ||
| Net realized gains (losses) | (24,790,374) | 3,255,061 | ||
| Net change in unrealized appreciation (depreciation) | + | 7,157,519 | 16,353,464 | |
| Increase (decrease) in net assets from operations | (10,651,287) | 24,169,554 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($9,633,049) | ($1,536,515) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 7,976,599 | $290,627,433 | 4,104,466 | $157,914,398 | ||||
| Shares reinvested | 182,880 | 7,979,022 | 38,320 | 1,344,745 | ||||
| Shares redeemed | + | (4,389,206) | (159,213,048) | (979,981) | (39,427,758) | |||
| Net transactions in fund shares | 3,770,273 | $139,393,407 | 3,162,805 | $119,831,385 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 4,927,964 | $212,213,316 | 1,765,159 | $69,748,892 | ||||
| Total increase | + | 3,770,273 | 119,109,071 | 3,162,805 | 142,464,424 | |||
| End of period | 8,698,237 | $331,322,387 | 4,927,964 | $212,213,316 | ||||
73
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
12/20/17
1– 10/31/18 |
||||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $44.29 | $39.55 | $40.00 | |||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.72 | 0.70 | 0.59 | |||
| Net realized and unrealized gains (losses) | 1.09 | 4.54 | (1.04) | |||
| Total from investment operations | 1.81 | 5.24 | (0.45) | |||
| Less distributions: | ||||||
| Distributions from net investment income | (0.64) | (0.42) | — | |||
| Distributions from net realized gains | (0.48) | (0.08) | — | |||
| Total distributions | (1.12) | (0.50) | — | |||
| Net asset value at end of period | $44.98 | $44.29 | $39.55 | |||
| Total return | 4.04% | 13.61% | (1.13%) 3 | |||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.04% | 0.04% 4 | 0.05% 5,6 | |||
| Net operating expenses | N/A | N/A | 0.03% 5,6 | |||
| Net investment income (loss) | 1.69% | 1.67% | 1.65% 5 | |||
| Portfolio turnover rate | 29% | 21% | 15% 3 | |||
| Net assets, end of period (x 1,000,000) | $483 | $357 | $171 | |||
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Effective December 20, 2018, the annual operating expense
ratio was reduced to 0.04%. The ratio presented for period ended 10/31/19 is a blended ratio.
5
Annualized.
6
The investment adviser voluntarily agreed to waive the
fund’s management fees to 0.00% beginning with the fund’s commencement of operations through June 30, 2018. The ratio presented for period ended 10/31/18 is a blended ratio.
74
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
75
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
76
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $445,064,413 | $— | $— | $445,064,413 | |
| Health Care Equipment & Services | 34,663,817 | — | 408,163 | 35,071,980 | |
| Other Investment Companies1 | 2,903,721 | — | — | 2,903,721 | |
| Liabilities | |||||
| Futures Contracts2 | (107,774) | — | — | (107,774) | |
| Total | $482,524,177 | $— | $408,163 | $482,932,340 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds and ETFs are
classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
77
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $435,344,082) including securities on loan of $1,016,695 | $481,992,189 | |
| Collateral invested for securities on loan, at value (cost $1,047,925) | 1,047,925 | |
| Deposit with broker for futures contracts | 175,500 | |
| Receivables: | ||
| Fund shares sold | 796,078 | |
| Dividends | 234,190 | |
| Income from securities on loan | + | 2,577 |
| Total assets | 484,248,459 | |
| Liabilities | ||
| Collateral held for securities on loan | 1,047,925 | |
| Payables: | ||
| Investments bought | 43,308 | |
| Investment adviser fees | 17,493 | |
| Fund shares redeemed | 149,748 | |
| Variation margin on futures contracts | + | 13,134 |
| Total liabilities | 1,271,608 | |
| Net Assets | ||
| Total assets | 484,248,459 | |
| Total liabilities | – | 1,271,608 |
| Net assets | $482,976,851 | |
| Net Assets by Source | ||
| Capital received from investors | 445,422,545 | |
| Total distributable earnings | 37,554,306 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $482,976,851 | 10,737,482 | $44.98 | ||
78
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $948) | $7,790,069 | |
| Securities on loan, net | + | 30,924 |
| Total investment income | 7,820,993 | |
| Expenses | ||
| Investment adviser fees | 181,186 | |
| Total expenses | – | 181,186 |
| Net investment income | 7,639,807 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (10,409,510) | |
| Net realized gains on futures contracts | + | 617,857 |
| Net realized losses | (9,791,653) | |
| Net change in unrealized appreciation (depreciation) on investments | 20,499,049 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (104,189) |
| Net change in unrealized appreciation (depreciation) | + | 20,394,860 |
| Net realized and unrealized gains | 10,603,207 | |
| Increase in net assets resulting from operations | $18,243,014 | |
79
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $7,639,807 | $4,785,991 | ||
| Net realized losses | (9,791,653) | (662,598) | ||
| Net change in unrealized appreciation (depreciation) | + | 20,394,860 | 35,427,266 | |
| Increase in net assets from operations | 18,243,014 | 39,550,659 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($9,582,557) | ($2,951,274) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 7,486,752 | $310,557,071 | 6,140,825 | $247,965,349 | ||||
| Shares reinvested | 166,927 | 7,635,275 | 76,761 | 2,670,904 | ||||
| Shares redeemed | + | (4,967,958) | (200,471,749) | (2,496,685) | (101,917,905) | |||
| Net transactions in fund shares | 2,685,721 | $117,720,597 | 3,720,901 | $148,718,348 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 8,051,761 | $356,595,797 | 4,330,860 | $171,278,064 | ||||
| Total increase | + | 2,685,721 | 126,381,054 | 3,720,901 | 185,317,733 | |||
| End of period | 10,737,482 | $482,976,851 | 8,051,761 | $356,595,797 | ||||
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $20.48 | $19.00 | $21.01 | $17.52 | $18.49 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.47 | 0.64 | 0.62 | 0.55 | 0.53 | |
| Net realized and unrealized gains (losses) | (1.75) | 1.39 | (2.06) | 3.49 | (1.03) | |
| Total from investment operations | (1.28) | 2.03 | (1.44) | 4.04 | (0.50) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.64) | (0.55) | (0.57) | (0.55) | (0.47) | |
| Net asset value at end of period | $18.56 | $20.48 | $19.00 | $21.01 | $17.52 | |
| Total return | (6.56%) | 11.27% | (7.11%) | 23.76% | (2.64%) | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.06% | 0.06% | 0.06% | 0.11% 2 | 0.23% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.10% 2 | 0.19% | |
| Net investment income (loss) | 2.47% | 3.32% | 2.99% | 2.88% | 3.06% | |
| Portfolio turnover rate | 7% | 5% | 5% | 3% | 4% | |
| Net assets, end of period (x 1,000,000) | $5,937 | $5,443 | $4,314 | $4,128 | $2,900 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective March 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective March 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $1,207,859,717 | $— | $1,207,859,717 | |
| Australia | — | 401,971,363 | 2,258,137 | 404,229,500 | |
| Belgium | 1,545,564 | 54,761,318 | — | 56,306,882 | |
| Denmark | 13,357,054 | 138,118,874 | — | 151,475,928 | |
| France | 4,808,763 | 618,228,706 | — | 623,037,469 | |
| Germany | 13,284,712 | 484,339,632 | — | 497,624,344 | |
| Hong Kong | 6,890,443 | 194,913,474 | — | 201,803,917 | |
| Ireland | 5,959,742 | 36,912,449 | — | 42,872,191 | |
| Israel | 17,410,289 | 18,542,367 | — | 35,952,656 | |
| Japan | 1,727,017 | 1,563,761,258 | — | 1,565,488,275 | |
| Netherlands | 6,289,582 | 253,491,563 | — | 259,781,145 | |
| Norway | 1,664,276 | 30,348,389 | — | 32,012,665 | |
| Portugal | — | 9,863,809 | — * | 9,863,809 | |
| United Kingdom | — | 773,359,755 | 15,600 | 773,375,355 | |
| Preferred Stock1 | — | 33,156,426 | — | 33,156,426 | |
| Rights | |||||
| Singapore | — | — | — * | — | |
| United Kingdom | 1,479,160 | — | — | 1,479,160 | |
| Other Investment Company1 | 6,847,633 | — | — | 6,847,633 | |
| Short-Term Investments1 | — | 6,922,042 | — | 6,922,042 | |
| Liabilities | |||||
| Futures Contracts2 | (1,705,238) | — | — | (1,705,238) | |
| Total | $79,558,997 | $5,826,551,142 | $2,273,737 | $5,908,383,876 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $5,225,323,049) including securities on loan of $5,890,477 | $5,903,241,481 | |
| Collateral invested for securities on loan, at value (cost $6,847,633) | 6,847,633 | |
| Deposit with broker for futures contracts | 2,993,760 | |
| Receivables: | ||
| Investments sold | 3,741,894 | |
| Dividends | 14,507,276 | |
| Fund shares sold | 10,178,586 | |
| Foreign tax reclaims | 9,414,673 | |
| Income from securities on loan | + | 25,639 |
| Total assets | 5,950,950,942 | |
| Liabilities | ||
| Collateral held for securities on loan | 6,847,633 | |
| Payables: | ||
| Investments bought | 3,017,004 | |
| Investment adviser fees | 326,495 | |
| Fund shares redeemed | 3,077,265 | |
| Variation margin on futures contracts | + | 190,527 |
| Total liabilities | 13,458,924 | |
| Net Assets | ||
| Total assets | 5,950,950,942 | |
| Total liabilities | – | 13,458,924 |
| Net assets | $5,937,492,018 | |
| Net Assets by Source | ||
| Capital received from investors | 5,576,714,080 | |
| Total distributable earnings | 360,777,938 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $5,937,492,018 | 319,898,201 | $18.56 | ||
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $14,713,020) | $133,750,062 | |
| Income from non-cash dividends | 9,085,074 | |
| Interest | 44,303 | |
| Securities on loan, net | + | 797,929 |
| Total investment income | 143,677,368 | |
| Expenses | ||
| Investment adviser fees | 3,421,849 | |
| Professional fees | + | 37,098* |
| Total expenses | 3,458,947 | |
| Expense reduction by CSIM | – | 37,098* |
| Net expenses | – | 3,421,849 |
| Net investment income | 140,255,519 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (166,722,849) | |
| Net realized losses on futures contracts | (4,249,319) | |
| Net realized losses on foreign currency transactions | + | (741,956) |
| Net realized losses | (171,714,124) | |
| Net change in unrealized appreciation (depreciation) on investments | (259,943,014) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | (2,550,688) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 542,350 |
| Net change in unrealized appreciation (depreciation) | + | (261,951,352) |
| Net realized and unrealized losses | (433,665,476) | |
| Decrease in net assets resulting from operations | ($293,409,957) | |
| * | Professional fees associated with the filing of tax claims in the European Union deemed to be non-routine expenses of the fund. See financial notes 2(d) and 4 for additional information. |
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $140,255,519 | $161,653,306 | ||
| Net realized losses | (171,714,124) | (81,047,333) | ||
| Net change in unrealized appreciation (depreciation) | + | (261,951,352) | 450,579,679 | |
| Increase (decrease) in net assets from operations | (293,409,957) | 531,185,652 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($172,919,468) | ($132,253,839) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 137,962,023 | $2,458,528,501 | 101,475,911 | $1,918,826,792 | ||||
| Shares reinvested | 6,184,493 | 127,647,953 | 5,815,026 | 99,611,394 | ||||
| Shares redeemed | + | (90,042,895) | (1,625,600,717) | (68,493,022) | (1,288,104,681) | |||
| Net transactions in fund shares | 54,103,621 | $960,575,737 | 38,797,915 | $730,333,505 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 265,794,580 | $5,443,245,706 | 226,996,665 | $4,313,980,388 | ||||
| Total increase | + | 54,103,621 | 494,246,312 | 38,797,915 | 1,129,265,318 | |||
| End of period | 319,898,201 | $5,937,492,018 | 265,794,580 | $5,443,245,706 | ||||
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Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Equity Index Funds
Financial
Notes
1. Business Structure of the Funds:
Each of
the funds 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 S&P 500 Index Fund | Schwab Target 2040 Fund |
| Schwab Small-Cap Index Fund | Schwab Target 2045 Fund |
| Schwab Total Stock Market Index Fund | Schwab Target 2050 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2055 Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Target 2060 Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Fundamental US Large Company Index Fund |
| Schwab International Index Fund | Schwab Fundamental US Small 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™ | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Fundamental Global Real Estate Index Fund |
| Laudus International MarketMasters Fund™ | Schwab Target 2010 Index Fund |
| Schwab Balanced Fund | Schwab Target 2015 Index Fund |
| Schwab Core Equity Fund | Schwab Target 2020 Index Fund |
| Schwab Dividend Equity Fund | Schwab Target 2025 Index Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2030 Index Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2035 Index Fund |
| Schwab Hedged Equity Fund | Schwab Target 2040 Index Fund |
| Schwab Health Care Fund | Schwab Target 2045 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2020 Fund | Schwab Monthly Income Fund – Moderate Payout |
| Schwab Target 2025 Fund | Schwab Monthly Income Fund – Enhanced Payout |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund – Maximum Payout |
| Schwab Target 2035 Fund | |
| SCHWAB INVESTMENTS (ORGANIZED OCTOBER 26, 1990) | |
| Schwab 1000 Index Fund | Schwab Tax-Free Bond Fund |
| Schwab Treasury Inflation Protected Securities Index Fund | Schwab California Tax-Free Bond Fund |
| Schwab U.S. Aggregate Bond Index Fund | Schwab High Yield Municipal Bond Fund |
| Schwab Short-Term Bond Index Fund | Schwab Global Real Estate Fund |
Each fund in
this report offers one share class. Shares are bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. 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:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
The funds may
invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S.
Securities and Exchange Commission (SEC). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the SEC and available on the SEC’s
website at www.sec.gov.
(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 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: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
•
Foreign equity security 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 NAV 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. The Board regularly reviews fair value determinations made by the funds pursuant to these procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
•
Underlying funds: Mutual funds are valued at their respective NAVs. Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price that day or the
official closing price, if applicable.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
categorization
is based on the lowest level input that is significant to the valuation. If the funds determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or
liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities, ETFs and futures contracts. Investments in mutual funds are valued daily at their NAVs,
and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying
fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations. 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.
•
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, 2020 are disclosed in the Condensed Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A
fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received
by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures contracts are
traded publicly on exchanges, and their fair value may change daily.
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 be maintained on a daily marked-to-market basis in an amount at least equal to
the current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of
securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the
funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement.
Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers,
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
less the fees
paid to the lending agent and broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending
agent. The aggregate fair value of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan. Securities lending fees paid to the unaffiliated lending agents start at 10% of
gross lending revenue, with subsequent breakpoints to a low of 7.5%. In this context, the gross lending revenue equals the income received from the investment of cash collateral and fees paid by borrowers less any rebates paid to the borrowers. Any
expenses charged by the cash collateral fund are in addition to these fees. All remaining revenue is retained by the fund, as applicable. No portion of lending revenue is paid to or retained by Charles Schwab Investment Management, Inc. (CSIM or the
investment adviser) or any affiliate of CSIM.
As of
October 31, 2020, the funds had securities on loan, all of which were classified as common stocks and rights. The value of the securities on loan and the related collateral as of October 31, 2020, if any, are disclosed in each fund’s Condensed
Portfolio Holdings and Statement of Assets and Liabilities.
Cash Management Transactions: The funds, except for Schwab 1000 Index Fund, Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund and Schwab U.S. Mid-Cap Index Fund may subscribe to the Brown Brothers Harriman & Co.
(BBH) Cash Management Service Sweep (CMS Sweep). The BBH CMS Sweep is an investment product that automatically sweeps the funds’ cash balances into overnight offshore time deposits with either the BBH Grand Cayman branch or a branch of a
pre-approved commercial bank. This fully automated program allows the funds to earn interest on cash balances, however, interest rates may be negative due to overnight rates at the central bank of the denominated currency. Excess cash invested with
deposit institutions domiciled outside of the U.S., as with any offshore deposit, may be subject to sovereign actions in the jurisdiction of the deposit institution including, but not limited to, freeze, seizure or diminution. The funds bear the
risk associated with the repayment of principal and payment of interest on such instruments by the institution with which the deposit is ultimately placed.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies
are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and
expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or
depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are
reported in foreign currency transactions or translations 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 may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized appreciation to provide for potential non-U.S. taxes payable upon the sale of these securities.
When a fund closes out a futures contract position, it
calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends, in
the form of cash or non-cash income such as in the form of additional securities, and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the date the ex-dividend date is confirmed. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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.
The Schwab International Index Fund filed claims to recover
taxes previously withheld in certain European Union countries on the basis that those countries had purportedly violated certain provisions in the Treaty on the Functioning of the European Union. These filings are subject to various administrative
and judicial proceedings within these countries, and all professional fees associated with these filings have been paid by the investment adviser. For additional details see Affiliates and Affiliated Transactions in financial note 4, Other
Affiliated Transactions.
(e) Expenses:
Pursuant to an Amended and Restated Investment Advisory and
Administration Agreement (Advisory Agreement) between CSIM and each trust, CSIM pays the operating expenses of each fund, excluding acquired fund fees and expenses, taxes, any brokerage expenses, and extraordinary or non-routine expenses. Taxes, any
brokerage expenses and extraordinary or non-routine expenses that are specific to a fund are charged directly to the fund.
(f) Distributions to Shareholders:
The funds make distributions from net investment income and
net realized capital gains, if any, once a year.
(g)
Accounting Estimates:
The accounting policies
described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial
statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2020, if any, are reflected in each fund’s Statement of Assets and
Liabilities.
(j) Indemnification:
Under the funds’ organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide
general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to
these arrangements to be remote.
3. Risk Factors:
Investing in the funds may involve
certain risks, as discussed in the funds’ prospectuses, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
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Financial Notes
(continued)
3. Risk
Factors (continued):
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and
other government actions. In addition, the occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is
tied to these markets, the value of an investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to
fall over short or extended periods of time.
Tracking Error Risk. As an
index fund, each fund seeks to track the performance of its respective index, although it may not be successful in doing so. The divergence between the performance of a fund and the index, positive or negative, is called “tracking
error.” Tracking error can be caused by many factors and it may be significant.
Investment Style Risk. The
funds are index funds. Therefore, each fund follows the securities included in its respective index 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, a fund’s performance may be below that of the index. Market disruptions could cause delays in an index’s rebalancing schedule which may result in the index and, in
turn, a fund experiencing returns different than those that would have been achieved under a normal rebalancing schedule.
Sampling Index Tracking Risk. To the extent a fund uses sampling techniques, a fund will not fully replicate its index and may hold securities not included in the index. As a result, a fund will be subject to the risk that the investment
adviser’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. 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 the index.
Concentration Risk. To the
extent that a fund’s or its respective 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 vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector, country or asset
class.
Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall behind
other types of investments, a fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Mid-Cap Company Risk.
Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.
Small-Cap Company Risk.
Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.
Growth Investing Risk.
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.
Value
Investing Risk. A fund may emphasize “value” style of investing, which targets undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the
valuations never improve or that the returns on “value” securities may not move in tandem with the returns on other styles of investing or the stock market in general.
Foreign Investment Risk. A
fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political,
regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing
accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of a fund’s investments, and could
impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in
value relative to the U.S. dollar. To the extent a fund’s investments
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Financial Notes
(continued)
3. Risk
Factors (continued):
in a single country or a
limited number of countries represent a large percentage of the fund’s assets, the fund’s performance may be adversely affected by the economic, political, regulatory and social conditions in those countries, and the fund’s price
may be more volatile than the price of a fund that is geographically diversified.
Derivatives Risk. A fund
may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are futures and options on futures. An option is the right to buy or sell an instrument at a specific price before a specific date. A future is an
agreement to buy or sell a financial instrument at a specific price on a specific day. The use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause the fund to become a commodity pool, which
would require the fund to comply with certain CFTC rules.
A fund’s use of derivative instruments involves risks
different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk and market risk, are discussed elsewhere in this section. A
fund’s use of derivatives is also subject to lack of availability risk, credit risk, leverage risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available
in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in
derivatives can have a disproportionately large impact on 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 a fund to realize higher amounts of short-term capital gains. A fund’s use of derivatives could reduce the fund’s performance, increase
its volatility, and could cause the fund to lose more than the initial amount invested.
Liquidity Risk. A fund may
be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.
Securities Lending Risk.
Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Please refer to the funds’ prospectuses for a more
complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as each fund’s investment adviser and administrator pursuant to an Advisory Agreement between CSIM and each trust.
For its advisory and administrative services to the funds, CSIM
is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:
| Schwab
S&P 500 Index Fund |
Schwab
1000 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
Total Stock Market Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund |
Schwab
U.S. Large-Cap Value Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund |
| 0.02% | 0.05% | 0.04% | 0.03% | 0.035% | 0.035% | 0.04% | 0.06% |
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Investments
from Affiliates
Certain funds in the Fund Complex
(for definition refer to Trustees and Officers section) may own shares of other funds in the Fund Complex. The table below reflects the percentages of shares of each fund in this report that are owned by other funds in the Fund Complex as of October
31, 2020, as applicable:
| Underlying Funds | |||||
| Schwab
S&P 500 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund | |
| Schwab MarketTrack All Equity Portfolio | 0.4% | 1.6% | 6.4% | —% | 1.4% |
| Schwab MarketTrack Balanced Portfolio | 0.2% | 0.8% | 3.3% | —% | 0.6% |
| Schwab MarketTrack Conservative Portfolio | 0.1% | 0.3% | 1.2% | —% | 0.2% |
| Schwab MarketTrack Growth Portfolio | 0.5% | 1.7% | 5.2% | —% | 1.2% |
| Schwab Target 2010 Fund | 0.0%* | —% | —% | 0.1% | —% |
| Schwab Target 2015 Fund | 0.0%* | —% | —% | 0.1% | —% |
| Schwab Target 2020 Fund | 0.1% | —% | —% | 0.9% | —% |
| Schwab Target 2025 Fund | 0.2% | —% | —% | 1.4% | —% |
| Schwab Target 2030 Fund | 0.3% | —% | —% | 2.4% | —% |
| Schwab Target 2035 Fund | 0.2% | —% | —% | 1.5% | —% |
| Schwab Target 2040 Fund | 0.3% | —% | —% | 3.2% | —% |
| Schwab Target 2045 Fund | 0.1% | —% | —% | 0.6% | —% |
| Schwab Target 2050 Fund | 0.1% | —% | —% | 0.6% | —% |
| Schwab Target 2055 Fund | 0.0%* | —% | —% | 0.4% | —% |
| Schwab Target 2060 Fund | 0.0%* | —% | —% | 0.1% | —% |
| * | Less than 0.05% |
Other Affiliated Transactions
The professional fees related to foreign withholding tax claims
discussed in financial note 2 were non-routine expenses. The investment adviser agreed to pay these professional fees, which are subject to reimbursement by the Schwab International Index Fund to the extent the fund is able to successfully recover
taxes withheld in the future.
The professional fees
incurred by the Schwab International Index Fund were $37,098 and the fund made no reimbursement to the investment adviser during the period ended October 31, 2020.
As of October 31, 2020, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the fund to the investment adviser was $158,346 for the Schwab International Index Fund.
No other amounts for additional tax reclaims are reflected in
the financial statements due to the uncertainty surrounding the ultimate resolution of proceedings, the likelihood of receipt of these claims, and the potential timing of payment.
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the funds may
enter into interfund borrowing and lending transactions with other funds in the Fund Complex. All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and
the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. 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.
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Interfund
Transactions
The funds may engage in transactions
with certain other funds in the Fund Complex when permitted by applicable law. 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, 2020, each fund’s total aggregate security transactions with other funds in the Fund Complex as well as any
realized gains (losses) were as follows:
| Total Aggregate Transactions | Realized Gains (Losses) | |
| Schwab S&P 500 Index Fund | $448,719,008 | ($30,147,012) |
| Schwab 1000 Index Fund | 168,360,448 | 28,715,127 |
| Schwab Small-Cap Index Fund | 92,871,145 | (11,738,204) |
| Schwab Total Stock Market Index Fund | 152,380,599 | (23,064,132) |
| Schwab U.S. Large-Cap Growth Index Fund | 61,408,968 | (3,005,199) |
| Schwab U.S. Large-Cap Value Index Fund | 60,679,072 | (566,260) |
| Schwab U.S. Mid-Cap Index Fund | 30,988,721 | (4,440,043) |
| Schwab International Index Fund | 9,325,639 | (2,176,395) |
5. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trusts were in compliance with these limitations
throughout the report period. The funds do not pay any interested or non-interested (independent trustees) trustees. The independent trustees are paid by CSIM. For information regarding the trustees, please refer to the Trustees and Officers table
at the end of this report.
6. Borrowing from Banks:
During the period, the funds
were participants with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to CSIM paying the interest charged on any borrowings by a fund, CSIM paid a
commitment fee of 0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, CSIM pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft facilities. A
fund may have utilized the overdraft facility and incurred an interest expense, which is paid by CSIM. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.
7. Derivatives:
Certain funds entered into equity
index futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at October 31, 2020 are presented on the Condensed Portfolio
Holdings and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations, if any. Refer to financial note 2(b) for the
funds’
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Financial Notes
(continued)
7.
Derivatives (continued):
accounting policies
with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2020, the month-end average notional amounts of futures contracts held by the funds
and the month-end average number of contracts held were as follows:
| Notional Amounts | Number of Contracts | |
| Schwab S&P 500 Index Fund | $169,972,343 | 1,099 |
| Schwab 1000 Index Fund | 30,491,298 | 196 |
| Schwab Small-Cap Index Fund | 17,654,672 | 242 |
| Schwab Total Stock Market Index Fund | 48,355,711 | 359 |
| Schwab U.S. Large-Cap Growth Index Fund | 1,596,768 | 16 |
| Schwab U.S. Large-Cap Value Index Fund | 1,251,215 | 21 |
| Schwab U.S. Mid-Cap Index Fund | 1,904,547 | 11 |
| Schwab International Index Fund | 34,885,241 | 388 |
8. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| Schwab S&P 500 Index Fund | $2,754,606,077 | $1,769,182,368 |
| Schwab 1000 Index Fund | 344,582,891 | 666,920,752 |
| Schwab Small-Cap Index Fund | 848,379,644 | 851,080,072 |
| Schwab Total Stock Market Index Fund | 862,924,648 | 417,298,633 |
| Schwab U.S. Large-Cap Growth Index Fund | 372,824,528 | 138,714,079 |
| Schwab U.S. Large-Cap Value Index Fund | 274,028,025 | 135,725,291 |
| Schwab U.S. Mid-Cap Index Fund | 247,687,257 | 127,707,214 |
| Schwab International Index Fund | 1,287,465,490 | 376,546,823 |
9. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| Schwab
S&P 500 Index Fund |
Schwab
1000 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
Total Stock Market Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund |
|||||
| Tax cost | $20,994,325,511 | $2,546,627,985 | $3,383,267,705 | $6,598,856,301 | $374,201,023 | ||||
| Gross unrealized appreciation | $24,820,020,911 | $7,436,920,050 | $1,310,999,799 | $5,533,184,724 | $126,539,263 | ||||
| Gross unrealized depreciation | (1,731,118,417) | (216,522,772) | (647,745,167) | (652,898,091) | (11,803,251) | ||||
| Net unrealized appreciation (depreciation) | $23,088,902,494 | $7,220,397,278 | $663,254,632 | $4,880,286,633 | $114,736,012 |
| Schwab
U.S. Large-Cap Value Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund | |||
| Tax cost | $334,833,790 | $448,373,995 | $5,463,982,136 | ||
| Gross unrealized appreciation | $39,111,681 | $90,388,626 | $1,445,722,017 | ||
| Gross unrealized depreciation | (42,432,693) | (55,830,281) | (1,001,320,277) | ||
| Net unrealized appreciation (depreciation) | ($3,321,012) | $34,558,345 | $444,401,740 |
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Financial Notes
(continued)
9. Federal Income
Taxes (continued):
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| Schwab
S&P 500 Index Fund |
Schwab
1000 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
Total Stock Market Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund |
|||||
| Undistributed ordinary income | $738,207,831 | $152,829,210 | $39,685,604 | $173,485,433 | $2,759,338 | ||||
| Undistributed long-term capital gains | — | 117,102,344 | 72,778,268 | — | — | ||||
| Net unrealized appreciation (depreciation) on investments | 23,088,902,494 | 7,220,397,278 | 663,254,632 | 4,880,286,633 | 114,736,012 | ||||
| Net other unrealized appreciation (depreciation) | — | — | — | — | — | ||||
| Total | $23,827,110,325 | $7,490,328,832 | $775,718,504 | $5,053,772,066 | $117,495,350 |
| Schwab
U.S. Large-Cap Value Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund | |||
| Undistributed ordinary income | $5,774,891 | $6,125,106 | $118,175,088 | ||
| Undistributed long-term capital gains | — | — | — | ||
| Net unrealized appreciation (depreciation) on investments | (3,321,012) | 34,558,345 | 444,401,740 | ||
| Net other unrealized appreciation (depreciation) | — | — | 573,654 | ||
| Total | $2,453,879 | $40,683,451 | $563,150,482 |
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, realization for tax purposes of unrealized gains (losses) on futures contracts and the realization for tax purposes
of unrealized appreciation on investments in Passive Foreign Investment Companies (PFIC) and partnership investments. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect these
unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the funds had capital loss carryforwards available to offset future net capital gains as follows:
| Expiration Date | Schwab
S&P 500 Index Fund |
Schwab
1000 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
Total Stock Market Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund | ||||
| No expiration | $177,404,555 | $— | $— | $21,117,724 | $5,572,385 | ||||
| Total | $177,404,555 | $— | $— | $21,117,724 | $5,572,385 |
| Expiration Date | Schwab
U.S. Large-Cap Value Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund | ||
| No expiration | $1,090,145 | $3,129,145 | $202,372,544 | ||
| Total | $1,090,145 | $3,129,145 | $202,372,544 |
The Schwab U.S. Large-Cap Growth
Index Fund had an ownership change due to shareholder activity which subjects the fund to certain annual limitations under Internal Revenue Code Section 382 in regard to the availability of capital loss carryforwards to offset potential future
capital gains.
For the fiscal year ended October 31,
2020, the funds had no capital loss carryforwards utilized.
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Financial Notes
(continued)
9. Federal Income
Taxes (continued):
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| Schwab
S&P 500 Index Fund |
Schwab
1000 Index Fund |
Schwab
Small-Cap Index Fund |
Schwab
Total Stock Market Index Fund |
Schwab
U.S. Large-Cap Growth Index Fund | |
| Current fiscal year end distributions | |||||
| Ordinary income | $752,543,848 | $175,073,765 | $71,467,544 | $180,871,651 | $1,890,344 |
| Long-term capital gains | 76,711,728 | 115,680,278 | 187,516,879 | 26,277,147 | — |
| Prior fiscal year end distributions | |||||
| Ordinary income | $696,643,335 | $157,630,133 | $75,407,201 | $163,508,663 | $949,803 |
| Long-term capital gains | 138,486,140 | 287,803,474 | 256,270,995 | 35,933,416 | — |
| Schwab
U.S. Large-Cap Value Index Fund |
Schwab
U.S. Mid-Cap Index Fund |
Schwab
International Index Fund | |
| Current fiscal year end distributions | |||
| Ordinary income | $7,613,944 | $7,422,021 | $172,919,468 |
| Long-term capital gains | 2,019,105 | 2,160,536 | — |
| Prior fiscal year end distributions | |||
| Ordinary income | $1,536,515 | $2,937,860 | $132,253,839 |
| Long-term capital gains | — | 13,414 | — |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, 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 fiscal year ended October 31, 2020, the funds did not incur
any interest or penalties.
10. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020,
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the Schwab 1000 Index Fund,
Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund and Schwab International Index Fund for the past two fiscal years, October 31, 2018 and October 31, 2019, and the Schwab U.S. Large-Cap Growth Index
Fund, Schwab U.S. Large-Cap Value Index Fund and Schwab U.S. Mid-Cap Index Fund for the period December 20, 2017 (commencement of operations) through October 31, 2018 and the year ended October 31, 2019, did not contain an adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two period year-ends detailed above and through June 8, 2020, there were no (1) disagreements with the Prior Auditor
on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that
matter in connection with its reports on the funds’ financial statements for such periods; or (2) “reportable events,” as that term is defined in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
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Schwab Equity Index Funds
Financial Notes
(continued)
11.
Subsequent Events:
Management has determined there are no
subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Report of
Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Investments and Schwab
Capital Trust and Shareholders of Schwab 1000 Index Fund, Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund, Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, Schwab U.S.
Mid-Cap Index Fund and Schwab International Index Fund:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statements of
assets and liabilities, including the condensed portfolio holdings, of Schwab 1000 Index Fund, one of the funds constituting Schwab Investments, and Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund,
Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, Schwab U.S. Mid-Cap Index Fund and Schwab International Index Fund (the “Funds”), seven of the funds constituting Schwab Capital Trust, as of October 31,
2020, and the related statements of operations, statements of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in
all material respects, the financial position of each of the Funds as of October 31, 2020, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended in conformity with accounting
principles generally accepted in the United States of America. The statements of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019; except for
Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, and Schwab U.S. Mid-Cap Index Fund, the financial highlights for the year ended October 31, 2019 and for the period from December 20, 2017 to October 31, 2018, were
audited by other auditors, whose report, dated December 16, 2019, expressed an unqualified opinion on such statements of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud.
The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Schwab Equity Index Funds
Other Federal
Tax Information (unaudited)
Schwab International Index Fund may elect to pass on the
benefits of the foreign tax credit of $13,625,982 to its shareholders for the fiscal year ended October 31, 2020. The respective foreign source income on the fund is $157,548,156.
For corporate shareholders, the following percentage of the
funds’ dividend distributions paid during the fiscal year ended October 31, 2020, qualify for the corporate dividends received deduction:
| Percentage | |
| Schwab S&P 500 Index Fund | 91.09 |
| Schwab 1000 Index Fund | 90.97 |
| Schwab Small-Cap Index Fund | 62.00 |
| Schwab Total Stock Market Index Fund | 88.23 |
| Schwab U.S. Large-Cap Growth Index Fund | 95.14 |
| Schwab U.S. Large-Cap Value Index Fund | 64.73 |
| Schwab U.S. Mid-Cap Index Fund | 61.70 |
| Schwab International Index Fund | — |
For the fiscal year ended October
31, 2020, 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 2021 via IRS
Form 1099 of the amounts for use in preparing their 2020 income tax return.
| Schwab S&P 500 Index Fund | $752,543,848 |
| Schwab 1000 Index Fund | 166,557,709 |
| Schwab Small-Cap Index Fund | 44,664,481 |
| Schwab Total Stock Market Index Fund | 168,043,272 |
| Schwab U.S. Large-Cap Growth Index Fund | 1,830,390 |
| Schwab U.S. Large-Cap Value Index Fund | 5,059,613 |
| Schwab U.S. Mid-Cap Index Fund | 4,903,160 |
| Schwab International Index Fund | 162,726,986 |
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, 2020:
| Schwab S&P 500 Index Fund | $76,711,728 |
| Schwab 1000 Index Fund | 115,680,278 |
| Schwab Small-Cap Index Fund | 187,516,879 |
| Schwab Total Stock Market Index Fund | 26,277,147 |
| Schwab U.S. Large-Cap Growth Index Fund | — |
| Schwab U.S. Large-Cap Value Index Fund | 2,019,105 |
| Schwab U.S. Mid-Cap Index Fund | 2,160,536 |
| Schwab International Index Fund | — |
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Liquidity Risk
Management Program (Unaudited)
The Funds have adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Funds’ Board of Trustees (the “Board”) has designated the Funds’ investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Funds’ Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting any of the Funds were noted in
the report. In addition, CSIM provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Schwab Equity Index Funds
Investment
Advisory Agreement Approval
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Schwab Equity Index Funds
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 and Laudus Trust. The Fund Complex includes 100 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 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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Schwab Equity Index Funds
| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
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Schwab Equity Index Funds
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Charles Schwab
Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Annual
Report | October 31, 2020
Schwab Fundamental Index* Funds
Schwab Fundamental
US Large Company Index Fund
US Large Company Index Fund
Schwab Fundamental
US Small Company Index Fund
US Small Company Index Fund
Schwab
Fundamental International
Large Company Index Fund
Large Company Index Fund
Schwab Fundamental International
Small Company Index Fund
Small Company Index Fund
Schwab
Fundamental Emerging Markets
Large Company Index Fund
Large Company Index Fund
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
| * | SCHWAB is a registered
trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC. |
This page is intentionally left blank.
Schwab Fundamental Index Funds
In
This Report
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 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
Schwab. The Industry classifications used in the schedules of Condensed Portfolio Holdings are sub-categories of Sector classifications.
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Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
Performance at a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
All total returns on this page assume dividends
and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for each fund is the
fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Performance does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or on the redemption of fund shares.
Index ownership — The funds are not in any way
sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty
or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM Index Series (the
Indices) or otherwise. The Indices are compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Indices and none of the Licensor
Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names
“Research Affiliates®”, “Fundamental Index®” and “RAFI®” are registered
trademarks of RA. CSIM has obtained full license from Russell to use the Indices. For full disclaimer please see the funds’ statement of additional information.
| 1 | 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. |
| 2 | 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. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semiannual reports. |
2
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Index
Funds
Past performance is no guarantee of future
results.
Diversification and asset allocation
strategies do not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report
date.
3
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
The
Investment Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% and the MSCI Emerging Markets Index (Net)* returned 8.25% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Index
Funds
The
Investment Environment (continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exchange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
5
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
Fund Management
 |
Christopher Bliss, CFA, Vice President and Head of Passive Equity Strategies, leads the portfolio management team for Schwab’s passive equity mutual funds and ETFs. He also has overall responsibility for all aspects of the management of the funds. Before joining CSIM in 2016, Mr. Bliss spent 12 years at BlackRock (formerly Barclays Global Investors) managing and leading institutional index teams, most recently as a managing director and the head of the Americas institutional index team. Prior to BlackRock, he worked as an equity analyst and portfolio manager for Harris Bretall and before that, as a research analyst for JP Morgan. |
 |
Jeremy Brown, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental US Large Company Index Fund and Schwab Fundamental US Small Company Index Fund. Prior to joining CSIM in 2017, Mr. Brown spent six years with ALPS Advisors, Inc. in Denver, most recently as a senior analyst on the ETF portfolio management and research team where he performed portfolio management, trading, and analytics/research functions for ALPS ETFs and passive funds. Additionally, Mr. Brown led a number of investment research, commentary, industry trend analysis, and sales and marketing support initiatives. |
 |
Chuck Craig, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index Fund, Schwab Fundamental International Small Company Index Fund, and Schwab Fundamental Emerging Markets Large Company Index Fund. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc. |
 |
Ferian Juwono, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental US Large Company Index Fund and Schwab Fundamental US Small Company Index Fund. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors) where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California. |
 |
Jane Qin, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index Fund, Schwab Fundamental International Small Company Index Fund, and Schwab Fundamental Emerging Markets Large Company Index Fund. Prior to joining CSIM in 2012, Ms. Qin spent more than four years at The Bank of New York Mellon Corporation. During that time, Ms. Qin spent more than two years as an associate equity portfolio manager and nearly two years as a performance analyst. She also worked at Wells Fargo Funds Management as a mutual fund analyst and at CIGNA Reinsurance in the risk management group as a risk analyst. |
 |
David Rios, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index Fund, Schwab Fundamental International Small Company Index Fund, and Schwab Fundamental Emerging Markets Large Company Index Fund. Prior to this role, Mr. Rios was an associate portfolio manager on the Schwab equity index strategies team for four years. His first role with CSIM was as a trade operations specialist. Prior to joining CSIM in 2008, Mr. Rios was a senior fund accountant at Investors Bank & Trust (subsequently acquired by State Street Corporation). |
 |
Sabya Sinha, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental US Large Company Index Fund and Schwab Fundamental US Small Company Index Fund. Prior to joining CSIM in 2015, Mr. Sinha spent a year at F-Squared Investments on the product development and analytics team. Prior to F-Squared, he worked at IndexIQ Advisors as a senior index portfolio manager for three years and for Bank of America’s Columbia Management subsidiary as a portfolio manager for three years. |
6
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund as of October 31, 2020
The Schwab Fundamental US
Large Company Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell
RAFITM US Large Company Index (the index), which measures the performance of the large company size segment by fundamental overall company scores, which
are created using as the universe the U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as the index does. For
more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline
with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March.
By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity
markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -2.33% for the 12-month reporting period ended October 31, 2020, while the index returned -2.20%. Differences between the return of the fund and the return of the index may be
attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The energy sector detracted the most from the total return of the fund. Representing an average weight of approximately 7% of the fund’s investments, the energy sector returned approximately -50% for the reporting period. One example from this
sector is Exxon Mobile Corp. The fund’s holding of Exxon Mobile Corp. returned approximately -48% for the reporting period.
The financials sector also detracted from the total return of
the fund. Financials stocks represented an average weight of approximately 14% of the fund’s investments and returned approximately -20% for the reporting period.
The information technology sector contributed the most to the
total return of the fund. The information technology sector represented an average weight of approximately 19% of the fund’s investments and returned approximately 26% for the reporting period. The fund’s holdings of Apple Inc. are one
example from this sector, returning approximately 77% for the reporting period.
The consumer discretionary sector also contributed to total
return of the fund. Consumer discretionary stocks represented an average weight of approximately 10% of the fund’s investments and returned approximately 8% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
7
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental US Large
Company Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental US Large Company Index Fund (4/2/07) | -2.33% | 7.84% | 10.57% |
| Russell RAFITM US Large Company Index2 | -2.20% | 8.09% | N/A |
| Fundamental U.S. Large Company Spliced Index | -2.20% | 8.09% | 10.90% |
| Russell 1000® Index | 10.87% | 11.79% | 13.05% |
| Fund Category: Morningstar Large Value3 | -7.37% | 5.38% | 8.64% |
| Fund Expense Ratio4: 0.25% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Index ownership—The Schwab Fundamental US Large Company
Index Fund is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the
Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM US Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties
shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see
the fund’s statement of additional information.
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The inception date of the Russell RAFITM US Large Company Index is February 24, 2011. The fund began tracking the index on October 19, 2012. |
| 3 | 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. |
| 4 | As stated in the prospectus. |
8
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
Portfolio holdings may have changed since the report
date.
Source of Sector Classification: S& P and
MSCI.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
9
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental US Small
Company Index Fund as of October 31, 2020
The Schwab Fundamental US Small Company Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell
RAFITM US Small Company Index (the index), which measures the performance of the small company size segment by fundamental overall company scores, which
are created using as the universe the U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as the index does. For
more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. equity markets had risen steadily, with several major market indices hitting new highs in
mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline
with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March.
By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity
markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a
resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -10.42% for the 12-month reporting period ended October 31, 2020, while the index returned -10.42%.
Contributors and Detractors.
The real estate sector detracted the most from the total return of the fund. Representing an average weight of approximately 10% of the fund’s investments, the real estate sector returned approximately -33%
for the reporting period. One example from this sector is Washington Prime Group, Inc., a real estate investment trust, which returned approximately -85% for the reporting period.
The financials sector also detracted from the total return of
the fund. Financials stocks represented an average weight of approximately 14% of the fund’s investments and returned approximately -18% for the reporting period.
The health care sector contributed to the total return of the
fund. The health care sector represented an average weight of approximately 7% of the fund’s investments and returned approximately 21% for the reporting period. One example from this sector is the fund’s holdings of Covetrus, Inc., a
global animal-health technology and services company, which returned approximately 297% for the reporting period.
The information technology sector also contributed to the
total return of the fund. Information technology stocks represented an average weight of approximately 12% of the fund’s investments and returned approximately 5% for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
10
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Small
Company Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental US Small Company Index Fund (4/2/07) | -10.42% | 4.65% | 8.57% |
| Russell RAFITM US Small Company Index2 | -10.42% | 4.83% | N/A |
| Fundamental U.S. Small Company Spliced Index | -10.42% | 4.83% | 8.85% |
| Russell 2000® Index | -0.14% | 7.27% | 9.64% |
| Fund Category: Morningstar Small Blend3 | -6.45% | 5.00% | 8.48% |
| Fund Expense Ratio4: 0.25% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Index ownership—The Schwab Fundamental US Small Company
Index Fund is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the
Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM US Small Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties
shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see
the fund’s statement of additional information.
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The inception date of the Russell RAFITM US Small Company Index is February 24, 2011. The fund began tracking the index on October 19, 2012. |
| 3 | 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. |
| 4 | As stated in the prospectus. |
11
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental US Small
Company Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Equity Holdings % of Net Assets3
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 many other asset classes.
| 1 | Excludes derivatives. |
| 2 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
12
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental
International Large Company Index Fund as of October 31, 2020
The Schwab Fundamental International Large Company Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell
RAFITM Developed ex US Large Company Index (the index), which measures the performance of the large company size segment by fundamental overall company
scores, which are created using as the universe the developed ex U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given
stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months
of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign
currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -13.29% for the 12-month reporting period ended October 31, 2020, while the index returned -13.77%.
Contributors and Detractors.
From a country perspective, stocks from South Korea contributed the most to the total return of the fund. South Korean stocks represented an average weight of approximately 6% of the fund’s investments and
returned approximately 12% in U.S. dollar terms for the reporting period. One example from this country is Samsung Electronics Co., Ltd. The fund’s holdings of Samsung Electronics Co., Ltd. returned approximately 18% in U.S. dollar terms for
the reporting period.
Stocks from Denmark also
contributed to the total return of the fund, representing an average weight of less than 1% of the fund’s investments and returning approximately 27% in U.S. dollar terms for the reporting period.
Stocks from the United Kingdom detracted the most from the
total return of the fund. Stocks from the United Kingdom represented an average weight of approximately 15% of the fund’s investments and returned approximately -29% in U.S. dollar terms for the reporting period. One example from this country
is BP plc. The fund’s holdings of BP plc returned approximately -57% in U.S. dollar terms for the reporting period.
Stocks from Japan also detracted from the total return of the
fund. Japanese stocks represented approximately 25% of the fund’s investments and returned approximately -9% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
13
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental
International Large Company Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2,3,4
Average Annual Total Returns1,4
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental International Large Company Index Fund (4/2/07) | -13.29% | 1.46% | 2.41% |
| Russell RAFITM Developed ex US Large Company Index (Net)2,3 | -13.77% | 1.38% | N/A |
| Fundamental Developed ex-U.S. Large Company Spliced Index | -13.77% | 1.38% | 2.63% |
| MSCI EAFE® Index (Net)3 | -6.86% | 2.85% | 3.82% |
| Fund Category: Morningstar Foreign Large Value5 | -13.04% | 0.43% | 1.78% |
| Fund Expense Ratio6: 0.25% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Index ownership—The Schwab Fundamental International Large
Company Index Fund is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of
the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM Developed ex US Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor
Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see
the fund’s statement of additional information.
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The inception date of the Russell RAFITM Developed ex US Large Company Index (Net) is February 24, 2011. The fund began tracking the index on October 19, 2012. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 5 | 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. |
| 6 | As stated in the prospectus. |
14
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental
International Large Company Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Portfolio holdings may have changed since the
report date.
Source of Sector Classification:
S&P and MSCI.
International investments are
subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | Excludes derivatives. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
15
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental
International Small Company Index Fund as of October 31, 2020
The Schwab Fundamental International Small Company Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell
RAFITM Developed ex US Small Company Index (the index), which measures the performance of the small company size segment by fundamental overall company
scores, which are created using as the universe the developed ex U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given
stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months
of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign
currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -6.28% for the 12-month reporting period ended October 31, 2020, while the index returned -6.49%.
Contributors and Detractors.
From a country perspective, stocks from Sweden contributed the most to the total return of the fund. Swedish stocks represented an average weight of approximately 4% of the fund’s investments and returned
approximately 13% in U.S. dollar terms for the reporting period. One example from Sweden is the fund’s Class B holdings of Kinnevik AB, an investment company, which returned approximately 191% in U.S. dollar terms for the reporting
period.
Stocks from Japan also contributed to the
total return of the fund, representing an average weight of approximately 35% of the fund’s investments and returning approximately -3% in U.S. dollar terms for the reporting period.
Stocks from the United Kingdom detracted the most from the
total return of the fund. Stocks from the United Kingdom represented an average weight of approximately 10% of the fund’s investments and returned approximately -17% in U.S. dollar terms for the reporting period. One example from this country
is Vistry Group plc, a home construction services company. The fund’s holdings of Vistry Group plc returned approximately -50% in U.S. dollar terms for the reporting period.
Stocks from France also detracted from the total return of the
fund. French stocks represented an average weight of approximately 4% of the fund’s investments and returned approximately -22% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
16
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental
International Small Company Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2,3,4
Average Annual Total Returns1,4
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental International Small Company Index Fund (1/31/08) | -6.28% | 3.81% | 5.02% |
| Russell RAFITM Developed ex US Small Company Index (Net)2,3 | -6.49% | 3.94% | N/A |
| Fundamental Developed ex-U.S. Small Company Spliced Index | -6.49% | 3.94% | 5.47% |
| S&P Developed ex-U.S. Small Cap Index (Net)3 | -0.53% | 4.93% | 5.76% |
| Fund Category: Morningstar Foreign Small/Mid Blend5 | -1.99% | 3.84% | 4.88% |
| Fund Expense Ratio6: 0.39% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Index ownership—The Schwab Fundamental International Small
Company Index Fund is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of
the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM Developed ex US Small Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor
Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see
the fund’s statement of additional information.
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The inception date of the Russell RAFITM Developed ex US Small Company Index (Net) is February 24, 2011. The fund began tracking the index on October 19, 2012. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 5 | 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. |
| 6 | As stated in the prospectus. |
17
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental
International Small Company Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
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 many other asset classes.
International investments are subject to additional
risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | Excludes derivatives. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
18
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Emerging
Markets Large Company Index Fund as of October 31, 2020
The Schwab Fundamental Emerging Markets Large Company Index
Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell RAFITM Emerging Markets Large Company Index (the index), which measures the performance of the large company size segment by fundamental overall company scores,
which are created using as the universe the emerging markets companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund invests in a representative sample of securities included in the index which, when taken
together, are expected to perform similarly to the index as a whole. Due to the use of sampling techniques, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies,
and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, international equity markets had risen steadily, with several major market indices hitting new
highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and plunging markets into bear-market territory with
record speed. At their lows, key international stock indices had lost as much as one-third of their former value. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus
measures in an effort to support their economies. While the extraordinary response prompted a rally in global equity markets from their March lows, historic volatility remained and international equity markets lost steam during the final two months
of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. The U.S. dollar weakened against a basket of foreign
currencies for the reporting period, generally increasing the returns on overseas investments in U.S. dollar terms.
Performance. The fund
generally tracked the index for the reporting period. The fund returned -15.79%1 for the 12-month reporting period ended October 31, 2020, while the
index returned -15.28%. Differences between the return of the fund and the return of the index may be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
From a country perspective, stocks from Brazil detracted the most from the total return of the fund. Brazilian stocks represented an average weight of approximately 9% of the fund’s investments and returned
approximately -45% in U.S. dollar terms for the reporting period. One example from this country is Itau Unibanco Holding S.A., a financial products and services company. The fund’s holdings of Itau Unibanco Holding S.A. returned approximately
-53% in U.S. dollar terms for the reporting period.
Stocks from Russia also detracted from the total return of the
fund, representing approximately 13% of the fund’s investments and returning approximately -33% in U.S. dollar terms for the reporting period.
Stocks from Taiwan contributed the most to the total return of
the fund. Taiwanese stocks represented an average weight of approximately 20% of the fund’s investments and returned approximately 24% in U.S. dollar terms for the reporting period. One example from this country is Taiwan Semiconductor
Manufacturing Co., Ltd. The fund’s holdings of Taiwan Semiconductor Manufacturing Co., Ltd. returned approximately 59% in U.S. dollar terms for the reporting period.
Stocks from Saudi Arabia also contributed to the total return
of the fund, representing an average weight of less than 1% of the fund’s investments and returning approximately 23% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
| 1 | Total return for the report period above differs from the return in the Financial Highlights. The total return presented above is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semiannual reports. |
19
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Emerging
Markets Large Company Index Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1,2,3,4
Average Annual Total Returns1,4
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental Emerging Markets Large Company Index Fund (1/31/08) | -15.79% 5 | 5.37% | -0.52% |
| Russell RAFITM Emerging Markets Large Company Index (Net)2,3 | -15.28% | 5.98% | N/A |
| Fundamental Emerging Markets Large Company Spliced Index | -15.28% | 5.98% | 0.38% |
| MSCI Emerging Markets Index (Net)3 | 8.25% | 7.92% | 2.42% |
| Fund Category: Morningstar Diversified Emerging Markets6 | 6.67% | 7.05% | 2.30% |
| Fund Expense Ratio7: 0.39% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
Index ownership—The Schwab Fundamental Emerging Markets
Large Company Index Fund is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and
none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFITM Emerging Markets Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the
Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell®” is a trademark of Russell. The trade names “Research Affiliates®”, “Fundamental Index®” and
“RAFI®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see
the fund’s statement of additional information.
| 1 | Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 2 | The inception date of the Russell RAFITM Emerging Markets Large Company Index (Net) is February 24, 2011. The fund began tracking the index on October 19, 2012. |
| 3 | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 4 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 5 | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semiannual reports. |
| 6 | 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. |
| 7 | As stated in the prospectus. |
20
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Emerging
Markets Large Company Index Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Portfolio holdings may have changed since the
report date.
Source of Sector Classification:
S&P and MSCI.
International investments are
subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
| 1 | Excludes derivatives. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
21
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
Fund Expenses
(Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202 | |
| Schwab Fundamental US Large Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,100.00 | $1.32 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.84 | $1.27 |
| Schwab Fundamental US Small Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,149.90 | $1.35 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.84 | $1.27 |
| Schwab Fundamental International Large Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,080.60 | $1.31 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.84 | $1.27 |
| Schwab Fundamental International Small Company Index Fund | ||||
| Actual Return | 0.39% | $1,000.00 | $1,129.10 | $2.09 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.14 | $1.98 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | ||||
| Actual Return | 0.39% | $1,000.00 | $1,060.70 | $2.02 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.14 | $1.98 |
| 1 | Based on the most recent six-month expense ratio. |
| 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 366 days of the fiscal year. |
22
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $17.56 | $17.47 | $16.89 | $15.12 | $15.14 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.42 | 0.42 | 0.38 | 0.35 | 0.34 | |
| Net realized and unrealized gains (losses) | (0.75) | 1.08 | 0.76 | 2.52 | 0.44 | |
| Total from investment operations | (0.33) | 1.50 | 1.14 | 2.87 | 0.78 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.43) | (0.42) | (0.36) | (0.34) | (0.34) | |
| Distributions from net realized gains | (0.52) | (0.99) | (0.20) | (0.76) | (0.46) | |
| Total distributions | (0.95) | (1.41) | (0.56) | (1.10) | (0.80) | |
| Net asset value at end of period | $16.28 | $17.56 | $17.47 | $16.89 | $15.12 | |
| Total return | (2.33%) | 10.56% | 6.83% | 19.69% | 5.61% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.31% 2 | 0.39% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.30% 2 | 0.35% | |
| Net investment income (loss) | 2.57% | 2.53% | 2.17% | 2.19% | 2.33% | |
| Portfolio turnover rate | 13% | 20% | 10% | 15% | 11% | |
| Net assets, end of period (x 1,000,000) | $4,547 | $5,237 | $4,887 | $5,367 | $4,569 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective May 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective May 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
23
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
24
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The fund owns shares of an affiliate, The Charles
Schwab Corp., since that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corp. shares owned by the fund during the period ended October 31, 2020:
|
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Dividends
Received | |
| The Charles Schwab Corp. | $3,126,284 | $1,927,465 | ($332,964) | ($81,281) | $669,030 | $5,308,534 | 129,130 | $57,346 |
25
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $4,536,929,983 | $— | $— | $4,536,929,983 | |
| Other Investment Companies1 | 12,593,110 | — | — | 12,593,110 | |
| Liabilities | |||||
| Futures Contracts2 | (541,323) | — | — | (541,323) | |
| Total | $4,548,981,770 | $— | $— | $4,548,981,770 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
26
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investment in affiliated issuer, at value (cost $3,427,013) | $5,308,534 | |
| Investments in unaffiliated issuers, at value (cost $3,095,617,933) including securities on loan of $10,257,993 | 4,533,005,346 | |
| Collateral invested for securities on loan, at value (cost $11,209,213) | 11,209,213 | |
| Deposit with broker for futures contracts | 756,000 | |
| Receivables: | ||
| Dividends | 6,444,001 | |
| Fund shares sold | 5,535,089 | |
| Income from securities on loan | + | 144,062 |
| Total assets | 4,562,402,245 | |
| Liabilities | ||
| Collateral held for securities on loan | 11,209,213 | |
| Payables: | ||
| Investment adviser fees | 1,033,659 | |
| Fund shares redeemed | 2,737,996 | |
| Variation margin on futures contracts | + | 105,630 |
| Total liabilities | 15,086,498 | |
| Net Assets | ||
| Total assets | 4,562,402,245 | |
| Total liabilities | – | 15,086,498 |
| Net assets | $4,547,315,747 | |
| Net Assets by Source | ||
| Capital received from investors | 2,950,727,321 | |
| Total distributable earnings | 1,596,588,426 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $4,547,315,747 | 279,328,897 | $16.28 | ||
27
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated issuer | $57,346 | |
| Dividends received from unaffiliated issuers (net of foreign withholding tax of $9,266) | 134,149,459 | |
| Securities on loan, net | + | 1,369,652 |
| Total investment income | 135,576,457 | |
| Expenses | ||
| Investment adviser fees | 12,041,457 | |
| Total expenses | – | 12,041,457 |
| Net investment income | 123,535,000 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on sales of affiliated underlying funds | (81,281) | |
| Net realized gains on unaffiliated issuers | 123,628,132 | |
| Net realized losses on futures contracts | + | (1,662,657) |
| Net realized gains | 121,884,194 | |
| Net change in unrealized appreciation (depreciation) on affiliated issuer | 669,030 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated issuers | (397,088,823) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (870,009) |
| Net change in unrealized appreciation (depreciation) | + | (397,289,802) |
| Net realized and unrealized losses | (275,405,608) | |
| Decrease in net assets resulting from operations | ($151,870,608) | |
28
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $123,535,000 | $124,374,648 | ||
| Net realized gains | 121,884,194 | 126,461,116 | ||
| Net change in unrealized appreciation (depreciation) | + | (397,289,802) | 245,896,113 | |
| Increase (decrease) in net assets from operations | (151,870,608) | 496,731,877 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($280,720,286) | ($384,906,616) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 65,360,142 | $1,034,311,318 | 72,965,468 | $1,170,251,181 | ||||
| Shares reinvested | 9,908,434 | 175,775,620 | 17,039,769 | 240,260,741 | ||||
| Shares redeemed | + | (94,170,173) | (1,467,566,455) | (71,475,046) | (1,171,686,052) | |||
| Net transactions in fund shares | (18,901,597) | ($257,479,517) | 18,530,191 | $238,825,870 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 298,230,494 | $5,237,386,158 | 279,700,303 | $4,886,735,027 | ||||
| Total increase or decrease | + | (18,901,597) | (690,070,411) | 18,530,191 | 350,651,131 | |||
| End of period | 279,328,897 | $4,547,315,747 | 298,230,494 | $5,237,386,158 | ||||
29
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $13.85 | $14.68 | $15.32 | $12.69 | $12.82 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.17 | 0.20 | 0.22 | 0.21 | 0.18 | |
| Net realized and unrealized gains (losses) | (1.53) | 0.32 | 0.17 | 2.68 | 0.43 | |
| Total from investment operations | (1.36) | 0.52 | 0.39 | 2.89 | 0.61 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.20) | (0.22) | (0.21) | (0.17) | (0.18) | |
| Distributions from net realized gains | (0.32) | (1.13) | (0.82) | (0.09) | (0.56) | |
| Total distributions | (0.52) | (1.35) | (1.03) | (0.26) | (0.74) | |
| Net asset value at end of period | $11.97 | $13.85 | $14.68 | $15.32 | $12.69 | |
| Total return | (10.42%) | 5.61% | 2.40% | 22.94% | 5.37% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.33% 2 | 0.43% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.30% 2 | 0.35% | |
| Net investment income (loss) | 1.43% | 1.50% | 1.42% | 1.43% | 1.50% | |
| Portfolio turnover rate | 28% | 34% | 30% | 27% | 30% | |
| Net assets, end of period (x 1,000,000) | $1,394 | $1,908 | $1,782 | $1,727 | $1,361 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective May 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective May 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
30
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
31
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
32
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $1,256,892,559 | $— | $— | $1,256,892,559 | |
| Real Estate | 126,521,967 | — | — * | 126,521,967 | |
| Other Investment Companies1 | 21,297,879 | — | — | 21,297,879 | |
| Liabilities | |||||
| Futures Contracts2 | (329,056) | — | — | (329,056) | |
| Total | $1,404,383,349 | $— | $— | $1,404,383,349 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
33
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $1,145,281,860) including securities on loan of $13,731,147 | $1,389,851,629 | |
| Collateral invested for securities on loan, at value (cost $14,860,776) | 14,860,776 | |
| Cash | 1,529,948 | |
| Deposit with broker for futures contracts | 949,000 | |
| Receivables: | ||
| Investments sold | 8,514 | |
| Fund shares sold | 3,765,426 | |
| Dividends | 725,337 | |
| Income from securities on loan | + | 284,533 |
| Total assets | 1,411,975,163 | |
| Liabilities | ||
| Collateral held for securities on loan | 14,860,776 | |
| Payables: | ||
| Investments bought | 212,957 | |
| Investment adviser fees | 315,194 | |
| Fund shares redeemed | 2,467,023 | |
| Variation margin on futures contracts | + | 119,834 |
| Total liabilities | 17,975,784 | |
| Net Assets | ||
| Total assets | 1,411,975,163 | |
| Total liabilities | – | 17,975,784 |
| Net assets | $1,393,999,379 | |
| Net Assets by Source | ||
| Capital received from investors | 1,260,312,316 | |
| Total distributable earnings | 133,687,063 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,393,999,379 | 116,504,720 | $11.97 | ||
34
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $44,288) | $24,735,805 | |
| Securities on loan, net | + | 2,026,931 |
| Total investment income | 26,762,736 | |
| Expenses | ||
| Investment adviser fees | 3,985,955 | |
| Total expenses | – | 3,985,955 |
| Net investment income | 22,776,781 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (96,710,877) | |
| Net realized losses on futures contracts | + | (317,509) |
| Net realized losses | (97,028,386) | |
| Net change in unrealized appreciation (depreciation) on investments | (122,506,904) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | (527,376) |
| Net change in unrealized appreciation (depreciation) | + | (123,034,280) |
| Net realized and unrealized losses | (220,062,666) | |
| Decrease in net assets resulting from operations | ($197,285,885) | |
35
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $22,776,781 | $26,088,897 | ||
| Net realized gains (losses) | (97,028,386) | 28,592,321 | ||
| Net change in unrealized appreciation (depreciation) | + | (123,034,280) | 43,662,004 | |
| Increase (decrease) in net assets from operations | (197,285,885) | 98,343,222 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($70,795,483) | ($157,177,616) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 37,437,204 | $412,136,335 | 41,667,076 | $538,341,603 | ||||
| Shares reinvested | 3,614,741 | 50,967,840 | 9,687,290 | 109,950,745 | ||||
| Shares redeemed | + | (62,280,936) | (708,695,318) | (34,964,711) | (463,377,091) | |||
| Net transactions in fund shares | (21,228,991) | ($245,591,143) | 16,389,655 | $184,915,257 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 137,733,711 | $1,907,671,890 | 121,344,056 | $1,781,591,027 | ||||
| Total increase or decrease | + | (21,228,991) | (513,672,511) | 16,389,655 | 126,080,863 | |||
| End of period | 116,504,720 | $1,393,999,379 | 137,733,711 | $1,907,671,890 | ||||
36
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $8.98 | $8.69 | $9.55 | $7.96 | $8.19 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.21 | 0.30 | 0.29 | 0.25 | 0.24 | |
| Net realized and unrealized gains (losses) | (1.35) | 0.27 | (0.89) | 1.59 | (0.25) | |
| Total from investment operations | (1.14) | 0.57 | (0.60) | 1.84 | (0.01) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.33) | (0.28) | (0.26) | (0.25) | (0.22) | |
| Net asset value at end of period | $7.51 | $8.98 | $8.69 | $9.55 | $7.96 | |
| Total return | (13.29%) | 7.04% | (6.53%) | 23.83% | 0.07% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.34% 2 | 0.46% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.29% 2 | 0.35% | |
| Net investment income (loss) | 2.60% | 3.51% | 3.10% | 2.92% | 3.20% | |
| Portfolio turnover rate | 14% | 28% | 13% | 11% | 18% | |
| Net assets, end of period (x 1,000,000) | $966 | $1,327 | $1,349 | $1,372 | $971 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective May 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective May 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
37
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
38
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
39
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
| CVA — | Dutch Certificate |
| REIT — | Real Estate Investment Trust |
| RSP — | Risparmio (Convertible Savings Shares) |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $550,335,991 | $— | $550,335,991 | |
| Australia | — | 53,468,809 | 638 | 53,469,447 | |
| Austria | 231,679 | 2,233,266 | — | 2,464,945 | |
| Belgium | 318,606 | 7,016,761 | — | 7,335,367 | |
| Canada | 63,781,399 | — | — | 63,781,399 | |
| Denmark | 681,518 | 9,973,767 | — | 10,655,285 | |
| Germany | 1,463,245 | 75,990,263 | — | 77,453,508 | |
| Hong Kong | — | 16,735,724 | 204,448 | 16,940,172 | |
| Netherlands | — | 27,014,217 | — * | 27,014,217 | |
| United Kingdom | 325,586 | 137,479,040 | — | 137,804,626 | |
| Preferred Stock1 | — | 11,017,886 | — | 11,017,886 | |
| Rights | |||||
| Republic of Korea | — | — | 81,171 | 81,171 | |
| United Kingdom | 245,105 | — | — | 245,105 | |
| Other Investment Company1 | 5,038,856 | — | — | 5,038,856 | |
| Short-Term Investments1 | — | 223,991 | — | 223,991 | |
| Liabilities | |||||
| Futures Contracts2 | (87,751) | — | — | (87,751) | |
| Total | $71,998,243 | $891,489,715 | $286,257 | $963,774,215 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
40
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $997,505,329) including securities on loan of $4,398,913 | $958,823,110 | |
| Collateral invested for securities on loan, at value (cost $5,038,856) | 5,038,856 | |
| Foreign currency, at value (cost $47,156) | 47,080 | |
| Deposit with broker for futures contracts | 641,529 | |
| Receivables: | ||
| Investments sold | 5,496,847 | |
| Dividends | 2,886,184 | |
| Foreign tax reclaims | 1,850,025 | |
| Fund shares sold | 1,221,510 | |
| Income from securities on loan | + | 18,191 |
| Total assets | 976,023,332 | |
| Liabilities | ||
| Collateral held for securities on loan | 5,038,856 | |
| Payables: | ||
| Investments bought | 90,615 | |
| Investment adviser fees | 222,531 | |
| Due to custodian | 3,743,911 | |
| Fund shares redeemed | 855,534 | |
| Variation margin on futures contracts | + | 41,224 |
| Total liabilities | 9,992,671 | |
| Net Assets | ||
| Total assets | 976,023,332 | |
| Total liabilities | – | 9,992,671 |
| Net assets | $966,030,661 | |
| Net Assets by Source | ||
| Capital received from investors | 1,137,935,745 | |
| Total distributable loss | (171,905,084) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $966,030,661 | 128,710,685 | $7.51 | ||
41
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $3,675,424) | $30,015,531 | |
| Income from non-cash dividends | 1,793,557 | |
| Interest | 4,392 | |
| Securities on loan, net | + | 350,143 |
| Total investment income | 32,163,623 | |
| Expenses | ||
| Investment adviser fees | 2,824,242 | |
| Professional fees | + | 14,535* |
| Total expenses | 2,838,777 | |
| Expense reduction by CSIM | – | 14,535* |
| Net expenses | – | 2,824,242 |
| Net investment income | 29,339,381 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments | (56,016,612) | |
| Net realized losses on futures contracts | (1,172,106) | |
| Net realized losses on foreign currency transactions | + | (151,603) |
| Net realized losses | (57,340,321) | |
| Net change in unrealized appreciation (depreciation) on investments | (138,652,592) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | (185,994) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 108,774 |
| Net change in unrealized appreciation (depreciation) | + | (138,729,812) |
| Net realized and unrealized losses | (196,070,133) | |
| Decrease in net assets resulting from operations | ($166,730,752) | |
| * | Professional fees associated with the filing of tax claims in the European Union deemed to be non-routine expenses of the fund. See financial notes 2(d) and 4 for additional information. |
42
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $29,339,381 | $47,477,521 | ||
| Net realized losses | (57,340,321) | (74,180,947) | ||
| Net change in unrealized appreciation (depreciation) | + | (138,729,812) | 115,623,816 | |
| Increase (decrease) in net assets from operations | (166,730,752) | 88,920,390 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($48,541,581) | ($43,980,238) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 46,294,520 | $338,877,413 | 48,492,601 | $406,679,894 | ||||
| Shares reinvested | 2,997,596 | 27,038,314 | 3,195,805 | 24,767,484 | ||||
| Shares redeemed | + | (68,317,340) | (511,865,550) | (59,146,394) | (498,217,108) | |||
| Net transactions in fund shares | (19,025,224) | ($145,949,823) | (7,457,988) | ($66,769,730) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 147,735,909 | $1,327,252,817 | 155,193,897 | $1,349,082,395 | ||||
| Total decrease | + | (19,025,224) | (361,222,156) | (7,457,988) | (21,829,578) | |||
| End of period | 128,710,685 | $966,030,661 | 147,735,909 | $1,327,252,817 | ||||
43
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.57 | $12.67 | $14.58 | $11.93 | $11.25 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.22 | 0.29 | 0.33 | 0.27 | 0.25 | |
| Net realized and unrealized gains (losses) | (0.97) | 0.25 | (1.70) | 2.67 | 0.66 | |
| Total from investment operations | (0.75) | 0.54 | (1.37) | 2.94 | 0.91 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.36) | (0.30) | (0.34) | (0.29) | (0.23) | |
| Distributions from net realized gains | — | (0.34) | (0.20) | — | — | |
| Total distributions | (0.36) | (0.64) | (0.54) | (0.29) | (0.23) | |
| Net asset value at end of period | $11.46 | $12.57 | $12.67 | $14.58 | $11.93 | |
| Total return | (6.28%) | 5.13% | (9.79%) | 25.23% | 8.29% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% | 0.39% | 0.39% | 0.48% 2 | 0.68% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.43% 2 | 0.49% | |
| Net investment income (loss) | 1.89% | 2.44% | 2.30% | 2.04% | 2.24% | |
| Portfolio turnover rate | 25% | 38% | 26% | 21% | 40% | |
| Net assets, end of period (x 1,000,000) | $577 | $775 | $763 | $749 | $476 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective May 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective May 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
44
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
45
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
46
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
47
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $28,372,710 | $— | $28,372,710 | |
| Australia | 163,533 | 32,388,927 | 596,417 * | 33,148,877 | |
| Austria | 246,461 | 2,864,882 | — | 3,111,343 | |
| Canada | 42,959,795 | — | — | 42,959,795 | |
| Denmark | 1,370,110 | 7,193,174 | — | 8,563,284 | |
| Finland | 723,633 | 5,835,693 | — | 6,559,326 | |
| France | 1,946,878 | 19,666,759 | — | 21,613,637 | |
| Germany | 4,497,971 | 17,952,432 | — | 22,450,403 | |
| Greece | — | — | — * | — | |
| Hong Kong | 339,078 | 23,273,000 | — * | 23,612,078 | |
| Ireland | 1,079,738 | 1,403,993 | — | 2,483,731 | |
| Israel | 130,450 | 5,370,658 | — | 5,501,108 | |
| Italy | 218,945 | 12,734,269 | 2,456 * | 12,955,670 | |
| Japan | 552,175 | 198,000,033 | — | 198,552,208 | |
| Luxembourg | — | — | — * | — | |
| Netherlands | 1,122,951 | 7,845,544 | — | 8,968,495 | |
| Poland | 391,505 | 4,888,750 | — | 5,280,255 | |
| Portugal | — | 1,889,407 | — * | 1,889,407 | |
| Republic of Korea | 117,308 | 40,046,731 | — | 40,164,039 | |
| Spain | 1,631,438 | 5,515,142 | 358,164 * | 7,504,744 | |
| Sweden | 1,693,801 | 20,562,249 | — | 22,256,050 | |
| Switzerland | 33,840 | 19,816,043 | — | 19,849,883 | |
| United Kingdom | 6,149,295 | 50,039,882 | 27,782 * | 56,216,959 | |
| Preferred Stock1 | — | 2,027,466 | — | 2,027,466 | |
| Rights 1 | |||||
| Italy | — | — | — * | — | |
| Singapore | — | — | — * | — | |
| Other Investment Company1 | 8,614,376 | — | — | 8,614,376 | |
| Short-Term Investments1 | — | 696,509 | — | 696,509 | |
| Liabilities | |||||
| Futures Contracts2 | (138,487) | — | — | (138,487) | |
| Total | $73,844,794 | $508,384,253 | $984,819 | $583,213,866 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2020. |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
48
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $522,248,326) including securities on loan of $7,928,976 | $574,737,977 | |
| Collateral invested for securities on loan, at value (cost $8,614,376) | 8,614,376 | |
| Foreign currency, at value (cost $79,160) | 77,977 | |
| Deposit with broker for futures contracts | 448,800 | |
| Receivables: | ||
| Investments sold | 20,255 | |
| Dividends | 1,464,427 | |
| Fund shares sold | 748,304 | |
| Foreign tax reclaims | 647,885 | |
| Income from securities on loan | + | 48,722 |
| Total assets | 586,808,723 | |
| Liabilities | ||
| Collateral held for securities on loan | 8,614,376 | |
| Payables: | ||
| Investments bought | 447,460 | |
| Investment adviser fees | 206,519 | |
| Fund shares redeemed | 300,052 | |
| Due to custodian | 276,890 | |
| Variation margin on futures contracts | + | 15,004 |
| Total liabilities | 9,860,301 | |
| Net Assets | ||
| Total assets | 586,808,723 | |
| Total liabilities | – | 9,860,301 |
| Net assets | $576,948,422 | |
| Net Assets by Source | ||
| Capital received from investors | 591,764,529 | |
| Total distributable loss | (14,816,107) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $576,948,422 | 50,333,475 | $11.46 | ||
49
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $1,771,589) | $13,258,840 | |
| Income from non-cash dividends | 987,855 | |
| Interest | 2,232 | |
| Securities on loan, net | + | 654,673 |
| Total investment income | 14,903,600 | |
| Expenses | ||
| Investment adviser fees | 2,560,565 | |
| Total expenses | – | 2,560,565 |
| Net investment income | 12,343,035 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments (net of foreign capital gain tax paid of $8,348) | (47,413,575) | |
| Net realized losses on futures contracts | (1,039,983) | |
| Net realized losses on foreign currency transactions | + | (62,055) |
| Net realized losses | (48,515,613) | |
| Net change in unrealized appreciation (depreciation) on investments | (12,923,888) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | (160,742) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 32,975 |
| Net change in unrealized appreciation (depreciation) | + | (13,051,655) |
| Net realized and unrealized losses | (61,567,268) | |
| Decrease in net assets resulting from operations | ($49,224,233) | |
50
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $12,343,035 | $18,989,748 | ||
| Net realized losses | (48,515,613) | (12,664,287) | ||
| Net change in unrealized appreciation (depreciation) | + | (13,051,655) | 31,326,114 | |
| Increase (decrease) in net assets from operations | (49,224,233) | 37,651,575 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($21,815,081) | ($40,145,201) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 18,584,362 | $193,918,636 | 21,189,779 | $254,698,550 | ||||
| Shares reinvested | 1,327,830 | 17,115,730 | 2,920,765 | 31,485,839 | ||||
| Shares redeemed | + | (31,234,955) | (338,304,616) | (22,650,454) | (271,063,058) | |||
| Net transactions in fund shares | (11,322,763) | ($127,270,250) | 1,460,090 | $15,121,331 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 61,656,238 | $775,257,986 | 60,196,148 | $762,630,281 | ||||
| Total increase or decrease | + | (11,322,763) | (198,309,564) | 1,460,090 | 12,627,705 | |||
| End of period | 50,333,475 | $576,948,422 | 61,656,238 | $775,257,986 | ||||
51
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $9.25 | $8.60 | $9.38 | $7.86 | $6.67 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.27 | 0.35 | 0.27 | 0.22 | 0.16 | |
| Net realized and unrealized gains (losses) | (1.65) | 0.54 | (0.83) | 1.47 | 1.22 | |
| Total from investment operations | (1.38) | 0.89 | (0.56) | 1.69 | 1.38 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.36) | (0.24) | (0.22) | (0.17) | (0.19) | |
| Net asset value at end of period | $7.51 | $9.25 | $8.60 | $9.38 | $7.86 | |
| Total return | (15.68%) | 10.73% | (6.09%) | 21.96% | 21.64% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% | 0.39% | 0.39% | 0.57% 2 | 0.88% | |
| Net operating expenses | N/A | N/A | N/A 3 | 0.43% 2 | 0.49% | |
| Net investment income (loss) | 3.32% | 3.93% | 2.92% | 2.62% | 2.41% | |
| Portfolio turnover rate | 32% | 38% | 19% | 18% | 20% | |
| Net assets, end of period (x 1,000,000) | $550 | $671 | $548 | $554 | $336 | |
1
Calculated based on the average shares outstanding during
the period.
2
Effective May 1, 2017, the annual operating expense ratio
was reduced. The ratio presented for period ended 10/31/17 is a blended ratio.
3
Effective May 1, 2017, the fund instituted a new fee
structure and the contractual expense limitation was terminated.
52
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020
This section shows the fund’s 50 largest portfolio
holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can
request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab Funds® at 1-877-824-5615. This complete
schedule, filed on the fund’s N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.
In addition, the fund files its complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website and on the fund’s website at
www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
53
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
54
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Condensed Portfolio
Holdings as of October 31, 2020 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 and reflects the complete schedule of portfolio holdings (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Common Stock1 | $— | $216,914,029 | $— | $216,914,029 | |
| Brazil | 27,376,556 | — | — | 27,376,556 | |
| China | 15,945,374 | 151,901,250 | — | 167,846,624 | |
| Colombia | 1,109,945 | — | — | 1,109,945 | |
| Mexico | 21,989,343 | — | — | 21,989,343 | |
| Philippines | — | — | 1,817,518 | 1,817,518 | |
| Russia | 41,738,662 | 3,693,909 | — | 45,432,571 | |
| Saudi Arabia | 1,543,404 | 10,297,756 | — | 11,841,160 | |
| South Africa | 2,528,646 | 25,032,239 | — | 27,560,885 | |
| Preferred Stock | |||||
| Brazil | 19,226,648 | — | — | 19,226,648 | |
| Colombia | 803,635 | — | — | 803,635 | |
| Russia | 5,995,089 | 169,124 | — | 6,164,213 | |
| Other Investment Company1 | 420,000 | — | — | 420,000 | |
| Short-Term Investments1 | — | 91,937 | — | 91,937 | |
| Liabilities | |||||
| Futures Contracts2 | (32,981) | — | — | (32,981) | |
| Total | $138,644,321 | $408,100,244 | $1,817,518 | $548,562,083 |
| 1 | As categorized in the complete schedule of Portfolio Holdings. |
| 2 | Futures contracts are valued at unrealized appreciation or depreciation. |
Fund investments in underlying mutual funds are classified as
Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
55
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in unaffiliated issuers, at value (cost $556,843,103) including securities on loan of $398,843 | $548,175,064 | |
| Collateral invested for securities on loan, at value (cost $420,000) | 420,000 | |
| Foreign currency, at value (cost $256,009) | 255,387 | |
| Deposit with broker for futures contracts | 157,410 | |
| Receivables: | ||
| Fund shares sold | 1,236,280 | |
| Dividends | 1,180,268 | |
| Income from securities on loan | 3,434 | |
| Foreign tax reclaims | + | 838 |
| Total assets | 551,428,681 | |
| Liabilities | ||
| Collateral held for securities on loan | 420,000 | |
| Payables: | ||
| Investment adviser fees | 193,265 | |
| Fund shares redeemed | 352,624 | |
| Foreign capital gains tax | 311,084 | |
| Variation margin on futures contracts | + | 17,528 |
| Total liabilities | 1,294,501 | |
| Net Assets | ||
| Total assets | 551,428,681 | |
| Total liabilities | – | 1,294,501 |
| Net assets | $550,134,180 | |
| Net Assets by Source | ||
| Capital received from investors | 662,911,120 | |
| Total distributable loss | (112,776,940) | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $550,134,180 | 73,301,021 | $7.51 | ||
56
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends (net of foreign withholding tax of $3,088,410) | $21,908,994 | |
| Interest | 5,834 | |
| Securities on loan, net | + | 8,814 |
| Total investment income | 21,923,642 | |
| Expenses | ||
| Investment adviser fees | 2,312,739 | |
| Total expenses | – | 2,312,739 |
| Net investment income | 19,610,903 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on investments (net of foreign capital gain tax paid of $12,630) | (41,079,144) | |
| Net realized losses on futures contracts | (654,564) | |
| Net realized losses on foreign currency transactions | + | (286,349) |
| Net realized losses | (42,020,057) | |
| Net change in unrealized appreciation (depreciation) on investments (net of change in foreign capital gains tax of ($58,772)) | (85,963,236) | |
| Net change in unrealized appreciation (depreciation) on futures contracts | (47,086) | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (24,982) |
| Net change in unrealized appreciation (depreciation) | + | (86,035,304) |
| Net realized and unrealized losses | (128,055,361) | |
| Decrease in net assets resulting from operations | ($108,444,458) | |
57
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $19,610,903 | $24,384,488 | ||
| Net realized gains (losses) | (42,020,057) | 6,327,116 | ||
| Net change in unrealized appreciation (depreciation) | + | (86,035,304) | 31,350,637 | |
| Increase (decrease) in net assets from operations | (108,444,458) | 62,062,241 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($26,542,518) | ($15,972,543) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 36,046,335 | $278,152,407 | 25,021,407 | $219,417,177 | ||||
| Shares reinvested | 2,049,543 | 19,245,216 | 1,405,982 | 11,419,761 | ||||
| Shares redeemed | + | (37,357,533) | (283,186,415) | (17,582,733) | (154,001,819) | |||
| Net transactions in fund shares | 738,345 | $14,211,208 | 8,844,656 | $76,835,119 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 72,562,676 | $670,909,948 | 63,718,020 | $547,985,131 | ||||
| Total increase or decrease | + | 738,345 | (120,775,768) | 8,844,656 | 122,924,817 | |||
| End of period | 73,301,021 | $550,134,180 | 72,562,676 | $670,909,948 | ||||
58
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Index
Funds
Financial Notes
1. Business Structure of the Funds:
Each of
the funds 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 Fundamental US Large Company Index Fund | Schwab Target 2010 Fund |
| Schwab Fundamental US Small Company Index Fund | Schwab Target 2015 Fund |
| Schwab Fundamental International Large Company Index Fund | Schwab Target 2020 Fund |
| Schwab Fundamental International Small Company Index Fund | Schwab Target 2025 Fund |
| Schwab Fundamental Emerging Markets Large Company Index Fund | Schwab Target 2030 Fund |
| Schwab Fundamental Global Real Estate Index Fund | Schwab Target 2035 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2040 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2045 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2050 Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Target 2055 Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Target 2060 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2010 Index Fund |
| Schwab International Index Fund® | Schwab Target 2015 Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Target 2020 Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Target 2025 Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Target 2030 Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2035 Index Fund |
| Laudus International MarketMasters Fund™ | Schwab Target 2040 Index Fund |
| Schwab Balanced Fund | Schwab Target 2045 Index Fund |
| Schwab Core Equity Fund | Schwab Target 2050 Index Fund |
| Schwab Dividend Equity Fund | Schwab Target 2055 Index Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2060 Index Fund |
| Schwab Small-Cap Equity Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Hedged Equity Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Health Care Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab International Core Equity Fund | |
Each fund in this report offers one share class. Shares are
bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. 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:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The funds may invest in certain other investment
companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission
(SEC). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the SEC and available on the SEC’s website at www.sec.gov.
(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 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.
59
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid
and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S.
dollars at the current exchange rate, unless these securities are fair valued as discussed below.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
•
Foreign equity security 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 NAV 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. The Board regularly reviews fair value determinations made by the funds pursuant to these procedures.
• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.
• Underlying funds: Mutual funds are valued at their respective NAVs.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which
are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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.
•
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, 2020 are disclosed in the Condensed Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A
fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received
by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures contracts are
traded publicly on exchanges, and their fair value may change daily.
Securities Lending: Under
the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued
or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the
current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of
securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the
funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement.
Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and
broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending agent. The aggregate fair value
of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan. Securities lending fees paid to the unaffiliated lending agents start at 10% of gross lending revenue, with
subsequent breakpoints to a low of 7.5%. In this context, the gross lending revenue equals the income received from the investment of cash collateral and fees paid by borrowers less any rebates paid to the borrowers. Any expenses charged by the cash
collateral fund are in addition to these fees. All remaining revenue is retained by the fund, as applicable. No portion of lending revenue is paid to or retained by Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) or any
affiliate of CSIM.
As of October 31, 2020, the
funds had securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of October 31, 2020, if any, are disclosed in each fund’s Condensed Portfolio Holdings and Statement
of Assets and Liabilities.
Cash Management
Transactions: The funds may subscribe to the Brown Brothers Harriman & Co. (BBH) Cash Management Service Sweep (CMS Sweep). The BBH CMS Sweep is an investment product that automatically sweeps the funds’
cash balances into overnight offshore time deposits with either the BBH Grand Cayman branch or a branch of a pre-approved commercial bank. This fully automated program allows the funds to earn interest on cash balances, however, interest rates may
be negative due to overnight rates at the central bank of the denominated currency. Excess cash invested with deposit institutions domiciled outside of
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
the U.S., as
with any offshore deposit, may be subject to sovereign actions in the jurisdiction of the deposit institution including, but not limited to, freeze, seizure or diminution. The funds bear the risk associated with the repayment of principal and
payment of interest on such instruments by the institution with which the deposit is ultimately placed.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies
are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and
expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or
depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are
reported in foreign currency transactions or translations 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 may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized appreciation to provide for potential non-U.S. taxes payable upon the sale of these securities.
When a fund closes out a futures contract position, it
calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends, in
the form of cash or non-cash income such as in the form of additional securities, and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain
foreign security dividends on the date the ex-dividend date is confirmed. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
Income received from foreign sources may result in
withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate
is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
The Schwab Fundamental International Large Company Index
Fund filed claims to recover taxes previously withheld in certain European Union countries on the basis that those countries had purportedly violated certain provisions in the Treaty on the Functioning of the European Union. These filings are
subject to various administrative and judicial proceedings within these countries, and all professional fees associated with these filings have been paid by the investment adviser. For additional details see Affiliates and Affiliated Transactions in
financial note 4, Other Affiliated Transactions.
(e)
Expenses:
Pursuant to an Amended and Restated
Investment Advisory and Administration Agreement (Advisory Agreement) between CSIM and the trust, CSIM pays the operating expenses of each fund, excluding acquired fund fees and expenses, taxes, any brokerage expenses, and extraordinary or
non-routine expenses. Taxes, any brokerage expenses and extraordinary or non-routine expenses that are specific to a fund are charged directly to the fund.
(f) Distributions to Shareholders:
The funds make distributions from net investment income and
net realized capital gains, if any, once a year.
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(g) Accounting
Estimates:
The accounting policies described in this
report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s
possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2020, if any, are reflected in each fund’s Statement of Assets and
Liabilities.
(j) Indemnification:
Under the funds’ organizational documents, the
officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide
general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to
these arrangements to be remote.
3. Risk Factors:
Investing in the funds may involve
certain risks, as discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Market Risk. Financial markets
rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition, the
occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is tied to these markets, the value of an
investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to
fall over short or extended periods of time.
Tracking Error Risk. As an
index fund, each fund seeks to track the performance of its respective index, although it may not be successful in doing so. The divergence between the performance of a fund and its index, positive or negative, is called “tracking
error.” Tracking error can be caused by many factors and it may be significant.
Investment Style Risk. The
funds are index funds. Therefore, each fund follows the securities included in its respective index 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 its respective index. Market disruptions could cause delays in an index’s rebalancing schedule which may result in the
index and, in turn, a fund experiencing returns different than those that would have been achieved under a normal rebalancing schedule.
Sampling Index Tracking Risk.
To the extent a fund uses a sampling method, the fund may not fully replicate its respective 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 the index.
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Financial Notes
(continued)
3. Risk
Factors (continued):
Concentration Risk. To the extent that a fund’s or its respective 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 vulnerable to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of
industries, sector, country or asset class.
Market Capitalization Risk.
Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall
behind other types of investments, a fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Small-Cap Company Risk.
Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.
Foreign Investment Risk. A
fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political,
regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing
accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of a fund’s investments, and could
impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in
value relative to the U.S. dollar. Foreign securities may also include American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs), which may be less liquid than the underlying shares in their
primary trading market and GDRs, many of which are issued by companies in emerging markets, may be more volatile. To the extent a fund’s investments in a single country or a limited number of countries represent a large percentage of the
fund’s assets, the fund’s performance may be adversely affected by the economic, political, regulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that is
geographically diversified.
Emerging Markets
Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less
uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in
developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated with a fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S.
dollar, and, at times, it may be difficult to value such investments.
ETF Risk. Certain funds may
purchase shares of ETFs to gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. When a fund invests in an ETF, in addition to directly bearing the expenses associated with its own
operations, it will bear a proportionate share of the ETF’s expenses. Therefore, it may be more costly to own an ETF than to own the underlying securities directly. In addition, while the risks of owning shares of an ETF generally reflect the
risks of owning the underlying securities the ETF holds, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile than the underlying portfolio securities.
Derivatives Risk. Each fund
may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific date. A
future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain
securities and a predetermined amount. A fund’s use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause the fund to become a commodity pool, which would require the fund to comply with
certain CFTC rules.
A fund’s use of
derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk and market risk, are
discussed elsewhere. A fund’s use of derivatives is also subject to lack of availability risk, credit risk, leverage risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative
transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small
percentage of assets invested in derivatives can have a disproportionately large impact on the fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the
derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gains. A fund’s use of derivatives could
reduce the fund’s performance, increase the fund’s volatility, and could cause the fund to lose more than the initial amount invested.
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Financial Notes
(continued)
3. Risk
Factors (continued):
Liquidity Risk. A fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.
Securities Lending Risk.
Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Please refer to the funds’ prospectus for a more
complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
CSIM, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as each fund’s investment adviser and administrator pursuant to an Advisory Agreement between CSIM and the trust.
For its advisory and administrative services to the funds, CSIM
is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:
| Schwab
Fundamental 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 |
| 0.25% | 0.25% | 0.25% | 0.39% | 0.39% |
CSIM has a licensing agreement with
the Frank Russell Company to use certain Russell indices and trademarks in connection with the offering and operation of certain registered investment companies. The funds have entered into a sub-license agreement with CSIM pursuant to which CSIM
has agreed to sub-license certain Russell indices and trademarks to the funds. CSIM pays all applicable licensing fees.
Investments from Affiliates
Certain funds in the Fund Complex (for definition refer to
Trustees and Officers section) may own shares of other funds in the Fund Complex. The table below reflects the percentages of shares of each fund in this report that are owned by other funds in the Fund Complex as of October 31, 2020, as
applicable:
| Underlying Funds | |||||
| 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 MarketTrack All Equity Portfolio | 1.8% | 2.1% | 3.9% | 5.4% | 5.8% |
| Schwab MarketTrack Balanced Portfolio | 1.0% | 1.0% | 1.6% | 2.3% | 2.3% |
| Schwab MarketTrack Conservative Portfolio | 0.4% | 0.3% | 0.6% | 0.8% | 0.8% |
| Schwab MarketTrack Growth Portfolio | 2.0% | 2.1% | 3.1% | 4.3% | 4.5% |
Other Affiliated Transactions
The professional fees related to foreign withholding tax claims
discussed in financial note 2 were non-routine expenses. The investment adviser agreed to pay these professional fees, which are subject to reimbursement by the Schwab Fundamental International Large Company Index Fund to the extent the fund is able
to successfully recover taxes withheld in the future.
The
professional fees incurred by the Schwab Fundamental International Large Company Index Fund were $14,535 and the fund made no reimbursement to the investment adviser during the period ended October 31, 2020.
As of October 31, 2020, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the fund to the investment adviser was $70,540 for the Fundamental International Large Company Index Fund.
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
No other
amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty surrounding the ultimate resolution of proceedings, the likelihood of receipt of these claims, and the potential timing of payment.
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the funds
may enter into interfund borrowing and lending transactions with other funds in the Fund Complex. All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate
and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. 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.
Interfund Transactions
The funds may engage in transactions with certain other
funds in the Fund Complex when permitted by applicable law. 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, 2020, each fund’s total aggregate security transactions with other funds in the Fund Complex as well as any realized gains (losses)
were as follows:
| Total Aggregate Transactions | Realized Gains (Losses) | |
| Schwab Fundamental US Large Company Index Fund | $479,171,365 | $90,605,314 |
| Schwab Fundamental US Small Company Index Fund | 239,052,620 | 13,047,109 |
| Schwab Fundamental International Large Company Index Fund | 39,343,962 | (1,898,975) |
| Schwab Fundamental International Small Company Index Fund | 41,468,926 | 1,736,784 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 14,986,843 | 54,633 |
5. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations
throughout the report period. The funds do not pay any interested or non-interested (independent trustees) trustees. The independent trustees are paid by CSIM. For information regarding the trustees, please refer to the Trustees and Officers table
at the end of this report.
6. Borrowing from Banks:
During the period, the funds
were participants with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to CSIM paying the interest charged on any borrowings by a fund, CSIM paid a
commitment fee of 0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, CSIM pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft facilities. A
fund may have utilized the overdraft facility and incurred an interest expense, which is paid by CSIM. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.
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Funds
Financial Notes
(continued)
7.
Derivatives:
Certain funds entered into equity index
futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at October 31, 2020 are presented on the Condensed Portfolio Holdings
and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations, if any. Refer to financial note 2(b) for the funds’ accounting
policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2020, the month-end average notional amounts of futures contracts held by the
funds and the month-end average number of contracts held were as follows:
| Notional Amounts | Number of Contracts | |
| Schwab Fundamental US Large Company Index Fund | $19,598,327 | 128 |
| Schwab Fundamental US Small Company Index Fund | 7,570,890 | 101 |
| Schwab Fundamental International Large Company Index Fund | 6,563,722 | 73 |
| Schwab Fundamental International Small Company Index Fund | 4,271,225 | 48 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 2,881,382 | 57 |
8. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| Schwab Fundamental US Large Company Index Fund | $634,253,255 | $1,039,392,492 |
| Schwab Fundamental US Small Company Index Fund | 445,713,163 | 703,594,013 |
| Schwab Fundamental International Large Company Index Fund | 160,159,418 | 328,116,477 |
| Schwab Fundamental International Small Company Index Fund | 162,936,026 | 298,674,174 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 194,117,140 | 188,516,195 |
9. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| 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 | |||||
| Tax cost | $3,238,767,758 | $1,255,407,137 | $1,103,931,279 | $580,272,049 | $605,904,289 | ||||
| Gross unrealized appreciation | $1,844,305,527 | $412,388,278 | $160,617,463 | $137,598,410 | $90,496,710 | ||||
| Gross unrealized depreciation | (534,091,515) | (263,412,066) | (300,774,527) | (134,656,593) | (147,838,916) | ||||
| Net unrealized appreciation (depreciation) | $1,310,214,012 | $148,976,212 | ($140,157,064) | $2,941,817 | ($57,342,206) |
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Funds
Financial Notes
(continued)
9. Federal Income
Taxes (continued):
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| 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 | |||||
| Undistributed ordinary income | $99,511,360 | $15,501,168 | $23,922,591 | $11,476,893 | $16,742,726 | ||||
| Undistributed long-term capital gains | 186,863,054 | — | — | — | — | ||||
| Net unrealized appreciation (depreciation) on investments | 1,310,214,012 | 148,976,212 | (140,157,064) | 2,941,817 | (57,342,206) | ||||
| Net other unrealized appreciation (depreciation) | — | — | 128,962 | 39,651 | (342,002) | ||||
| Total | $1,596,588,426 | $164,477,380 | ($116,105,511) | $14,458,361 | ($40,941,482) |
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, realization for tax purposes of unrealized gains (losses) on futures contracts and the realization for tax purposes
of unrealized appreciation on investments in Passive Foreign Investment Companies (PFIC) and partnership investments. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect these
unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the funds had capital loss carryforwards available to offset future net capital gains as follows:
| Expiration Date | 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 | ||||
| No expiration | $— | $30,790,317 | $55,799,573 | $29,274,468 | $71,835,458 | ||||
| Total | $— | $30,790,317 | $55,799,573 | $29,274,468 | $71,835,458 |
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| 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 | |
| Current fiscal year end distributions | |||||
| Ordinary income | $135,286,528 | $27,292,972 | $48,541,581 | $21,815,081 | $26,542,518 |
| Long-term capital gains | 145,433,758 | 43,502,511 | — | — | — |
| Prior fiscal year end distributions | |||||
| Ordinary income | $115,941,650 | $49,180,336 | $43,980,238 | $18,761,883 | $15,972,543 |
| Long-term capital gains | 268,964,966 | 107,997,280 | — | 21,383,318 | — |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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.
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Schwab Fundamental Index
Funds
Financial Notes
(continued)
9. Federal Income
Taxes (continued):
As of October 31, 2020,
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 fiscal year ended October 31,
2020, the funds did not incur any interest or penalties.
10. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the funds for the past two
fiscal years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the funds’ financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
11. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Fundamental Index
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust and
Shareholders of 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 and Schwab
Fundamental Emerging Markets Large Company Index Fund:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statements of
assets and liabilities, including the condensed portfolio holdings, of 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 and Schwab Fundamental Emerging Markets Large Company Index Fund (the “Funds”), five of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related statements of operations,
statements of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of
each of the Funds as of October 31, 2020, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of
America. The statements of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019 were audited by other auditors, whose report, dated December 16, 2019,
expressed an unqualified opinion on such statements of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud.
The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Funds
Other Federal Tax Information (unaudited)
The funds elect to pass through under section 853 of the
Internal Revenue Code foreign tax credit to its shareholders for the fiscal year ended October 31, 2020, and the respective foreign source income on the funds as follows.
| Foreign Tax Credit | Foreign Source Income | |
| Schwab Fundamental US Large Company Index Fund | $— | $— |
| Schwab Fundamental US Small Company Index Fund | — | — |
| Schwab Fundamental International Large Company Index Fund | 3,588,659 | 29,238,908 |
| Schwab Fundamental International Small Company Index Fund | 1,448,300 | 12,138,913 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 3,093,499 | 24,997,404 |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2020, qualify for the corporate dividends received deduction:
| Percentage | |
| Schwab Fundamental US Large Company Index Fund | 95.48 |
| Schwab Fundamental US Small Company Index Fund | 79.30 |
| Schwab Fundamental International Large Company Index Fund | — |
| Schwab Fundamental International Small Company Index Fund | — |
| Schwab Fundamental Emerging Markets Large Company Index Fund | — |
For the fiscal year ended October
31, 2020, 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 2021 via IRS
Form 1099 of the amounts for use in preparing their 2020 income tax return.
| Schwab Fundamental US Large Company Index Fund | $123,724,288 |
| Schwab Fundamental US Small Company Index Fund | 22,264,986 |
| Schwab Fundamental International Large Company Index Fund | 49,683,676 |
| Schwab Fundamental International Small Company Index Fund | 17,983,679 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 20,621,021 |
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, 2020:
| Schwab Fundamental US Large Company Index Fund | $145,433,758 |
| Schwab Fundamental US Small Company Index Fund | 43,502,511 |
| Schwab Fundamental International Large Company Index Fund | — |
| Schwab Fundamental International Small Company Index Fund | — |
| Schwab Fundamental Emerging Markets Large Company Index Fund | — |
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Schwab Fundamental Index Funds | Annual
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Schwab Fundamental Index
Funds
Liquidity Risk Management Program (Unaudited)
The Funds have adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Funds’ Board of Trustees (the “Board”) has designated the Funds’ investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Funds’ Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting any of the Funds were noted in
the report. In addition, CSIM provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Index
Funds
Investment Advisory Agreement Approval
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Schwab Fundamental Index Funds | Annual
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Schwab Fundamental Index
Funds
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Funds
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 and Laudus Trust. The Fund Complex includes 100 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 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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Schwab Fundamental Index Funds | Annual Report
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
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Funds
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Schwab Fundamental Index Funds | Annual
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Schwab Fundamental Index
Funds
Charles Schwab Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Annual
Report | October 31, 2020
Schwab MarketTrack Portfolios®
Schwab MarketTrack
All Equity Portfolio™
All Equity Portfolio™
Schwab
MarketTrack
Growth Portfolio™
Growth Portfolio™
Schwab MarketTrack
Balanced Portfolio™
Balanced Portfolio™
Schwab
MarketTrack
Conservative Portfolio™
Conservative Portfolio™
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
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Schwab MarketTrack Portfolios
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM)
Distributor: Charles Schwab & Co., Inc. (Schwab)
1
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Performance at a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2020 | |
| Schwab MarketTrack All Equity Portfolio (Ticker Symbol: SWEGX) | -1.35% |
| All Equity Composite Index | -1.05% |
| Fund Category: Morningstar Allocation—85%+ Equity1 | 2.47% |
| Performance Details | pages 7-9 |
| Schwab MarketTrack Growth Portfolio (Ticker Symbol: SWHGX) | 0.74% |
| Growth Composite Index | 1.06% |
| Fund Category: Morningstar Allocation—70% to 85% Equity1 | 1.83% |
| Performance Details | pages 10-12 |
| Schwab MarketTrack Balanced Portfolio (Ticker Symbol: SWBGX) | 2.37% |
| Balanced Composite Index | 2.70% |
| Fund Category: Morningstar Allocation—50% to 70% Equity1 | 3.88% |
| Performance Details | pages 13-15 |
| Schwab MarketTrack Conservative Portfolio (Ticker Symbol: SWCGX) | 3.57% |
| Conservative Composite Index | 4.00% |
| Fund Category: Morningstar Allocation—30% to 50% Equity1 | 2.76% |
| Performance Details | pages 16-18 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
The components that make up each of the
composite indices may vary over time. For index definitions, please see the Glossary.
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.
| 1 | 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. |
2
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Fundamental Index is a registered trademark of
Research Affiliates LLC.
Past performance is no
guarantee of future results.
Diversification
and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report
date.
3
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
The Investment Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% for the reporting period and the MSCI Emerging Markets Index (Net)* returned 8.25% for the reporting period. Fixed-income markets were particularly strong over the period with the Bloomberg
Barclays US Aggregate Bond Index returning 6.19% and the FTSE non-US Dollar World Government Bond Index returning 4.99% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
The Investment Environment
(continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S.
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exchange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
Throughout most of the reporting period, bond prices rose on
strong demand, driving yields down. (Bond prices and bond yields typically move in opposite directions.) Corporate credit markets were particularly strong. At the end of March 2020, as equity markets plummeted, as investors sought the perceived
safety of asset classes such as fixed-income securities, and as the Fed implemented additional rate cuts, demand for U.S. Treasuries soared, driving yields to historic lows. The yield on the 10-year U.S. Treasury fell from 1.69% at the beginning of
the reporting period to 0.88% at the end of the reporting period. The yield on the three-month U.S. Treasury fell from 1.54% to 0.09% over the reporting period. Yields on longer-term U.S. Treasuries trended upward late in the reporting period in
anticipation of a new fiscal aid package and hope for economic improvement in 2021.
5
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Fund Management
 |
Zifan Tang, Ph.D., CFA, Senior Portfolio Manager, is responsible for the co-management of the funds. Prior to joining CSIM in January 2012, Ms. Tang was a product manager at Thomson Reuters and from 1997 to 2009 worked as a portfolio manager at Barclays Global Investors (now known as BlackRock). |
 |
Patrick Kwok, CFA, Portfolio Manager, is responsible for the co-management of the funds. Previously, Mr. Kwok served as an associate portfolio manager with CSIM from 2012 to 2016. Prior to that, he worked as a fund administration manager for CSIM, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration for the Charles Schwab Trust Bank Collective Investment Trusts and Schwab’s multi-asset mutual funds. Prior to joining CSIM in 2008, Mr. Kwok spent two years as an asset operations specialist at Charles Schwab Trust Company. He also worked for one year at State Street Bank & Trust as a portfolio accountant and pricing specialist. |
6
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack All Equity
Portfolio as of October 31, 2020
The Schwab MarketTrack All Equity Portfolio (the fund) seeks high capital growth through an all-stock portfolio. To pursue its goal, the fund maintains a defined asset allocation. The fund’s target allocation is 100% in stock investments, with certain
percentages for different segments of the stock market. For the 12-month reporting period ended October 31, 2020, the fund remained close to the target allocations of 50% in U.S. large-cap, 30% in international, and 15% in U.S. small-cap stocks. The
fund invests mainly in other affiliated Schwab Funds, including index funds and exchange-traded funds (ETFs), which seek to track or replicate the total returns of various market indices. For more information concerning the fund’s investment
objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms.
Performance. For the 12-month
reporting period ended October 31, 2020, the fund returned -1.35%. The fund’s custom blended comparative index, the All Equity Composite Index (the composite index), returned -1.05%.
Positioning and Strategies.
Over the reporting period, the fund’s asset allocations were broadly in line with those of the composite index.
The fund’s international equity allocations detracted
from the total return of the fund. The fund’s position in the Schwab International Index Fund was the largest detractor from the total return of the fund, returning approximately -6.6% for the reporting period, but slightly outperformed the
MSCI EAFE® Index (Net), its comparative index, which returned approximately -6.9%, contributing to relative performance. The Schwab Fundamental
Emerging Markets Large Company Index Fund detracted from the fund’s total return and relative performance, returning approximately -15.8% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab
Fundamental International Small Company Index Fund detracted from the fund’s total return, returning approximately -13.3% and -6.3%, respectively, for the reporting period, but both slightly contributed to the relative performance of the
fund.
The fund’s real estate allocation was added
in February of 2020 and also detracted from the fund’s total return. The Schwab U.S. REIT ETF returned approximately -17.7% while held by the fund.
The fund’s U.S. equity allocations contributed to the
total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 9.7% for the reporting period. The Schwab S&P 500 Index Fund was the fund’s top contributor, largely due to
the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab U.S. Large-Cap Growth Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 26.0% while held by the
fund. The Schwab Fundamental US Small Company Index Fund and Schwab Fundamental US Large Company Index Fund detracted from the total return of the fund, returning approximately -10.4% and -2.3%, respectively, for the reporting period. The Schwab
Small-Cap Index Fund also detracted from the total return of the fund and was flat for the reporting period.
Management views and portfolio holdings may have changed
since the report date.
7
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack All Equity
Portfolio
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack All Equity Portfolio (5/19/98) | -1.35% | 6.99% | 8.54% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| All Equity Composite Index | -1.05% | 7.49% | 9.08% |
| Fund Category: Morningstar Allocation—85%+ Equity2 | 2.47% | 6.84% | 8.40% |
| Fund Expense Ratio3: 0.53% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.13% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
8
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack All Equity
Portfolio
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets2,3
Portfolio holdings may have changed since the report
date.
Small-company stocks are subject to greater
volatility than many other asset classes.
International
investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The holdings listed exclude any temporary liquidity investments. |
9
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack Growth
Portfolio as of October 31, 2020
The Schwab MarketTrack Growth Portfolio (the fund) seeks high capital growth with less volatility than an all-stock portfolio. To pursue its goal, the fund maintains a defined asset allocation. The fund’s target allocation includes stock, bond, and cash
investments. For the 12-month reporting period ended October 31, 2020, the fund remained close to the target allocations of 80% equity, 16% fixed income, and 4% cash and cash equivalents (including money market funds). The fund invests mainly in
other affiliated Schwab Funds, including index funds and exchange-traded funds (ETFs), which seek to track or replicate the total returns of various market indices. For more information concerning the fund’s investment objective, strategies,
and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the fund returned 0.74%. The fund’s custom blended comparative index, the Growth Composite Index (the composite index), returned 1.06%.
Positioning and Strategies.
Over the reporting period, the fund’s asset allocations were broadly in line with those of the composite index.
The fund’s U.S. equity allocations contributed to the
total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 9.7% for the reporting period. The Schwab S&P 500 Index Fund was the fund’s top contributor, largely due to
the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab U.S. Large-Cap Growth Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 26.0% while held by the
fund. The Schwab Fundamental US Small Company Index Fund and Schwab Fundamental US Large Company Index Fund detracted from the total return of the fund, returning approximately -10.4% and -2.3%, respectively, for the reporting period. The Schwab
Small-Cap Index Fund also detracted from the total return of the fund and was flat for the reporting period.
The fund’s fixed-income allocation also contributed to
the total return of the fund with the Schwab U.S. Aggregate Bond Index Fund returning approximately 6.1% for the reporting period. The Schwab U.S. Aggregate Bond Index Fund generally tracked its comparative index, the Bloomberg Barclays US Aggregate
Bond Index, which returned approximately 6.2%.
The
fund’s international equity allocations detracted from the total return of the fund. The fund’s position in the Schwab International Index Fund was the largest detractor from the total return of the fund, returning approximately -6.6%
for the reporting period, but slightly outperformed the MSCI EAFE® Index (Net), its comparative index, which returned approximately -6.9%,
contributing to relative performance. The Schwab Fundamental International Large Company Index Fund also detracted from the fund’s total return, returning approximately -13.3% for the reporting period but slightly contributed to the relative
performance of the fund. The Schwab Fundamental Emerging Markets Large Company Index Fund detracted from the fund’s total return and relative performance, returning approximately -15.8% for the reporting period. The Schwab Fundamental
International Small Company Index Fund detracted from the fund’s total return, returning approximately -6.3%, for the reporting period, but slightly contributed to the relative performance of the fund.
The fund’s real estate allocation was added in February
of 2020 and also detracted from the fund’s total return. The Schwab U.S. REIT ETF returned approximately -17.7% while held by the fund.
Management views and portfolio holdings may have changed
since the report date.
10
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack Growth
Portfolio
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Growth Portfolio (11/20/95) | 0.74% | 6.65% | 7.83% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Growth Composite Index | 1.06% | 7.14% | 8.32% |
| Fund Category: Morningstar Allocation—70% to 85% Equity2 | 1.83% | 6.21% | 7.46% |
| Fund Expense Ratio3: 0.51% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.11% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
11
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack Growth
Portfolio
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets2,3
Portfolio holdings may have changed since the report
date.
Small-company stocks are subject to greater
volatility than many other asset classes.
International
investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The holdings listed exclude any temporary liquidity investments. |
12
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Balanced Portfolio as of October 31, 2020
The Schwab MarketTrack Balanced Portfolio (the fund) seeks both capital growth and income. To pursue its goal, the fund maintains a defined asset allocation. The fund’s target allocation includes bond, stock and cash investments. For the 12-month
reporting period ended October 31, 2020, the fund remained close to the target allocations of 60% equity, 36% fixed income, and 4% cash and cash equivalents (including money market funds). The fund invests mainly in other affiliated Schwab Funds,
including index funds and exchange-traded funds (ETFs), which seek to track or replicate the total returns of various market indices. For more information concerning the fund’s investment objective, strategies, and risks, please see the
fund’s prospectus.
Market Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with
several major market indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting
in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in
just 22 trading days in late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The
extraordinary response prompted a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as
COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international
currencies, generally increasing the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the fund returned 2.37%. The fund’s custom blended comparative index, the Balanced Composite Index (the composite index), returned 2.70%.
Positioning and Strategies.
Over the reporting period, the fund’s asset allocations were broadly in line with those of the composite index.
The fund’s U.S. equity allocations contributed to the
total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 9.7% for the reporting period. The Schwab S&P 500 Index Fund was the fund’s top contributor, largely due to
the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab U.S. Large-Cap Growth Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 26.0% while held by the
fund. The Schwab Fundamental US Small Company Index Fund and Schwab Fundamental US Large Company Index Fund detracted from the total return of the fund, returning approximately -10.4% and -2.3%, respectively, for the reporting period. The Schwab
Small-Cap Index Fund also detracted from the total return of the fund and was flat for the reporting period.
The fund’s fixed-income allocation also contributed to
the total return of the fund with the Schwab U.S. Aggregate Bond Index Fund returning approximately 6.1% for the reporting period. The Schwab U.S. Aggregate Bond Index Fund generally tracked its comparative index, the Bloomberg Barclays US Aggregate
Bond Index, which returned approximately 6.2%. The Schwab Short-Term Bond Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 2.1% while held by the fund.
The fund’s international equity allocations detracted
from the total return of the fund. The fund’s position in the Schwab International Index Fund was the largest detractor from the total return of the fund, returning approximately -6.6% for the reporting period, but slightly outperformed the
MSCI EAFE® Index (Net), its comparative index, which returned approximately -6.9%, contributing to relative performance. The Schwab Fundamental
Emerging Markets Large Company Index Fund detracted from the fund’s total return and relative performance, returning approximately -15.8% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab
Fundamental International Small Company Index Fund detracted from the fund’s total return, returning approximately -13.3% and -6.3%, respectively, for the reporting period, but both slightly contributed to the relative performance of the
fund.
The fund’s real estate allocation was added
in February of 2020 and also detracted from the fund’s total return. The Schwab U.S. REIT ETF returned approximately -17.7% while held by the fund.
Management views and portfolio holdings may have changed
since the report date.
13
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Balanced Portfolio
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Balanced Portfolio (11/20/95) | 2.37% | 6.00% | 6.70% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Balanced Composite Index | 2.70% | 6.51% | 7.22% |
| Fund Category: Morningstar Allocation—50% to 70% Equity2 | 3.88% | 6.23% | 7.13% |
| Fund Expense Ratio3: 0.50% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.10% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
14
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Balanced Portfolio
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets2,3
Portfolio holdings may have changed since the report
date.
Small-company stocks are subject to greater
volatility than many other asset classes.
International
investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The holdings listed exclude any temporary liquidity investments. |
15
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Conservative Portfolio as of October 31, 2020
The Schwab MarketTrack Conservative Portfolio (the fund) seeks income and more growth potential than an all-bond portfolio. To pursue its goal, the fund maintains a defined asset allocation. The fund’s target allocation includes bond, stock and cash
investments. For the 12-month reporting period ended October 31, 2020, the fund remained close to the target allocations of 56% fixed income, 40% equity, and 4% cash and cash equivalents (including money market funds). The fund invests mainly in
other affiliated Schwab Funds, including index funds and exchange-traded funds (ETFs), which seek to track or replicate the total returns of various market indices. For more information concerning the fund’s investment objective, strategies,
and risks, please see the fund’s prospectus.
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the fund returned 3.57%. The fund’s custom blended comparative index, the Conservative Composite Index (the composite index), returned 4.00%.
Positioning and Strategies.
Over the reporting period, the fund’s asset allocations were broadly in line with those of the composite index.
The fund’s fixed-income allocation contributed to the
total return of the fund with the Schwab U.S. Aggregate Bond Index Fund returning approximately 6.1% for the reporting period. The Schwab U.S. Aggregate Bond Index Fund generally tracked its comparative index, the Bloomberg Barclays US Aggregate
Bond Index, which returned approximately 6.2%. The Schwab Short-Term Bond Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 2.1% while held by the fund.
The fund’s U.S. equity allocations also contributed to
the total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 9.7% for the reporting period. The Schwab S&P 500 Index Fund was the fund’s top contributor, largely due
to the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab U.S. Large-Cap Growth Index Fund was added in February 2020 and also contributed to the total return of the fund, returning approximately 26.0% while held by the
fund. The Schwab Small-Cap Index Fund neither contributed to nor detracted from the total return of the fund and was flat for the reporting period. The Schwab Fundamental US Small Company Index Fund and Schwab Fundamental US Large Company Index Fund
detracted from the total return of the fund, returning approximately -10.4% and -2.3%, respectively, for the reporting period.
The fund’s international equity allocations detracted
from the total return of the fund. The fund’s position in the Schwab International Index Fund was the largest detractor from the total return of the fund, returning approximately -6.6% for the reporting period, but slightly outperformed the
MSCI EAFE® Index (Net), its comparative index, which returned approximately -6.9%, contributing to relative performance. The Schwab Fundamental
Emerging Markets Large Company Index Fund detracted from the fund’s total return and relative performance, returning approximately -15.8% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab
Fundamental International Small Company Index Fund detracted from the fund’s total return, returning approximately -13.3% and -6.3%, respectively, for the reporting period, but both slightly contributed to the relative performance of the
fund.
The fund’s real estate allocation was added
in February of 2020 and also detracted from the fund’s total return. The Schwab U.S. REIT ETF returned approximately -17.7% while held by the fund.
Management views and portfolio holdings may have changed since
the report date.
16
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Conservative Portfolio
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Conservative Portfolio (11/20/95) | 3.57% | 5.16% | 5.43% |
| S&P 500® Index | 9.71% | 11.71% | 13.01% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Conservative Composite Index | 4.00% | 5.75% | 6.02% |
| Fund Category: Morningstar Allocation—30% to 50% Equity2 | 2.76% | 4.82% | 5.44% |
| Fund Expense Ratio3: 0.51% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.08% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Reflects the total annual fund operating expenses without contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
17
Schwab MarketTrack Portfolios | Annual Report
Schwab
MarketTrack Conservative Portfolio
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets2,3
Portfolio holdings may have changed since the report
date.
Small-company stocks are subject to greater
volatility than many other asset classes.
International
investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
| 3 | The holdings listed exclude any temporary liquidity investments. |
18
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Fund Expenses
(Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1,2 |
Effective
Expense Ratio (Annualized)3,4 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/20 |
Expenses
Paid During Period 5/1/20-10/31/202,5 |
Effective
Expenses Paid During Period 5/1/20-10/31/204,5 | |
| Schwab MarketTrack All Equity Portfolio | ||||||
| Actual Return | 0.39% | 0.51% | $1,000.00 | $1,115.80 | $2.07 | $2.71 |
| Hypothetical 5% Return | 0.39% | 0.51% | $1,000.00 | $1,023.14 | $1.98 | $2.59 |
| Schwab MarketTrack Growth Portfolio | ||||||
| Actual Return | 0.39% | 0.50% | $1,000.00 | $1,095.80 | $2.05 | $2.63 |
| Hypothetical 5% Return | 0.39% | 0.50% | $1,000.00 | $1,023.14 | $1.98 | $2.54 |
| Schwab MarketTrack Balanced Portfolio | ||||||
| Actual Return | 0.40% | 0.49% | $1,000.00 | $1,074.20 | $2.09 | $2.55 |
| Hypothetical 5% Return | 0.40% | 0.49% | $1,000.00 | $1,023.09 | $2.03 | $2.49 |
| Schwab MarketTrack Conservative Portfolio | ||||||
| Actual Return | 0.41% | 0.49% | $1,000.00 | $1,052.70 | $2.12 | $2.53 |
| Hypothetical 5% Return | 0.41% | 0.49% | $1,000.00 | $1,023.04 | $2.08 | $2.49 |
| 1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. |
| 2 | Excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 3 | Based on the most recent six-month acquired fund fees and expense ratio; may differ from the acquired fund fees and expenses ratios in the prospectus. |
| 4 | Includes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 5 | 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. |
19
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack All Equity
Portfolio
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $19.15 | $18.33 | $18.76 | $15.90 | $17.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.37 | 0.31 | 0.28 | 0.27 | 0.27 | |
| Net realized and unrealized gains (losses) | (0.54) | 1.30 | (0.05) | 3.33 | 0.31 | |
| Total from investment operations | (0.17) | 1.61 | 0.23 | 3.60 | 0.58 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.53) | (0.36) | (0.33) | (0.30) | (0.53) | |
| Distributions from net realized gains | (0.72) | (0.43) | (0.33) | (0.44) | (1.15) | |
| Total distributions | (1.25) | (0.79) | (0.66) | (0.74) | (1.68) | |
| Net asset value at end of period | $17.73 | $19.15 | $18.33 | $18.76 | $15.90 | |
| Total return | (1.35%) | 9.58% | 1.10% | 23.33% | 3.99% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.40% | 0.40% | 0.39% | 0.40% | 0.41% | |
| Gross operating expenses2 | 0.40% | 0.40% | 0.39% | 0.40% | 0.42% | |
| Net investment income (loss) | 2.08% | 1.72% | 1.46% | 1.56% | 1.73% | |
| Portfolio turnover rate | 18% | 6% | 5% | 5% | 6% | |
| Net assets, end of period (x 1,000,000) | $623 | $691 | $660 | $662 | $553 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
20
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after the end of the month on the fund’s website.
21
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Portfolio Holdings as of
October 31, 2020 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Schwab Fundamental Emerging Markets Large Company Index Fund | $34,543,201 | $4,633,720 | ($320,000) | $3,038 | ($6,874,801) | $31,985,158 | 4,264,688 | $1,353,720 |
| Schwab Fundamental International Large Company Index Fund | 40,345,903 | 4,323,427 | (490,000) | (72,315) | (6,859,398) | 37,247,617 | 4,959,736 | 1,493,427 |
| Schwab Fundamental International Small Company Index Fund | 35,162,430 | 1,475,116 | (2,190,000) | (340,621) | (2,721,290) | 31,385,635 | 2,738,712 | 995,116 |
| Schwab Fundamental US Large Company Index Fund | 93,229,404 | 5,002,650 | (6,920,000) | (457,807) | (7,014,006) | 83,840,241 | 5,149,892 | 5,002,650 |
| Schwab Fundamental US Small Company Index Fund | 50,829,585 | 5,350,054 | (20,990,000) | (1,519,480) | (4,523,466) | 29,146,693 | 2,434,979 | 1,890,053 |
| Schwab International Index Fund | 96,463,199 | 7,477,772 | (9,260,000) | (1,244,417) | (8,447,360) | 84,989,194 | 4,579,159 | 3,017,772 |
| Schwab S&P 500 Index Fund | 217,206,651 | 4,772,544 | (40,080,000) | 20,830,189 | (7,960,074) | 194,769,310 | 3,837,819 | 4,372,544 |
| Schwab Small-Cap Index Fund | 119,883,006 | 12,637,133 | (59,360,000) | 12,215,300 | (20,500,844) | 64,874,595 | 2,386,850 | 7,347,133 |
| Schwab U.S. Large-Cap Growth Index Fund | — | 32,900,000 | (8,590,000) | 653,032 | 6,445,948 | 31,408,980 | 500,462 | — |
| Schwab U.S. REIT ETF | — | 37,289,875 | — | — | (6,704,825) | 30,585,050 | 892,473 | 484,686 |
| Total | $687,663,379 | $115,862,291 | ($148,200,000) | $30,066,919 | ($65,160,116) | $620,232,473 | $25,957,101 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $620,232,473 | $— | $— | $620,232,473 | |
| Short-Term Investment1 | — | 2,265,040 | — | 2,265,040 | |
| Total | $620,232,473 | $2,265,040 | $— | $622,497,513 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
22
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $428,011,191) | $620,232,473 | |
| Investments in unaffiliated issuers, at value (cost $2,265,040) | 2,265,040 | |
| Receivables: | ||
| Investments sold | 1,780,001 | |
| Fund shares sold | 438,586 | |
| Prepaid expenses | + | 13,799 |
| Total assets | 624,729,899 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 1,176,061 | |
| Investment adviser and administrator fees | 74,287 | |
| Shareholder service fees | 135,990 | |
| Fund shares redeemed | 167,220 | |
| Accrued expenses | + | 81,430 |
| Total liabilities | 1,634,988 | |
| Net Assets | ||
| Total assets | 624,729,899 | |
| Total liabilities | – | 1,634,988 |
| Net assets | $623,094,911 | |
| Net Assets by Source | ||
| Capital received from investors | 405,312,759 | |
| Total distributable earnings | 217,782,152 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $623,094,911 | 35,135,909 | $17.73 | ||
23
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $16,006,732 | |
| Interest | + | 14,385 |
| Total investment income | 16,021,117 | |
| Expenses | ||
| Investment adviser and administrator fees | 844,678 | |
| Shareholder service fees | 1,543,927 | |
| Shareholder reports | 65,325 | |
| Registration fees | 32,167 | |
| Portfolio accounting fees | 27,078 | |
| Professional fees | 25,311 | |
| Transfer agent fees | 15,713 | |
| Independent trustees’ fees | 10,676 | |
| Custodian fees | 2,055 | |
| Other expenses | + | 10,143 |
| Total expenses | 2,577,073 | |
| Expense reduction by CSIM and its affiliates | – | 15,713 |
| Net expenses | – | 2,561,360 |
| Net investment income | 13,459,757 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 9,950,369 | |
| Net realized gains on sales of affiliated underlying funds | + | 30,066,919 |
| Net realized gains | 40,017,288 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | + | (65,160,116) |
| Net realized and unrealized losses | (25,142,828) | |
| Decrease in net assets resulting from operations | ($11,683,071) | |
24
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $13,459,757 | $11,446,552 | ||
| Net realized gains | 40,017,288 | 26,061,302 | ||
| Net change in unrealized appreciation (depreciation) | + | (65,160,116) | 23,445,012 | |
| Increase (decrease) in net assets from operations | (11,683,071) | 60,952,866 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($44,690,295) | ($28,006,553) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 4,011,146 | $68,570,719 | 3,457,644 | $62,047,856 | ||||
| Shares reinvested | 2,115,919 | 40,244,771 | 1,580,131 | 25,376,894 | ||||
| Shares redeemed | + | (7,060,916) | (120,148,036) | (4,966,158) | (89,453,708) | |||
| Net transactions in fund shares | (933,851) | ($11,332,546) | 71,617 | ($2,028,958) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 36,069,760 | $690,800,823 | 35,998,143 | $659,883,468 | ||||
| Total increase or decrease | + | (933,851) | (67,705,912) | 71,617 | 30,917,355 | |||
| End of period | 35,135,909 | $623,094,911 | 36,069,760 | $690,800,823 | ||||
25
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $23.54 | $22.67 | $23.47 | $20.54 | $22.68 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.43 | 0.41 | 0.37 | 0.34 | 0.32 | |
| Net realized and unrealized gains (losses) | (0.20) | 1.62 | (0.04) | 3.37 | 0.41 | |
| Total from investment operations | 0.23 | 2.03 | 0.33 | 3.71 | 0.73 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.47) | (0.45) | (0.40) | (0.36) | (0.39) | |
| Distributions from net realized gains | (0.88) | (0.71) | (0.73) | (0.42) | (2.48) | |
| Total distributions | (1.35) | (1.16) | (1.13) | (0.78) | (2.87) | |
| Net asset value at end of period | $22.42 | $23.54 | $22.67 | $23.47 | $20.54 | |
| Total return | 0.74% | 9.86% | 1.28% | 18.52% | 3.88% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.39% | 0.40% | 0.39% | 0.40% | 0.41% | |
| Gross operating expenses2 | 0.40% | 0.40% | 0.39% | 0.40% | 0.41% | |
| Net investment income (loss) | 1.92% | 1.82% | 1.59% | 1.57% | 1.61% | |
| Portfolio turnover rate | 19% | 7% | 7% | 20% 3 | 12% | |
| Net assets, end of period (x 1,000,000) | $748 | $817 | $783 | $804 | $707 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 6% without including these transactions. There were no transaction costs
associated with these transactions.
26
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after the end of the month on the fund’s website.
27
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Portfolio Holdings as of
October 31, 2020 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Schwab Fundamental Emerging Markets Large Company Index Fund | $28,413,513 | $2,746,380 | ($1,610,000) | $129,514 | ($5,109,929) | $24,569,478 | 3,275,930 | $1,066,381 |
| Schwab Fundamental International Large Company Index Fund | 32,938,332 | 3,239,233 | (680,000) | (163,686) | (5,231,726) | 30,102,153 | 4,008,276 | 1,219,232 |
| Schwab Fundamental International Small Company Index Fund | 26,960,646 | 1,903,215 | (1,640,000) | (231,032) | (1,919,038) | 25,073,791 | 2,187,940 | 773,215 |
| Schwab Fundamental US Large Company Index Fund | 98,801,392 | 7,803,339 | (10,270,000) | 401,621 | (7,581,757) | 89,154,595 | 5,476,326 | 5,178,338 |
| Schwab Fundamental US Small Company Index Fund | 48,680,656 | 5,160,148 | (19,070,001) | (1,133,889) | (4,402,874) | 29,234,040 | 2,442,276 | 1,810,147 |
| Schwab International Index Fund | 75,410,421 | 5,989,153 | (4,400,000) | (340,635) | (6,958,012) | 69,700,927 | 3,755,438 | 2,359,153 |
| Schwab S&P 500 Index Fund | 229,515,716 | 8,869,564 | (45,190,000) | 28,857,575 | (13,254,962) | 208,797,893 | 4,114,244 | 4,594,565 |
| Schwab Small-Cap Index Fund | 114,668,640 | 14,986,509 | (54,510,000) | 12,956,379 | (20,287,923) | 67,813,605 | 2,494,982 | 6,906,509 |
| Schwab U.S. Aggregate Bond Index Fund | 120,769,170 | 26,934,213 | (30,329,464) | 962,543 | 3,042,567 | 121,379,029 | 11,301,586 | 2,974,682 |
| Schwab U.S. Large-Cap Growth Index Fund | — | 26,270,000 | (6,710,001) | 691,780 | 5,229,409 | 25,481,188 | 406,010 | — |
| Schwab U.S. REIT ETF | — | 36,079,504 | (1,627,561) | (687,019) | (6,075,346) | 27,689,578 | 807,983 | 458,642 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 33,651,006 | 3,269,108 | (17,350,000) | 4,565 | (7,268) | 19,567,411 | 19,559,587 | 239,820 |
| Total | $809,809,492 | $143,250,366 | ($193,387,027) | $41,447,716 | ($62,556,859) | $738,563,688 | $27,580,684 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $738,563,688 | $— | $— | $738,563,688 | |
| Short-Term Investments1 | — | 8,856,257 | — | 8,856,257 | |
| Total | $738,563,688 | $8,856,257 | $— | $747,419,945 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
28
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $497,556,659) | $738,563,688 | |
| Investments in unaffiliated issuers, at value (cost $8,856,257) | 8,856,257 | |
| Receivables: | ||
| Investments sold | 2,780,007 | |
| Fund shares sold | 926,106 | |
| Dividends | 232,747 | |
| Prepaid expenses | + | 20,047 |
| Total assets | 751,378,852 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 1,913,898 | |
| Investment adviser and administrator fees | 88,545 | |
| Shareholder service fees | 163,441 | |
| Fund shares redeemed | 639,791 | |
| Accrued expenses | + | 81,191 |
| Total liabilities | 2,886,866 | |
| Net Assets | ||
| Total assets | 751,378,852 | |
| Total liabilities | – | 2,886,866 |
| Net assets | $748,491,986 | |
| Net Assets by Source | ||
| Capital received from investors | 456,848,899 | |
| Total distributable earnings | 291,643,087 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $748,491,986 | 33,383,332 | $22.42 | ||
29
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $17,899,544 | |
| Interest | + | 26,064 |
| Total investment income | 17,925,608 | |
| Expenses | ||
| Investment adviser and administrator fees | 1,009,086 | |
| Shareholder service fees | 1,862,445 | |
| Shareholder reports | 62,541 | |
| Registration fees | 34,913 | |
| Portfolio accounting fees | 28,279 | |
| Professional fees | 26,361 | |
| Transfer agent fees | 14,772 | |
| Independent trustees’ fees | 11,235 | |
| Custodian fees | 1,775 | |
| Other expenses | + | 11,460 |
| Total expenses | 3,062,867 | |
| Expense reduction by CSIM and its affiliates | – | 14,772 |
| Net expenses | – | 3,048,095 |
| Net investment income | 14,877,513 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 9,681,140 | |
| Net realized gains on sales of affiliated underlying funds | + | 41,447,716 |
| Net realized gains | 51,128,856 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | + | (62,556,859) |
| Net realized and unrealized losses | (11,428,003) | |
| Increase in net assets resulting from operations | $3,449,510 | |
30
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $14,877,513 | $14,441,539 | ||
| Net realized gains | 51,128,856 | 31,540,675 | ||
| Net change in unrealized appreciation (depreciation) | + | (62,556,859) | 28,613,519 | |
| Increase in net assets from operations | 3,449,510 | 74,595,733 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($46,215,156) | ($39,927,176) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 3,194,314 | $69,920,922 | 2,937,909 | $65,107,948 | ||||
| Shares reinvested | 1,816,570 | 42,344,247 | 1,829,307 | 36,750,784 | ||||
| Shares redeemed | + | (6,318,253) | (137,539,154) | (4,611,016) | (102,839,073) | |||
| Net transactions in fund shares | (1,307,369) | ($25,273,985) | 156,200 | ($980,341) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 34,690,701 | $816,531,617 | 34,534,501 | $782,843,401 | ||||
| Total increase or decrease | + | (1,307,369) | (68,039,631) | 156,200 | 33,688,216 | |||
| End of period | 33,383,332 | $748,491,986 | 34,690,701 | $816,531,617 | ||||
31
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $18.75 | $18.24 | $19.12 | $17.35 | $19.07 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.35 | 0.36 | 0.34 | 0.30 | 0.27 | |
| Net realized and unrealized gains (losses) | 0.10 | 1.32 | (0.24) | 2.02 | 0.35 | |
| Total from investment operations | 0.45 | 1.68 | 0.10 | 2.32 | 0.62 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.39) | (0.39) | (0.33) | (0.30) | (0.33) | |
| Distributions from net realized gains | (0.43) | (0.78) | (0.65) | (0.25) | (2.01) | |
| Total distributions | (0.82) | (1.17) | (0.98) | (0.55) | (2.34) | |
| Net asset value at end of period | $18.38 | $18.75 | $18.24 | $19.12 | $17.35 | |
| Total return | 2.37% | 10.14% | 0.44% | 13.71% | 3.92% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.40% | 0.40% | 0.40% | 0.40% | 0.41% | |
| Gross operating expenses2 | 0.40% | 0.40% | 0.40% | 0.40% | 0.41% | |
| Net investment income (loss) | 1.91% | 1.99% | 1.79% | 1.67% | 1.60% | |
| Portfolio turnover rate | 22% | 11% | 8% | 46% 3 | 15% | |
| Net assets, end of period (x 1,000,000) | $518 | $545 | $515 | $551 | $516 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 10% without including these transactions. There were no transaction costs
associated with these transactions.
32
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after the end of the month on the fund’s website.
33
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Portfolio Holdings as of
October 31, 2020 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Schwab Fundamental Emerging Markets Large Company Index Fund | $13,985,994 | $2,288,100 | ($1,150,000) | ($128,872) | ($2,303,846) | $12,691,376 | 1,692,183 | $548,100 |
| Schwab Fundamental International Large Company Index Fund | 16,361,563 | 2,255,633 | (520,000) | (125,873) | (2,426,296) | 15,545,027 | 2,069,910 | 605,633 |
| Schwab Fundamental International Small Company Index Fund | 13,942,514 | 1,973,121 | (1,950,000) | (100,622) | (779,777) | 13,085,236 | 1,141,818 | 383,121 |
| Schwab Fundamental US Large Company Index Fund | 49,891,262 | 7,941,363 | (8,485,000) | 361,513 | (3,494,687) | 46,214,451 | 2,838,726 | 2,591,363 |
| Schwab Fundamental US Small Company Index Fund | 24,552,319 | 3,402,956 | (10,990,000) | (710,614) | (1,834,673) | 14,419,988 | 1,204,677 | 912,956 |
| Schwab International Index Fund | 38,010,985 | 4,229,143 | (2,840,001) | (70,886) | (3,470,486) | 35,858,755 | 1,932,045 | 1,189,143 |
| Schwab S&P 500 Index Fund | 114,675,422 | 9,125,313 | (24,005,000) | 12,958,251 | (4,322,305) | 108,431,681 | 2,136,585 | 2,275,313 |
| Schwab Short-Term Bond Index Fund | — | 6,017,359 | (685,735) | — | 71,623 | 5,403,247 | 521,549 | 51,631 |
| Schwab Small-Cap Index Fund | 56,788,172 | 8,543,448 | (28,470,000) | 6,790,168 | (10,312,517) | 33,339,271 | 1,226,610 | 3,443,449 |
| Schwab U.S. Aggregate Bond Index Fund | 189,452,490 | 31,779,584 | (45,186,810) | 1,497,274 | 4,669,661 | 182,212,199 | 16,965,754 | 4,559,509 |
| Schwab U.S. Large-Cap Growth Index Fund | — | 16,050,000 | (3,760,000) | 539,467 | 3,312,822 | 16,142,289 | 257,207 | — |
| Schwab U.S. REIT ETF | — | 18,258,171 | (1,078,345) | (249,787) | (3,049,524) | 13,880,515 | 405,034 | 235,543 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 23,045,463 | 1,683,413 | (10,960,000) | 2,727 | (4,146) | 13,767,457 | 13,761,952 | 163,360 |
| Total | $540,706,184 | $113,547,604 | ($140,080,891) | $20,762,746 | ($23,944,151) | $510,991,492 | $16,959,121 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $510,991,492 | $— | $— | $510,991,492 | |
| Short-Term Investments1 | — | 6,126,368 | — | 6,126,368 | |
| Total | $510,991,492 | $6,126,368 | $— | $517,117,860 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
34
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $375,943,680) | $510,991,492 | |
| Investments in unaffiliated issuers, at value (cost $6,126,368) | 6,126,368 | |
| Receivables: | ||
| Investments sold | 1,830,005 | |
| Dividends | 356,614 | |
| Fund shares sold | 276,139 | |
| Prepaid expenses | + | 17,391 |
| Total assets | 519,598,009 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 1,506,509 | |
| Investment adviser and administrator fees | 60,659 | |
| Shareholder service fees | 112,537 | |
| Fund shares redeemed | 239,421 | |
| Accrued expenses | + | 59,749 |
| Total liabilities | 1,978,875 | |
| Net Assets | ||
| Total assets | 519,598,009 | |
| Total liabilities | – | 1,978,875 |
| Net assets | $517,619,134 | |
| Net Assets by Source | ||
| Capital received from investors | 358,511,508 | |
| Total distributable earnings | 159,107,626 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $517,619,134 | 28,154,862 | $18.38 | ||
35
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $12,122,036 | |
| Interest | + | 15,037 |
| Total investment income | 12,137,073 | |
| Expenses | ||
| Investment adviser and administrator fees | 686,149 | |
| Shareholder service fees | 1,274,818 | |
| Shareholder reports | 34,995 | |
| Registration fees | 32,681 | |
| Portfolio accounting fees | 25,895 | |
| Professional fees | 24,078 | |
| Independent trustees’ fees | 10,105 | |
| Transfer agent fees | 9,640 | |
| Custodian fees | 2,033 | |
| Other expenses | + | 8,691 |
| Total expenses | 2,109,085 | |
| Expense reduction by CSIM and its affiliates | – | 9,640 |
| Net expenses | – | 2,099,445 |
| Net investment income | 10,037,628 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 4,837,085 | |
| Net realized gains on sales of affiliated underlying funds | + | 20,762,746 |
| Net realized gains | 25,599,831 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | + | (23,944,151) |
| Net realized and unrealized gains | 1,655,680 | |
| Increase in net assets resulting from operations | $11,693,308 | |
36
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $10,037,628 | $10,507,329 | ||
| Net realized gains | 25,599,831 | 12,873,385 | ||
| Net change in unrealized appreciation (depreciation) | + | (23,944,151) | 27,918,849 | |
| Increase in net assets from operations | 11,693,308 | 51,299,563 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($23,741,670) | ($32,704,957) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 3,534,438 | $63,437,613 | 4,645,103 | $82,462,045 | ||||
| Shares reinvested | 1,162,605 | 21,612,831 | 1,824,301 | 29,754,346 | ||||
| Shares redeemed | + | (5,586,534) | (99,936,630) | (5,649,914) | (100,958,347) | |||
| Net transactions in fund shares | (889,491) | ($14,886,186) | 819,490 | $11,258,044 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 29,044,353 | $544,553,682 | 28,224,863 | $514,701,032 | ||||
| Total increase or decrease | + | (889,491) | (26,934,548) | 819,490 | 29,852,650 | |||
| End of period | 28,154,862 | $517,619,134 | 29,044,353 | $544,553,682 | ||||
37
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.43 | $15.63 | $16.27 | $15.31 | $15.94 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.30 | 0.35 | 0.31 | 0.27 | 0.24 | |
| Net realized and unrealized gains (losses) | 0.27 | 1.18 | (0.38) | 1.09 | 0.30 | |
| Total from investment operations | 0.57 | 1.53 | (0.07) | 1.36 | 0.54 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.31) | (0.36) | (0.32) | (0.28) | (0.27) | |
| Distributions from net realized gains | (0.19) | (0.37) | (0.25) | (0.12) | (0.90) | |
| Total distributions | (0.50) | (0.73) | (0.57) | (0.40) | (1.17) | |
| Net asset value at end of period | $16.50 | $16.43 | $15.63 | $16.27 | $15.31 | |
| Total return | 3.57% | 10.31% | (0.49%) | 9.07% | 3.68% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.42% | 0.43% | 0.41% | 0.42% | 0.43% | |
| Gross operating expenses2 | 0.42% | 0.43% | 0.41% | 0.42% | 0.44% | |
| Net investment income (loss) | 1.84% | 2.19% | 1.93% | 1.71% | 1.61% | |
| Portfolio turnover rate | 35% | 26% | 9% | 74% 3 | 10% | |
| Net assets, end of period (x 1,000,000) | $279 | $263 | $239 | $251 | $238 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 23% without including these transactions. There were no transaction costs
associated with these transactions.
38
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Portfolio Holdings as of
October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of portfolio holdings 15 to 20
days after the end of the month on the fund’s website.
39
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Portfolio Holdings as of
October 31, 2020 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Schwab Fundamental Emerging Markets Large Company Index Fund | $4,603,496 | $1,810,407 | ($900,000) | ($123,841) | ($786,371) | $4,603,691 | 613,825 | $180,407 |
| Schwab Fundamental International Large Company Index Fund | 5,300,132 | 2,364,199 | (1,340,000) | (61,234) | (774,398) | 5,488,699 | 730,852 | 184,199 |
| Schwab Fundamental International Small Company Index Fund | 4,204,530 | 1,580,583 | (620,000) | (37,518) | (261,327) | 4,866,268 | 424,631 | 120,583 |
| Schwab Fundamental US Large Company Index Fund | 16,081,095 | 7,102,579 | (5,400,000) | (51,862) | (979,922) | 16,751,890 | 1,028,986 | 842,581 |
| Schwab Fundamental US Small Company Index Fund | 8,140,482 | 1,905,423 | (4,460,000) | (180,351) | (573,270) | 4,832,284 | 403,700 | 295,423 |
| Schwab International Index Fund | 12,298,142 | 3,914,738 | (2,100,000) | (113,098) | (1,098,453) | 12,901,329 | 695,115 | 384,737 |
| Schwab S&P 500 Index Fund | 37,203,924 | 13,239,187 | (14,560,000) | 939,392 | 2,352,196 | 39,174,699 | 771,915 | 739,187 |
| Schwab Short-Term Bond Index Fund | — | 3,231,825 | (303,552) | 1,722 | 38,014 | 2,968,009 | 286,487 | 28,277 |
| Schwab Small-Cap Index Fund | 18,249,017 | 5,452,850 | (10,660,000) | 1,519,779 | (2,627,420) | 11,934,226 | 439,081 | 1,102,850 |
| Schwab U.S. Aggregate Bond Index Fund | 144,260,615 | 44,889,923 | (40,731,635) | 726,996 | 4,053,111 | 153,199,010 | 14,264,340 | 3,735,141 |
| Schwab U.S. Large-Cap Growth Index Fund | — | 5,910,001 | (1,640,000) | 214,608 | 1,158,014 | 5,642,623 | 89,908 | — |
| Schwab U.S. REIT ETF | — | 7,860,200 | (959,126) | (272,925) | (1,050,672) | 5,577,477 | 162,751 | 94,341 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 10,780,838 | 10,088,607 | (11,650,000) | 4,583 | (5,055) | 9,218,973 | 9,215,287 | 79,268 |
| Total | $261,122,271 | $109,350,522 | ($95,324,313) | $2,566,251 | ($555,553) | $277,159,178 | $7,786,994 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $277,159,178 | $— | $— | $277,159,178 | |
| Short-Term Investment1 | — | 1,812,113 | — | 1,812,113 | |
| Total | $277,159,178 | $1,812,113 | $— | $278,971,291 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
40
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $222,938,922) | $277,159,178 | |
| Investments in unaffiliated issuers, at value (cost $1,812,113) | 1,812,113 | |
| Receivables: | ||
| Investments sold | 2,640,874 | |
| Fund shares sold | 431,023 | |
| Dividends | 315,069 | |
| Prepaid expenses | + | 20,453 |
| Total assets | 282,378,710 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 314,864 | |
| Investment adviser and administrator fees | 34,229 | |
| Shareholder service fees | 63,736 | |
| Fund shares redeemed | 3,034,970 | |
| Accrued expenses | + | 48,262 |
| Total liabilities | 3,496,061 | |
| Net Assets | ||
| Total assets | 282,378,710 | |
| Total liabilities | – | 3,496,061 |
| Net assets | $278,882,649 | |
| Net Assets by Source | ||
| Capital received from investors | 223,048,809 | |
| Total distributable earnings | 55,833,840 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $278,882,649 | 16,904,752 | $16.50 | ||
41
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Statement of Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $6,228,005 | |
| Interest | + | 7,933 |
| Total investment income | 6,235,938 | |
| Expenses | ||
| Investment adviser and administrator fees | 360,010 | |
| Shareholder service fees | 675,573 | |
| Registration fees | 34,785 | |
| Portfolio accounting fees | 23,232 | |
| Shareholder reports | 22,003 | |
| Professional fees | 21,735 | |
| Independent trustees’ fees | 8,958 | |
| Transfer agent fees | 5,208 | |
| Custodian fees | 1,643 | |
| Other expenses | + | 5,888 |
| Total expenses | 1,159,035 | |
| Expense reduction by CSIM and its affiliates | – | 5,208 |
| Net expenses | – | 1,153,827 |
| Net investment income | 5,082,111 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 1,558,989 | |
| Net realized gains on sales of affiliated underlying funds | + | 2,566,251 |
| Net realized gains | 4,125,240 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | + | (555,553) |
| Net realized and unrealized gains | 3,569,687 | |
| Increase in net assets resulting from operations | $8,651,798 | |
42
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Statement of Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $5,082,111 | $5,503,537 | ||
| Net realized gains | 4,125,240 | 2,283,185 | ||
| Net change in unrealized appreciation (depreciation) | + | (555,553) | 16,814,789 | |
| Increase in net assets from operations | 8,651,798 | 24,601,511 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($8,266,008) | ($11,877,962) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 5,944,934 | $97,316,710 | 5,250,695 | $82,352,774 | ||||
| Shares reinvested | 435,195 | 7,084,017 | 706,231 | 10,568,989 | ||||
| Shares redeemed | + | (5,509,526) | (89,276,819) | (5,219,713) | (81,340,605) | |||
| Net transactions in fund shares | 870,603 | $15,123,908 | 737,213 | $11,581,158 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 16,034,149 | $263,372,951 | 15,296,936 | $239,068,244 | ||||
| Total increase | + | 870,603 | 15,509,698 | 737,213 | 24,304,707 | |||
| End of period | 16,904,752 | $278,882,649 | 16,034,149 | $263,372,951 | ||||
43
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack
Portfolios
Financial Notes
1. Business Structure of the Funds:
Schwab
MarketTrack All Equity Portfolio, Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio, and Schwab MarketTrack Conservative Portfolio (the funds) are each 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 MarketTrack All Equity Portfolio | Schwab Target 2040 Fund |
| Schwab MarketTrack Growth Portfolio | Schwab Target 2045 Fund |
| Schwab MarketTrack Balanced Portfolio | Schwab Target 2050 Fund |
| Schwab MarketTrack Conservative Portfolio | Schwab Target 2055 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2060 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 U.S. Large-Cap Growth Index Fund | Schwab Fundamental International Large Company Index Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Fundamental International Small Company Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab International Index Fund® | Schwab Fundamental Global Real Estate Index Fund |
| Laudus International MarketMasters Fund™ | Schwab Target 2010 Index Fund |
| Schwab Balanced Fund | Schwab Target 2015 Index Fund |
| Schwab Core Equity Fund | Schwab Target 2020 Index Fund |
| Schwab Dividend Equity Fund | Schwab Target 2025 Index Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2030 Index Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2035 Index Fund |
| Schwab Hedged Equity Fund | Schwab Target 2040 Index Fund |
| Schwab Health Care Fund | Schwab Target 2045 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2020 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2025 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab Target 2035 Fund | |
The Schwab MarketTrack Portfolios are primarily “funds of
funds.” Each of the funds seeks to achieve its investment objective by investing mainly in a combination of other Schwab Funds (underlying funds) in accordance with its target portfolio allocation. The funds may also invest directly in equity
or fixed-income securities, other mutual funds, exchange-traded funds (ETFs) and cash equivalents, including money market securities, to achieve their investment objectives.
Each fund in this report offers one share class. Shares are
bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. 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:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The financial statements of the funds should be
read in conjunction with the underlying funds’ financial statements. For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the
U.S. Securities and Exchange Commission (SEC) and are available on the SEC’s website at www.sec.gov.
44
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(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 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:
•
Underlying funds: Mutual funds are valued at their respective net asset values (NAVs). Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price
that day or the official closing price, if applicable.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and ETFs. Investments in mutual funds are valued daily at their NAVs, and investments in
ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations.
•
Level 3—significant unobservable inputs (including the 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
45
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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, 2020 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Cash Management Transactions: The funds may subscribe to the Brown Brothers Harriman & Co. (BBH) Cash Management Service Sweep (CMS Sweep). The BBH CMS Sweep is an investment product that automatically sweeps the funds’ cash balances into
overnight offshore time deposits with either the BBH Grand Cayman branch or a branch of a pre-approved commercial bank. This fully automated program allows the funds to earn interest on cash balances. Excess cash invested with deposit institutions
domiciled outside of the U.S., as with any offshore deposit, may be subject to sovereign actions in the jurisdiction of the deposit institution including, but not limited to, freeze, seizure or diminution. The funds bear the risk associated with the
repayment of principal and payment of interest on such instruments by the institution with which the deposit is ultimately placed.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and
distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date). Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated
by the underlying funds.
(e) Expenses:
Expenses that are specific to a fund are charged directly
to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets. Each fund bears its share of the acquired fund fees and expenses of the underlying
funds, which are indirect expenses incurred by the fund through its investments in the underlying funds. Such expenses are reflected in the net asset values of the underlying funds.
(f) Distributions to Shareholders:
The funds make distributions from net investment income and
net realized capital gains, if any, once a year, except for the Schwab MarketTrack Conservative Portfolio, which makes distributions from net investment income quarterly.
(g) Accounting Estimates:
The accounting policies described in this report conform to
GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that
once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
46
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(i)
Indemnification:
Under the funds’
organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their
vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect
the risk of loss attributable to these arrangements to be remote.
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.
Asset Allocation Risk. The
funds are subject to the risk that the selection of the underlying funds and the allocation of a fund’s assets among the various asset classes and market segments may cause the fund to underperform other funds with a similar investment
objective.
Conflicts of Interest Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds and ETFs may create a conflict of interest because the fees paid to it and
its affiliates by some underlying funds are higher than the fees paid by other underlying funds. The investment adviser also may have an incentive to select an affiliated underlying fund for other reasons, including to increase assets under
management or to support new investment strategies. In addition, other conflicts of interest may exist where the best interests of the affiliated underlying fund may not be aligned with those of a fund. However, the investment adviser is a fiduciary
to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds.
Market Risk. Financial markets
rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition, the
occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics, may also negatively affect the financial markets. As with any investment whose performance is tied to these markets, the value of an
investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
Exchange-Traded Fund (ETF)
Risk. When a fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile
than the underlying portfolio of securities.
Direct
Investment Risk. The funds may invest directly in cash, cash equivalents and equity and fixed-income securities, including money market securities, to maintain their allocations. A fund’s direct investment in
these securities is subject to the same or similar risks as an underlying fund’s investment in the same securities.
Securities Lending Risk.
Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Underlying Fund Investment
Risk. Before investing in the funds, investors should assess the risks associated with the underlying funds in which the funds may invest, which include any combination of the risks described below.
•
Investment Risk. The funds may experience losses with respect to their investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
•
Investment Style Risk. Certain underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Such underlying funds follow these stocks
during upturns as well as downturns. Because of their indexing strategy, these underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses,
the underlying fund’s performance is normally below that of the index.
•
Tracking Error Risk. Each underlying index 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. If the underlying fund utilizes a sampling approach, it may not track the return of the index
as well as it would if the underlying fund purchased all of the securities in the index.
47
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Financial Notes
(continued)
3. Risk
Factors (continued):
•
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition,
equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.
•
Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. A change in a central bank’s monetary policy or economic conditions,
among other things, may result in a change in interest rates. A rise in interest rates could cause an underlying fund’s share price to fall. The credit quality of a portfolio investment could also cause an underlying fund’s share price
to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or otherwise honor its obligations. Fixed income
securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade
bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.
•
Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a
particular market capitalization fall behind other types of investments, an underlying fund’s performance could be impacted.
•
Real Estate Investment Risk. An underlying fund that has a policy of concentrating its investments in real estate companies and companies related to the real estate industry is subject to risks associated
with the direct ownership of real estate securities. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to
accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.
•
Money Market Fund Risk. The funds may invest in underlying money market funds that either seek to maintain a stable $1 net asset value (“stable share price money market funds”) or that have a
share price that fluctuates (“variable share price money market funds”). Although an underlying stable share price money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in such a money
market fund. Because the share price of an underlying variable share price money market fund will fluctuate, when the fund sells the shares it owns they may be worth more or less than what the fund originally paid for them. In addition, neither type
of money market fund is designed to offer capital appreciation. Certain underlying money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability to sell shares if such fund’s liquidity falls below required
minimums.
•
Concentration Risk. To the extent that an underlying 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 underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political or regulatory occurrences
affecting that market, industry, group of industries, sector, country or asset class.
•
Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S.
issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the
imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may
negatively impact the value or liquidity of an underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that
investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar.
•
Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market
countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be
more precarious than in developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated with an underlying fund’s investments in emerging market countries, which may be magnified by currency
fluctuations relative to the U.S. dollar, and, at times, it may be difficult to value such investments.
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Financial Notes
(continued)
3. Risk
Factors (continued):
•
Derivatives Risk. An underlying fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the
right to buy or sell an instrument at a specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment
streams calculated in relation to a rate, index, instrument or certain securities and a predetermined amount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified credit event in
exchange for a fixed payment or series of fixed payments.
An underlying fund’s use of
derivative instruments involves risks different from or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as leverage risk, liquidity risk and market risk
are discussed elsewhere in this section. An underlying fund’s use of derivatives is also subject to 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. 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 an underlying fund to realize higher amounts of short-term capital gains. An underlying fund’s use of derivatives
could reduce the underlying fund’s performance, increase its volatility, and could cause an underlying fund to lose more than the initial amount invested. The use of derivatives that are subject to regulation by the Commodity Futures Trading
Commission (CFTC) by an underlying fund could cause a fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
•
Leverage Risk. Certain underlying fund transactions, such as derivatives transactions, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may
expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately
large impact on the underlying fund.
•
Liquidity Risk. An underlying fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the underlying fund may have to sell them at a loss.
•
Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the
underlying fund’s performance and may increase the likelihood of capital gains distributions.
Please refer to the funds’ prospectus for a more
complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
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 between CSIM and the trust.
For its advisory and administrative services to the funds, CSIM
is entitled to receive an annual fee of 0.13%, payable monthly, based on a percentage of each fund’s average daily net assets.
Shareholder Servicing
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 financial intermediaries, including Charles Schwab & Co., Inc. (Schwab), a broker-dealer affiliate of CSIM, (together, service providers), of
certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds.
Pursuant to the Plan, each fund’s shares are subject to
an annual shareholder servicing fee of up to 0.25%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab, as distributor of the funds (or, in the case of payments made to Schwab
acting as a service provider, pursuant to Schwab’s written agreement with the funds). Payments under the Plan are made as described above without regard to whether the fee is more or less than the service provider’s actual cost of
providing the services, and if more, such excess may be retained as profit by the service provider.
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Expense
Limitation
Although these agreements specify certain
fees for these services, CSIM and its affiliates have agreed 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 charged, excluding interest, taxes and certain non-routine expenses as a percentage of average daily net assets as follows:
| Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio |
| 0.50% | 0.50% | 0.50% | 0.50% |
The agreement to limit the
funds’ total expenses charged is limited to each fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying
funds.
Investments in Affiliates
The funds may engage in certain transactions involving related
parties. Pursuant to an exemptive order issued by the SEC, the funds may invest in other related funds. As of October 31, 2020, each Schwab MarketTrack Portfolio’s ownership percentages of other related funds’ shares are:
| Underlying Funds | Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 5.8% | 4.5% | 2.3% | 0.8% |
| Schwab Fundamental International Large Company Index Fund | 3.9% | 3.1% | 1.6% | 0.6% |
| Schwab Fundamental International Small Company Index Fund | 5.4% | 4.3% | 2.3% | 0.8% |
| Schwab Fundamental US Large Company Index Fund | 1.8% | 2.0% | 1.0% | 0.4% |
| Schwab Fundamental US Small Company Index Fund | 2.1% | 2.1% | 1.0% | 0.3% |
| Schwab International Index Fund | 1.4% | 1.2% | 0.6% | 0.2% |
| Schwab S&P 500 Index Fund | 0.4% | 0.5% | 0.2% | 0.1% |
| Schwab Short-Term Bond Index Fund | —% | —% | 0.3% | 0.2% |
| Schwab Small-Cap Index Fund | 1.6% | 1.7% | 0.8% | 0.3% |
| Schwab U.S. Aggregate Bond Index Fund | —% | 2.5% | 3.8% | 3.2% |
| Schwab U.S. Large-Cap Growth Index Fund | 6.4% | 5.2% | 3.3% | 1.2% |
| Schwab U.S. REIT ETF | 0.7% | 0.7% | 0.3% | 0.1% |
| Schwab Variable Share Price Money Fund, Ultra Shares | —% | 0.5% | 0.4% | 0.2% |
Interfund Borrowing and
Lending
Pursuant to an exemptive order issued by the SEC,
the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged
will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. 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.
5. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations
throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on each fund’s Statement of Operations. For information
regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
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Financial Notes
(continued)
6.
Borrowing from Banks:
During the period, the funds were
participants with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended to run
for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment fee of
0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which was scheduled to mature on November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing
on September 30, 2021. Under the terms of the Uncommitted Credit Facility, each fund pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft facilities. A
fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds
Rate.
7. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| Schwab MarketTrack All Equity Portfolio | $115,862,291 | $148,200,000 |
| Schwab MarketTrack Growth Portfolio | 143,250,366 | 193,387,027 |
| Schwab MarketTrack Balanced Portfolio | 113,547,604 | 140,080,891 |
| Schwab MarketTrack Conservative Portfolio | 109,350,522 | 95,324,313 |
8. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio | ||||
| Tax cost | $442,462,478 | $508,103,979 | $386,191,026 | $228,128,200 | |||
| Gross unrealized appreciation | $201,190,755 | $248,542,267 | $142,560,393 | $55,385,917 | |||
| Gross unrealized depreciation | (21,155,720) | (9,226,301) | (11,633,559) | (4,542,826) | |||
| Net unrealized appreciation (depreciation) | $180,035,035 | $239,315,966 | $130,926,834 | $50,843,091 |
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio | ||||
| Undistributed ordinary income | $— | $614,921 | $2,982,542 | $971,204 | |||
| Undistributed long-term capital gains | 39,351,108 | 51,712,200 | 25,198,250 | 4,019,545 | |||
| Net unrealized appreciation (depreciation) on investments | 180,035,035 | 239,315,966 | 130,926,834 | 50,843,091 | |||
| Total | $219,386,143 | $291,643,087 | $159,107,626 | $55,833,840 |
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Financial Notes
(continued)
8. Federal Income
Taxes (continued):
The primary difference
between book basis and tax basis unrealized appreciation or unrealized depreciation of investments is the tax deferral of losses on wash sales. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts
to reflect these unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the funds had no capital loss carryforwards available to offset future net capital gains.
For tax purposes, late-year ordinary losses may be deferred
and treated as occurring on the first day of the following fiscal year. For the fiscal year ended October 31, 2020, the funds had ordinary losses deferred as follows:
| Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio | |
| Ordinary losses deferred | ($1,603,991) | $— | $— | $— |
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| Schwab
MarketTrack All Equity Portfolio |
Schwab
MarketTrack Growth Portfolio |
Schwab
MarketTrack Balanced Portfolio |
Schwab
MarketTrack Conservative Portfolio | |
| Current fiscal year end distributions | ||||
| Ordinary income | $19,507,535 | $16,953,005 | $12,876,300 | $5,723,865 |
| Long-term capital gains | 25,182,760 | 29,262,151 | 10,865,370 | 2,542,143 |
| Prior fiscal year end distributions | ||||
| Ordinary income | $13,644,585 | $16,219,023 | $10,931,597 | $5,884,258 |
| Long-term capital gains | 14,361,968 | 23,708,153 | 21,773,360 | 5,993,704 |
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 reflect the differing character of certain
income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, 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 fiscal year ended October 31, 2020, the funds did not incur
any interest or penalties.
9. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the funds for the past two
fiscal years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the funds’ financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
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Financial Notes
(continued)
10.
Subsequent Events:
Management has determined there are no
subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust and
Shareholders of Schwab MarketTrack All Equity Portfolio, Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio and Schwab MarketTrack Conservative Portfolio:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statements of
assets and liabilities, including the portfolio holdings, of Schwab MarketTrack All Equity Portfolio, Schwab MarketTrack Growth Portfolio, Schwab MarketTrack Balanced Portfolio and Schwab MarketTrack Conservative Portfolio (the “Funds”),
four of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related statements of operations, statements of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion,
the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2020, and the results of their operations, the changes in their net assets, and the financial
highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. The statements of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the
four years in the period ended October 31, 2019 were audited by other auditors, whose report, dated December 16, 2019, expressed an unqualified opinion on such statements of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud.
The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and transfer agent. We believe that our audits provide a reasonable basis for our
opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Other Federal Tax Information (unaudited)
The funds may elect to pass on the benefits of the foreign tax
credit to their shareholders for the fiscal year ended October 31, 2020. The foreign tax credit and the foreign source income amounts are as follows:
| Foreign Tax Credit | Foreign Source Income | |
| Schwab MarketTrack All Equity Portfolio | $728,235 | $6,494,759 |
| Schwab MarketTrack Growth Portfolio | 575,370 | 5,131,112 |
| Schwab MarketTrack Balanced Portfolio | 289,948 | 2,582,406 |
| Schwab MarketTrack Conservative Portfolio | 92,687 | 824,270 |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2020, qualify for the corporate dividends received deduction:
| Percentage | |
| Schwab MarketTrack All Equity Portfolio | 48.83 |
| Schwab MarketTrack Growth Portfolio | 48.96 |
| Schwab MarketTrack Balanced Portfolio | 33.26 |
| Schwab MarketTrack Conservative Portfolio | 21.33 |
For the fiscal year ended October
31, 2020, the funds designate the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2021 via IRS form 1099
of the amounts for use in preparing their 2020 income tax return.
| Schwab MarketTrack All Equity Portfolio | $18,047,189 |
| Schwab MarketTrack Growth Portfolio | 14,198,525 |
| Schwab MarketTrack Balanced Portfolio | 7,156,364 |
| Schwab MarketTrack Conservative Portfolio | 2,040,585 |
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, 2020:
| Schwab MarketTrack All Equity Portfolio | $25,182,760 |
| Schwab MarketTrack Growth Portfolio | 29,262,151 |
| Schwab MarketTrack Balanced Portfolio | 10,865,370 |
| Schwab MarketTrack Conservative Portfolio | 2,542,143 |
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Liquidity Risk Management Program (Unaudited)
The Funds have adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Funds’ Board of Trustees (the “Board”) has designated the Funds’ investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Funds’ Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting any of the Funds were noted in
the report. In addition, CSIM provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Investment Advisory Agreement Approval
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| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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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 and Laudus Trust. The Fund Complex includes 100 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 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Charles Schwab Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Annual
Report | October 31, 2020
Schwab Target Funds
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 Target 2045 Fund
Schwab Target 2050 Fund
Schwab Target 2055 Fund
Schwab Target 2060 Fund
| New Notice Regarding Shareholder Report Delivery Options |
| Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically. |
| If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request: |
| • If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; |
| • If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or |
| • If owned directly through a fund by calling 1-800-407-0256. |
| If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action. |
This page is intentionally left blank.
Schwab Target Funds
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc.
(CSIM)
Distributor: Charles Schwab & Co., Inc. (Schwab)
1
Schwab Target Funds | Annual Report
Schwab Target Funds
Performance at
a Glance
The performance data quoted represents past performance. Past performance
does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2020 | |
| Schwab Target 2010 Fund (Ticker Symbol: SWBRX) | 6.38% |
| Target 2010 Composite Index | 5.24% |
| Fund Category: Morningstar Target-Date 2000-20101 | 5.55% |
| Performance Details | pages 8-10 |
| Schwab Target 2015 Fund (Ticker Symbol: SWGRX) | 6.41% |
| Target 2015 Composite Index | 5.12% |
| Fund Category: Morningstar Target-Date 20151 | 5.34% |
| Performance Details | pages 11-13 |
| Schwab Target 2020 Fund (Ticker Symbol: SWCRX) | 6.33% |
| Target 2020 Composite Index | 5.10% |
| Fund Category: Morningstar Target-Date 20201 | 4.65% |
| Performance Details | pages 14-16 |
| Schwab Target 2025 Fund (Ticker Symbol: SWHRX) | 5.98% |
| Target 2025 Composite Index | 4.46% |
| Fund Category: Morningstar Target-Date 20251 | 5.01% |
| Performance Details | pages 17-19 |
| Schwab Target 2030 Fund (Ticker Symbol: SWDRX) | 5.81% |
| Target 2030 Composite Index | 3.98% |
| Fund Category: Morningstar Target-Date 20301 | 5.10% |
| Performance Details | pages 20-22 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
The components that make up each of the
composite indices may vary over time. For index definitions, please see the Glossary.
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.
| 1 | 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. |
2
Schwab Target Funds | Annual Report
Schwab Target Funds
Performance at
a Glance (continued)
| Total Return for the 12 Months Ended October 31, 2020 | |
| Schwab Target 2035 Fund (Ticker Symbol: SWIRX) | 5.51% |
| Target 2035 Composite Index | 3.63% |
| Fund Category: Morningstar Target-Date 20351 | 5.12% |
| Performance Details | pages 23-25 |
| Schwab Target 2040 Fund (Ticker Symbol: SWERX) | 5.31% |
| Target 2040 Composite Index | 3.33% |
| Fund Category: Morningstar Target-Date 20401 | 4.74% |
| Performance Details | pages 26-28 |
| Schwab Target 2045 Fund (Ticker Symbol: SWMRX) | 5.10% |
| Target 2045 Composite Index | 3.00% |
| Fund Category: Morningstar Target-Date 20451 | 4.73% |
| Performance Details | pages 29-31 |
| Schwab Target 2050 Fund (Ticker Symbol: SWNRX) | 4.96% |
| Target 2050 Composite Index | 2.80% |
| Fund Category: Morningstar Target-Date 20501 | 4.49% |
| Performance Details | pages 32-34 |
| Schwab Target 2055 Fund (Ticker Symbol: SWORX) | 4.86% |
| Target 2055 Composite Index | 2.67% |
| Fund Category: Morningstar Target-Date 20551 | 4.61% |
| Performance Details | pages 35-37 |
| Schwab Target 2060 Fund (Ticker Symbol: SWPRX) | 4.73% |
| Target 2060 Composite Index | 2.51% |
| Fund Category: Morningstar Target-Date 2060+1 | 4.49% |
| Performance Details | pages 38-40 |
All total returns on this page
assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized.
The components that make up each of the
composite indices may vary over time. For index definitions, please see the Glossary.
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.
| 1 | 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
Schwab Target Funds | Annual Report
Schwab Target Funds
Past performance is no guarantee of future
results.
Diversification and asset allocation
strategies do not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report
date.
4
Schwab Target Funds | Annual Report
Schwab Target Funds
The Investment
Environment
The 12-month reporting period ended October 31, 2020, was a
historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices hitting new highs in mid-February. However, beginning in late
February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in late February and early March. By the end of March,
governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted a rally in global equity markets from their March
lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the
possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing the returns on overseas investments in U.S.
dollar terms. For the reporting period, the S&P 500® Index returned 9.71%, with sectors that benefitted as a result of the COVID-19 pandemic and
associated stay-at-home orders, such as the information technology sector, outperforming other sectors that were more impacted by the COVID-19 pandemic. U.S. large-cap stocks outperformed small-cap stocks, with the Russell 1000® Index and the Russell 2000® Index returning
10.87% and -0.14%, respectively, for the reporting period. Among large-cap stocks, growth stocks outperformed value stocks by a large margin, with the Russell 1000® Growth Index and Russell 1000® Value Index
returning 29.22% and -7.57%, respectively, for the reporting period. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of
developed international equity performance, returned -6.86% for the reporting period and the MSCI Emerging Markets Index (Net)* returned 8.25% for the reporting period. Fixed-income markets were particularly strong over the period with the Bloomberg
Barclays US Aggregate Bond Index returning 6.19% and the FTSE non-US Dollar World Government Bond Index returning 4.99% for the reporting period.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2020
Index figures assume
dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not
annualized. Past performance is not an indication of future results.
For index definitions, please see the Glossary.
Data source: Index provider websites and CSIM.
Nothing in this report represents a recommendation of a security
by the investment adviser.
Management views may have
changed since the report date.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
5
Schwab Target Funds | Annual Report
Schwab Target Funds
The Investment
Environment (continued)
Prior to the onset of the COVID-19 pandemic, the U.S. economy,
despite ongoing trade tensions with China, maintained steady growth, albeit at a slowing pace. However, amid the fallout of the COVID-19 pandemic, the U.S. entered recessionary territory with record speed. U.S. gross domestic product (GDP) fell
steeply, declining 5.0% and 31.4% for the first and second quarters of 2020, respectively, with the second quarter representing the largest contraction in U.S. GDP since 1947 when modern GDP measurements began. GDP subsequently jumped by 33.1% for
the third quarter of 2020, reflecting increased consumer and business spending. Unemployment remained at record lows through February before a record number of unemployment claims in March resulted in the largest monthly increase in the U.S.
unemployment rate since January 1975. In April, this record was broken again when unemployment skyrocketed, rising to the highest level since the Great Depression. Unemployment declined in May through October, dropping below double digits beginning
in August. Consumer confidence remained solid through February, but was volatile over the remainder of the reporting period.
Outside the U.S., conditions continued to soften, dampened by
slowing economic output, slumping world trade, geopolitical concerns, and the COVID-19 pandemic. The COVID-19 pandemic exacerbated economic weakness around the globe, dramatically slowing growth amid stay-at-home orders, supply chain disruptions,
and broadly diminishing demand. In the first half of the reporting period, oil prices deteriorated amid significantly reduced demand, coupled with rising U.S. crude production and a price war between Russia and Saudi Arabia. In April, oil futures
briefly fell into negative territory as storage capacity evaporated and demand waned. However, as production was slashed, relieving pressure on constrained storage capacity, demand also stabilized. First and second quarter 2020 growth was negative
in the eurozone and the United Kingdom. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union resulting in an 11-month transition period with respect to economic and customs matters. Japan fared slightly
better, although GDP still contracted for the first and second quarters of 2020. Even China and India, which had maintained stronger growth than many developed countries, showed weakness. In China, GDP contracted in the first quarter, but rebounded
in the second and third quarters. While India’s second quarter GDP contracted, third quarter GDP was positive.
Many central banks around the world, including the U.S.
Federal Reserve (Fed), reduced their policy rates over the reporting period, while others maintained low—and for some international central banks, negative—interest rates. In the U.S., after enacting three interest rate cuts in the
second half of 2019 and as the economic implications of the COVID-19 pandemic grew, the Fed cut interest rates by 0.50% in early March and by 1.00% in mid-March, resulting in a federal funds rate of 0.00% to 0.25%. In addition, the Fed also
announced extensive emergency measures to support the economy in light of the COVID-19 pandemic, including large purchases of U.S. Treasuries and other securities to support smooth market function, facilitating the flow of credit to municipalities,
new financing for employers, consumers, and businesses, and the establishment of facilities to support credit to businesses and consumers alike. In August, the Fed announced that it was shifting its interest rate policy approach to potentially allow
inflation to rise above its 2% target for periods of time even in times of rising employment. Outside the U.S., central banks were similarly accommodative. The European Central Bank held its policy rate at 0.00%, unchanged since March 2016, and
launched a new asset purchase program to help counter the impact of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target of -0.1%, also unchanged since 2016, and increased the annual pace of its purchases of
exchange-traded funds (ETFs) and other assets. The Bank of England lowered its key official bank rate from 0.75% to 0.10% in two emergency rate cuts in March. Central banks in key emerging market economies—including China, India, Mexico,
Russia, and Thailand—lowered their policy rates or maintained already low rates in response to pandemic-driven pressures.
Throughout most of the reporting period, bond prices rose on
strong demand, driving yields down. (Bond prices and bond yields typically move in opposite directions.) Corporate credit markets were particularly strong. At the end of March 2020, as equity markets plummeted, as investors sought the perceived
safety of asset classes such as fixed-income securities, and as the Fed implemented additional rate cuts, demand for U.S. Treasuries soared, driving yields to historic lows. The yield on the 10-year U.S. Treasury fell from 1.69% at the beginning of
the reporting period to 0.88% at the end of the reporting period. The yield on the three-month U.S. Treasury fell from 1.54% to 0.09% over the reporting period. Yields on longer-term U.S. Treasuries trended upward late in the reporting period in
anticipation of a new fiscal aid package and hope for economic improvement in 2021.
6
Schwab Target Funds | Annual Report
Schwab Target Funds
Fund
Management
 |
Zifan Tang, Ph.D., CFA, Senior Portfolio Manager, is responsible for the co-management of the funds. Prior to joining CSIM in January 2012, Ms. Tang was a product manager at Thomson Reuters and from 1997 to 2009 worked as a portfolio manager at Barclays Global Investors (now known as BlackRock). |
 |
Patrick Kwok, CFA, Portfolio Manager, is responsible for the co-management of the funds. Previously, Mr. Kwok served as an associate portfolio manager with CSIM from 2012 to 2016. Prior to that, he worked as a fund administration manager for CSIM, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration for the Charles Schwab Trust Bank Collective Investment Trusts and Schwab’s multi-asset mutual funds. Prior to joining CSIM in 2008, Mr. Kwok spent two years as an asset operations specialist at Charles Schwab Trust Company. He also worked for one year at State Street Bank & Trust as a portfolio accountant and pricing specialist. |
7
Schwab Target Funds | Annual Report
Schwab Target
2010 Fund as of October 31, 2020
The Schwab Target 2010 Fund
(the 2010 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2010 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2010 Fund’s asset allocation
was approximately 35.3% equity securities, 60.1% fixed-income securities, and 4.6% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2010 Fund’s
Portfolio Holdings included in this report.)
Market
Highlights. The 12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen
steadily, with several major market indices hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses,
and resulting in a new record for the fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market,
dropping 30% in just 22 trading days in late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their
economies. The extraordinary response prompted a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting
period as COVID-19 infection rates spiked, raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of
international currencies, generally increasing the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2010 Fund returned 6.38%. The 2010 Fund’s internally calculated comparative index, the Target 2010 Composite Index (the composite index), returned 5.24%.
Positioning and Strategies.
The 2010 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2010 Fund’s fixed-income allocations provided the
largest contribution to the total return of the 2010 Fund. The Schwab U.S. Aggregate Bond Index Fund was the top contributor to the total return of the 2010 Fund, returning approximately 6.1% for the reporting period and generally tracking its
comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2010 Fund’s U.S. equity allocations also contributed
to the total return of the 2010 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund, which returned approximately 9.7% for the reporting period, generally tracked its
comparative index, the S&P 500® Index. The ClearBridge Large Cap Growth Fund (Class IS) also contributed positively to the total return and
relative performance of the 2010 Fund.
The 2010
Fund’s international equity allocations provided the smallest contribution to the total return of the 2010 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2010 Fund, returning approximately 8.6% for the
reporting period and outperforming its comparative index, the MSCI EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the
total return of the 2010 Fund, returning approximately -6.0% for the reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned approximately -6.9%.
The 2010 Fund’s real estate allocation was the only
allocation that detracted from the 2010 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2010 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
8
Schwab Target Funds | Annual Report
Schwab Target
2010 Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2010 Fund (7/1/05) | 6.38% | 5.54% | 5.76% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2010 Composite Index | 5.24% | 5.69% | 5.82% |
| Fund Category: Morningstar Target-Date 2000-20102 | 5.55% | 5.62% | 5.66% |
| Fund Expense Ratios3: Net 0.32%; Gross 0.49% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.32% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
9
Schwab Target Funds | Annual Report
Schwab Target
2010 Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
10
Schwab Target Funds | Annual Report
Schwab Target 2015 Fund as of October 31, 2020
The Schwab Target 2015 Fund
(the 2015 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2015 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2015 Fund’s asset allocation
was approximately 38.1% equity securities, 57.7% fixed-income securities and 4.3% cash and cash equivalents (including money market funds).1 (For
portfolio allocations as of the end of this reporting period, please see the 2015 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2015 Fund returned 6.41%. The 2015 Fund’s internally calculated comparative index, the Target 2015 Composite Index (the composite index), returned 5.12%.
Positioning and Strategies.
The 2015 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2015 Fund’s fixed-income allocations provided the
largest contribution to the total return of the 2015 Fund. The Schwab U.S. Aggregate Bond Index Fund was the top contributor to the total return of the 2015 Fund, returning approximately 6.1% for the reporting period and generally tracking its
comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2015 Fund’s U.S. equity allocations also contributed
to the total return of the 2015 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund, which returned approximately 9.7% for the reporting period, generally tracked its
comparative index, the S&P 500® Index. The ClearBridge Large Cap Growth Fund (Class IS) also contributed positively to the total return and
relative performance of the 2015 Fund.
The 2015
Fund’s international equity allocations provided the smallest contribution to the total return of the 2015 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2015 Fund, returning approximately 8.6% for the
reporting period and outperforming its comparative index, the MSCI EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the
total return of the 2015 Fund, returning approximately -6.0% for the reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned approximately -6.9%.
The 2015 Fund’s real estate allocation was the only
allocation that detracted from the 2015 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2015 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
| 1 | Percentages may not add up to 100% due to rounding. |
11
Schwab Target Funds | Annual Report
Schwab Target 2015
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2015 Fund (3/12/08) | 6.41% | 5.63% | 6.20% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2015 Composite Index | 5.12% | 5.79% | 6.24% |
| Fund Category: Morningstar Target-Date 20152 | 5.34% | 5.99% | 6.33% |
| Fund Expense Ratios3: Net 0.34%; Gross 0.45% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.34% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
12
Schwab Target Funds | Annual Report
Schwab Target 2015
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
13
Schwab Target Funds | Annual Report
Schwab Target 2020 Fund as of October 31, 2020
The Schwab Target 2020 Fund
(the 2020 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2020 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2020 Fund’s asset allocation
was approximately 40.0% equity securities, 56.0% fixed-income securities, and 4.0% cash and cash equivalents (including money market funds). At its target date, the 2020 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2020 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2020 Fund returned 6.33%. The 2020 Fund’s internally calculated comparative index, the Target 2020 Composite Index (the composite index), returned 5.10%.
Positioning and Strategies.
The 2020 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2020 Fund’s fixed-income allocations provided the
largest contribution to the total return of the 2020 Fund. The Schwab U.S. Aggregate Bond Index Fund was the top contributor to the total return of the 2020 Fund, returning approximately 6.1% for the reporting period and generally tracking its
comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2020 Fund’s U.S. equity allocations also contributed
to the total return of the 2020 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund, which returned approximately 9.7% for the reporting period, generally tracked its
comparative index, the S&P 500® Index. The ClearBridge Large Cap Growth Fund (Class IS) also contributed positively to the total return and
relative performance of the 2020 Fund.
The 2020
Fund’s international equity allocations provided the smallest contribution to the total return of the 2020 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2020 Fund, returning approximately 8.6% for the
reporting period and outperforming its comparative index, the MSCI EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the
total return of the 2020 Fund, returning approximately -6.0% for the reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned approximately -6.9%.
The 2020 Fund’s real estate allocation was the only
allocation that detracted from the 2020 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2020 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
14
Schwab Target Funds | Annual Report
Schwab Target 2020
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2020 Fund (7/1/05) | 6.33% | 6.08% | 7.02% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2020 Composite Index | 5.10% | 6.31% | 7.12% |
| Fund Category: Morningstar Target-Date 20202 | 4.65% | 5.89% | 6.40% |
| Fund Expense Ratios3: Net 0.38%; Gross 0.41% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.38% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
15
Schwab Target Funds | Annual Report
Schwab Target 2020
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
16
Schwab Target Funds | Annual Report
Schwab Target 2025 Fund as of October 31, 2020
The Schwab Target 2025 Fund
(the 2025 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2025 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2025 Fund’s asset allocation
was approximately 54.4% equity securities, 42.5% fixed-income securities, and 3.1% cash and cash equivalents (including money market funds). At its target date, the 2025 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2025 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2025 Fund returned 5.98%. The 2025 Fund’s internally calculated comparative index, the Target 2025 Composite Index (the composite index), returned 4.46%.
Positioning and Strategies.
The 2025 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2025 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2025 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2025 Fund
and returned approximately 9.7% for the reporting period, generally tracking its comparative index, the S&P 500® Index. The ClearBridge Large
Cap Growth Fund (Class IS) also contributed positively to the total return and relative performance of the 2025 Fund.
The 2025 Fund’s fixed-income allocations also
contributed to the total return of the 2025 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2025 Fund, returning approximately 6.1% for the reporting period and generally tracking its comparative index, the
Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2025 Fund’s international equity allocations
provided the smallest contribution to the total return of the 2025 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2025 Fund, returning approximately 8.6% for the reporting period and outperforming its
comparative index, the MSCI EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2025 Fund, returning
approximately -6.0% for the reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE®
Index (Net), which returned approximately -6.9%.
The
2025 Fund’s real estate allocation was the only allocation that detracted from the 2025 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2025 Fund and returned approximately
-22.0% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
.
Management views and portfolio holdings may have changed
since the report date.
17
Schwab Target Funds | Annual Report
Schwab Target 2025
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2025 Fund (3/12/08) | 5.98% | 6.53% | 7.68% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2025 Composite Index | 4.46% | 6.82% | 7.79% |
| Fund Category: Morningstar Target-Date 20252 | 5.01% | 6.48% | 7.03% |
| Fund Expense Ratios3: Net 0.48%; Gross 0.51% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.48% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
18
Schwab Target Funds | Annual Report
Schwab Target 2025
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
19
Schwab Target Funds | Annual Report
Schwab Target 2030 Fund as of October 31, 2020
The Schwab Target 2030 Fund
(the 2030 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2030 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2030 Fund’s asset allocation
was approximately 65.0% equity securities, 32.6% fixed-income securities, and 2.4% cash and cash equivalents (including money market funds). At its target date, the 2030 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2030 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2030 Fund returned 5.81%. The 2030 Fund’s internally calculated comparative index, the Target 2030 Composite Index (the composite index), returned 3.98%.
Positioning and Strategies.
The 2030 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2030 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2030 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2030 Fund
and returned approximately 9.7% for the reporting period, generally tracking its comparative index, the S&P 500® Index. The ClearBridge Large
Cap Growth Fund (Class IS) also contributed positively to the total return and relative performance of the 2030 Fund.
The 2030 Fund’s fixed-income allocations also
contributed to the total return of the 2030 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2030 Fund, returning approximately 6.1% for the reporting period and generally tracking its comparative index, the
Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2030 Fund’s international equity allocations
provided the smallest contribution to the total return of the 2030 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2030 Fund, returning approximately 8.6% for the reporting period and outperforming its
comparative index, the MSCI EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2030 Fund, returning
approximately -6.0% for the reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE®
Index (Net), which returned approximately -6.9%.
The
2030 Fund’s real estate allocation was the only allocation that detracted from the 2030 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2030 Fund and returned approximately
-22.0% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
20
Schwab Target Funds | Annual Report
Schwab Target 2030
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2030 Fund (7/1/05) | 5.81% | 6.84% | 8.12% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2030 Composite Index | 3.98% | 7.17% | 8.27% |
| Fund Category: Morningstar Target-Date 20302 | 5.10% | 6.95% | 7.43% |
| Fund Expense Ratios3: Net 0.55%; Gross 0.57% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.55% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
21
Schwab Target Funds | Annual Report
Schwab Target 2030
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
22
Schwab Target Funds | Annual Report
Schwab Target 2035 Fund as of October 31, 2020
The Schwab Target 2035 Fund
(the 2035 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2035 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2035 Fund’s asset allocation
was approximately 73.2% equity securities, 25.0% fixed-income securities, and 1.9% cash and cash equivalents (including money market funds).1 At its
target date, the 2035 Fund’s allocation will be approximately 40.0% equity securities, 54.0% fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting
period, please see the 2035 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2035 Fund returned 5.51%. The 2035 Fund’s internally calculated comparative index, the Target 2035 Composite Index (the composite index), returned 3.63%.
Positioning and Strategies.
The 2035 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2035 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2035 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2035 Fund
and returned approximately 9.7% for the reporting period, generally tracking its comparative index, the S&P 500® Index. The Laudus U.S. Large
Cap Growth Fund also contributed positively to the total return and relative performance of the 2035 Fund, returning approximately 31.3% for the reporting period.
The 2035 Fund’s fixed-income allocations also
contributed to the total return of the 2035 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2035 Fund, returning approximately 6.1% for the reporting period and generally tracking its comparative index, the
Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2035 Fund’s international equity allocations
contributed to the total return of the 2035 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2035 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2035 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2035 Fund’s real estate
allocation was the only allocation that detracted from the 2035 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2035 Fund and returned approximately -22.0% for the reporting
period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
| 1 | Percentages may not add up to 100% due to rounding. |
23
Schwab Target Funds | Annual Report
Schwab Target 2035
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2035 Fund (3/12/08) | 5.51% | 7.04% | 8.52% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2035 Composite Index | 3.63% | 7.44% | 8.69% |
| Fund Category: Morningstar Target-Date 20352 | 5.12% | 7.40% | 7.96% |
| Fund Expense Ratios3: Net 0.60%; Gross 0.63% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.60% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
24
Schwab Target Funds | Annual Report
Schwab Target 2035
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
25
Schwab Target Funds | Annual Report
Schwab Target 2040 Fund as of October 31, 2020
The Schwab Target 2040 Fund
(the 2040 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2040 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2040 Fund’s asset allocation
was approximately 80.0% equity securities, 18.5% fixed-income securities, and 1.5% cash and cash equivalents including money market funds). At its target date, the 2040 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2040 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2040 Fund returned 5.31%. The 2040 Fund’s internally calculated comparative index, the Target 2040 Composite Index (the composite index), returned 3.33%.
Positioning and Strategies.
The 2040 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2040 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2040 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2040 Fund
and returned approximately 9.7% for the reporting period, generally tracking its comparative index, the S&P 500® Index. The Laudus U.S. Large
Cap Growth Fund also contributed positively to the total return and relative performance of the 2040 Fund, returning approximately 31.3% for the reporting period.
The 2040 Fund’s international equity allocations
contributed to the total return of the 2040 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2040 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2040 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2040 Fund’s fixed-income
allocations also contributed to the total return of the 2040 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2040 Fund, returning approximately 6.1% for the reporting period and generally tracking its
comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2040 Fund’s real estate allocation was the only
allocation that detracted from the 2040 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2040 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
26
Schwab Target Funds | Annual Report
Schwab Target 2040
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2010 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2040 Fund (7/1/05) | 5.31% | 7.21% | 8.82% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.75% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.55% |
| Target 2040 Composite Index | 3.33% | 7.69% | 9.01% |
| Fund Category: Morningstar Target-Date 20402 | 4.74% | 7.52% | 8.08% |
| Fund Expense Ratios3: Net 0.65%; Gross 0.67% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.65% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
27
Schwab Target Funds | Annual Report
Schwab Target 2040
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
28
Schwab Target Funds | Annual Report
Schwab Target 2045 Fund as of October 31, 2020
The Schwab Target 2045 Fund
(the 2045 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2045 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2045 Fund’s asset allocation
was approximately 86.4% equity securities, 12.5% fixed-income securities, and 1.0% cash and cash equivalents (including money market funds).1 At its
target date, the 2045 Fund’s allocation will be approximately 40.0% equity securities, 54.0% fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting
period, please see the 2045 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2045 Fund returned 5.10%. The 2045 Fund’s internally calculated comparative index, the Target 2045 Composite Index (the composite index), returned 3.00%.
Positioning and Strategies.
The 2045 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2045 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2045 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Laudus U.S. Large Cap Growth Fund was the top contributor to the total return of the 2045
Fund, returning approximately 31.3% for the reporting period and contributing to relative performance. The Schwab S&P 500 Index Fund also contributed to the total return of the 2045 Fund and returned approximately 9.7% for the reporting period,
generally tracking its comparative index, the S&P 500® Index.
The 2045 Fund’s international equity allocations
contributed to the total return of the 2045 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2045 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2045 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2045 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2045 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2045 Fund, returning approximately 6.1% for the reporting period and generally
tracking its comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2045 Fund’s real estate allocation was the only
allocation that detracted from the 2045 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2045 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
| 1 | Percentages may not add up to 100% due to rounding. |
29
Schwab Target Funds | Annual Report
Schwab Target 2045
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2045 Fund (1/23/13) | 5.10% | 7.31% | 8.41% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.52% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.28% |
| Target 2045 Composite Index | 3.00% | 7.81% | 8.79% |
| Fund Category: Morningstar Target-Date 20452 | 4.73% | 7.72% | N/A |
| Fund Expense Ratios3: Net 0.69%; Gross 0.77% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.69% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
30
Schwab Target Funds | Annual Report
Schwab Target 2045
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
31
Schwab Target Funds | Annual Report
Schwab Target 2050 Fund as of October 31, 2020
The Schwab Target 2050 Fund
(the 2050 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2050 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2050 Fund’s asset allocation
was approximately 90.0% equity securities, 9.2% fixed-income securities, and 0.8% cash and cash equivalents (including money market funds). At its target date, the 2050 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2050 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2050 Fund returned 4.96%. The 2050 Fund’s internally calculated comparative index, the Target 2050 Composite Index (the composite index), returned 2.80%.
Positioning and Strategies.
The 2050 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2050 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2050 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Laudus U.S. Large Cap Growth Fund was the top contributor to the total return of the 2050
Fund, returning approximately 31.3% for the reporting period and contributing to relative performance. The Schwab S&P 500 Index Fund also contributed to the total return of the 2050 Fund and returned approximately 9.7% for the reporting period,
generally tracking its comparative index, the S&P 500® Index.
The 2050 Fund’s international equity allocations
contributed to the total return of the 2050 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2050 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2050 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2050 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2050 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2050 Fund, returning approximately 6.1% for the reporting period and generally
tracking its comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2050 Fund’s real estate allocation was the only
allocation that detracted from the 2050 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2050 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
32
Schwab Target Funds | Annual Report
Schwab Target 2050
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2050 Fund (1/23/13) | 4.96% | 7.35% | 8.54% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.52% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.28% |
| Target 2050 Composite Index | 2.80% | 7.88% | 8.92% |
| Fund Category: Morningstar Target-Date 20502 | 4.49% | 7.69% | N/A |
| Fund Expense Ratios3: Net 0.71%; Gross 0.79% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.71% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
33
Schwab Target Funds | Annual Report
Schwab Target 2050
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
34
Schwab Target Funds | Annual Report
Schwab Target 2055 Fund as of October 31, 2020
The Schwab Target 2055 Fund
(the 2055 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2055 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2055 Fund’s asset allocation
was approximately 92.5% equity securities, 6.8% fixed-income securities, and 0.7% cash and cash equivalents (including money market funds). At its target date, the 2055 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2055 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2055 Fund returned 4.86%. The 2055 Fund’s internally calculated comparative index, the Target 2055 Composite Index (the composite index), returned 2.67%.
Positioning and Strategies.
The 2055 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2055 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2055 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Laudus U.S. Large Cap Growth Fund was the top contributor to the total return of the 2055
Fund, returning approximately 31.3% for the reporting period and contributing to relative performance. The Schwab S&P 500 Index Fund also contributed to the total return of the 2055 Fund and returned approximately 9.7% for the reporting period,
generally tracking its comparative index, the S&P 500® Index.
The 2055 Fund’s international equity allocations
contributed to the total return of the 2055 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2055 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2055 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2055 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2055 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2055 Fund, returning approximately 6.1% for the reporting period and generally
tracking its comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2055 Fund’s real estate allocation was the only
allocation that detracted from the 2055 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2055 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
35
Schwab Target Funds | Annual Report
Schwab Target 2055
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2055 Fund (1/23/13) | 4.86% | 7.40% | 8.60% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 11.41% | 12.52% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 4.08% | 3.28% |
| Target 2055 Composite Index | 2.67% | 7.95% | 9.01% |
| Fund Category: Morningstar Target-Date 20552 | 4.61% | 7.81% | N/A |
| Fund Expense Ratios3: Net 0.73%; Gross 0.86% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.73% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
36
Schwab Target Funds | Annual Report
Schwab Target 2055
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
37
Schwab Target Funds | Annual Report
Schwab Target 2060 Fund as of October 31, 2020
The Schwab Target 2060 Fund
(the 2060 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation, and seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and Laudus Funds.
The 2060 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; as of the last annual adjustment at the end of January 2020, the 2060 Fund’s asset allocation
was approximately 95.0% equity securities, 4.5% fixed-income securities, and 0.5% cash and cash equivalents (including money market funds). At its target date, the 2060 Fund’s allocation will be approximately 40.0% equity securities, 54.0%
fixed-income securities, and 6.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2060 Fund’s Portfolio Holdings included in this report.)
Market Highlights. The
12-month reporting period ended October 31, 2020, was a historically volatile one for global equity markets. Up until the final week of February 2020, U.S. and international equity markets had risen steadily, with several major market indices
hitting new highs in mid-February. However, beginning in late February, the COVID-19 outbreak wreaked havoc on the global economy, prompting dramatic social distancing restrictions, shuttering businesses, and resulting in a new record for the
fastest U.S. market decline with the S&P 500® Index, a bellwether for the overall U.S. stock market, dropping 30% in just 22 trading days in
late February and early March. By the end of March, governments and central banks around the world had begun passing extensive emergency rescue and fiscal stimulus measures in an effort to support their economies. The extraordinary response prompted
a rally in global equity markets from their March lows, particularly in the U.S. By early September, key U.S. market indices hit new record highs before falling back slightly by the end of the reporting period as COVID-19 infection rates spiked,
raising fears of a resurgence as well as the possibility of increased social distancing restrictions and shuttering of businesses. Over the reporting period, the U.S. dollar weakened against a basket of international currencies, generally increasing
the returns on overseas investments in U.S. dollar terms. Bond prices generally rose over the reporting period as yields fell.
Performance. For the 12-month
reporting period ended October 31, 2020, the 2060 Fund returned 4.73%. The 2060 Fund’s internally calculated comparative index, the Target 2060 Composite Index (the composite index), returned 2.51%.
Positioning and Strategies.
The 2060 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2060 Fund’s U.S. equity allocations provided the
largest contribution to the total return of the 2060 Fund, particularly among U.S. large-cap equity exposures, but detracted from relative performance. The Laudus U.S. Large Cap Growth Fund was the top contributor to the total return of the 2060
Fund, returning approximately 31.3% for the reporting period and contributing to relative performance. The Schwab S&P 500 Index Fund also contributed to the total return of the 2060 Fund and returned approximately 9.7% for the reporting period,
generally tracking its comparative index, the S&P 500® Index.
The 2060 Fund’s international equity allocations
contributed to the total return of the 2060 Fund. The Laudus International MarketMasters Fund contributed to the total return of the 2060 Fund, returning approximately 8.6% for the reporting period and outperforming its comparative index, the MSCI
EAFE® Index (Net). The Schwab International Core Equity Fund detracted from the total return of the 2060 Fund, returning approximately -6.0% for the
reporting period, but contributing to relative performance, as it outperformed its comparative index, the MSCI EAFE® Index (Net), which returned
approximately -6.9%.
The 2060 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2060 Fund. The Schwab U.S. Aggregate Bond Index Fund contributed to the total return of the 2060 Fund, returning approximately 6.1% for the reporting period and generally
tracking its comparative index, the Bloomberg Barclays US Aggregate Bond Index, which returned approximately 6.2%.
The 2060 Fund’s real estate allocation was the only
allocation that detracted from the 2060 Fund’s total return. The Schwab Global Real Estate Fund was the largest detractor from the total return of the 2060 Fund and returned approximately -22.0% for the reporting period, slightly outperforming
its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately -22.2%.
Management views and portfolio holdings may have changed
since the report date.
38
Schwab Target Funds | Annual Report
Schwab Target 2060
Fund
Performance and Fund Facts as
of October 31, 2020
The
performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment 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/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (August 25, 2016 – October 31, 2020)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 3 Years | Since Inception |
| Fund: Schwab Target 2060 Fund (8/25/16) | 4.73% | 4.52% | 8.15% |
| Dow Jones U.S. Total Stock Market IndexSM | 9.99% | 9.95% | 12.12% |
| Bloomberg Barclays US Aggregate Bond Index | 6.19% | 5.06% | 3.64% |
| Target 2060 Composite Index | 2.51% | 5.29% | 8.32% |
| Fund Category: Morningstar Target-Date 2060+2 | 4.49% | 5.44% | N/A |
| Fund Expense Ratios3: Net 0.74%; Gross 1.41% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
| 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. Includes 0.74% of acquired fund fees and expenses (AFFE), which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
39
Schwab Target Funds | Annual Report
Schwab Target 2060
Fund
Performance and Fund Facts as
of October 31, 2020 (continued)
Top Holdings % of Net Assets3,4
Portfolio holdings may have changed since the report
date.
| 1 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 2 | The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed-income securities, exchange-traded funds, and cash equivalents, including money market securities. |
| 3 | This list is not a recommendation of any security by the investment adviser. |
| 4 | The holdings listed exclude any temporary liquidity investments. |
40
Schwab Target Funds | Annual Report
Schwab Target Funds
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
| Expense
Ratio (Annualized)1,2 |
Effective
Expense Ratio (Annualized)3,4 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/202 |
Expenses
Paid During Period 5/1/20-10/31/202,5 |
Effective
Expenses Paid During Period 5/1/20-10/31/204,5 | |
| Schwab Target 2010 Fund | ||||||
| Actual Return | 0.00% | 0.32% | $1,000.00 | $1,064.20 | $0.00 | $1.66 |
| Hypothetical 5% Return | 0.00% | 0.32% | $1,000.00 | $1,025.10 | $0.00 | $1.63 |
| Schwab Target 2015 Fund | ||||||
| Actual Return | 0.00% | 0.34% | $1,000.00 | $1,067.50 | $0.00 | $1.77 |
| Hypothetical 5% Return | 0.00% | 0.34% | $1,000.00 | $1,025.10 | $0.00 | $1.73 |
| Schwab Target 2020 Fund | ||||||
| Actual Return | 0.00% | 0.35% | $1,000.00 | $1,069.90 | $0.00 | $1.82 |
| Hypothetical 5% Return | 0.00% | 0.35% | $1,000.00 | $1,025.10 | $0.00 | $1.78 |
| Schwab Target 2025 Fund | ||||||
| Actual Return | 0.00% | 0.46% | $1,000.00 | $1,089.80 | $0.00 | $2.42 |
| Hypothetical 5% Return | 0.00% | 0.46% | $1,000.00 | $1,025.10 | $0.00 | $2.34 |
| Schwab Target 2030 Fund | ||||||
| Actual Return | 0.00% | 0.54% | $1,000.00 | $1,105.90 | $0.00 | $2.86 |
| Hypothetical 5% Return | 0.00% | 0.54% | $1,000.00 | $1,025.10 | $0.00 | $2.75 |
| Schwab Target 2035 Fund | ||||||
| Actual Return | 0.00% | 0.59% | $1,000.00 | $1,115.60 | $0.00 | $3.14 |
| Hypothetical 5% Return | 0.00% | 0.59% | $1,000.00 | $1,025.10 | $0.00 | $3.00 |
| Schwab Target 2040 Fund | ||||||
| Actual Return | 0.00% | 0.64% | $1,000.00 | $1,126.20 | $0.00 | $3.42 |
| Hypothetical 5% Return | 0.00% | 0.64% | $1,000.00 | $1,025.10 | $0.00 | $3.25 |
| Schwab Target 2045 Fund | ||||||
| Actual Return | 0.00% | 0.68% | $1,000.00 | $1,135.50 | $0.00 | $3.65 |
| Hypothetical 5% Return | 0.00% | 0.68% | $1,000.00 | $1,025.10 | $0.00 | $3.46 |
| Schwab Target 2050 Fund | ||||||
| Actual Return | 0.00% | 0.71% | $1,000.00 | $1,139.70 | $0.00 | $3.82 |
| Hypothetical 5% Return | 0.00% | 0.71% | $1,000.00 | $1,025.10 | $0.00 | $3.61 |
| Schwab Target 2055 Fund | ||||||
| Actual Return | 0.00% | 0.72% | $1,000.00 | $1,143.40 | $0.00 | $3.88 |
| Hypothetical 5% Return | 0.00% | 0.72% | $1,000.00 | $1,025.10 | $0.00 | $3.66 |
41
Schwab Target Funds | Annual Report
Schwab Target Funds
Fund Expenses (Unaudited) (continued)
| Expense
Ratio (Annualized)1,2 |
Effective
Expense Ratio (Annualized)3,4 |
Beginning
Account Value at 5/1/20 |
Ending
Account Value (Net of Expenses) at 10/31/202 |
Expenses
Paid During Period 5/1/20-10/31/202,5 |
Effective
Expenses Paid During Period 5/1/20-10/31/204,5 | |
| Schwab Target 2060 Fund | ||||||
| Actual Return | 0.00% | 0.74% | $1,000.00 | $1,147.60 | $0.00 | $3.99 |
| Hypothetical 5% Return | 0.00% | 0.74% | $1,000.00 | $1,025.10 | $0.00 | $3.76 |
| 1 | Based on the most recent six-month expense ratio. |
| 2 | Excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 3 | Based on the most recent six-month acquired fund fees and expense ratio; may differ from the acquired fund fees and expenses ratios in the prospectus. |
| 4 | Includes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 5 | 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. |
42
Schwab Target Funds | Annual Report
Schwab Target 2010 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $13.57 | $13.06 | $13.42 | $12.52 | $12.42 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.27 | 0.30 | 0.29 | 0.22 | 0.20 | |
| Net realized and unrealized gains (losses) | 0.57 | 0.97 | (0.35) | 0.90 | 0.12 | |
| Total from investment operations | 0.84 | 1.27 | (0.06) | 1.12 | 0.32 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.34) | (0.34) | (0.30) | (0.22) | (0.22) | |
| Distributions from net realized gains | (0.31) | (0.42) | — | — | — | |
| Total distributions | (0.65) | (0.76) | (0.30) | (0.22) | (0.22) | |
| Net asset value at end of period | $13.76 | $13.57 | $13.06 | $13.42 | $12.52 | |
| Total return | 6.38% | 10.42% | (0.52%) | 9.11% | 2.68% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% 3 | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.14% | 0.17% | 0.12% | 0.14% | 0.14% | |
| Net investment income (loss) | 2.03% | 2.33% | 2.15% | 1.75% | 1.60% | |
| Portfolio turnover rate | 27% | 13% | 16% | 51% 4 | 14% | |
| Net assets, end of period (x 1,000,000) | $56 | $51 | $52 | $59 | $59 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
4
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 30% without including these transactions. There were no transaction costs
associated with these transactions.
43
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
44
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $2,895,314 | $1,013,326 | ($789,000) | $17,875 | $316,349 | $3,453,864 | 141,726 | $61,325 |
| Schwab Core Equity Fund | 2,718,520 | 499,910 | (780,000) | 10,262 | 91,725 | 2,540,417 | 114,227 | 80,909 |
| Schwab Dividend Equity Fund | 87,695 | 6,238 | — | — | (17,906) | 76,027 | 6,263 | 6,239 |
| Schwab Global Real Estate Fund | 961,884 | 259,618 | (123,000) | (25,225) | (225,304) | 847,973 | 137,882 | 53,618 |
| Schwab International Core Equity Fund | 1,983,635 | 325,461 | (350,000) | (39,041) | (138,926) | 1,781,129 | 195,514 | 71,462 |
| Schwab S&P 500 Index Fund | 5,446,654 | 2,190,122 | (2,410,000) | 133,915 | 371,064 | 5,731,755 | 112,941 | 113,122 |
| Schwab Short-Term Bond Index Fund | 5,052,710 | 1,480,231 | (1,119,685) | 10,737 | 114,335 | 5,538,328 | 534,588 | 93,550 |
| Schwab Small-Cap Equity Fund | 743,230 | 100,833 | (154,000) | (87,179) | 5,345 | 608,229 | 40,495 | 833 |
| Schwab Treasury Inflation Protected Securities Index Fund | 3,255,343 | 837,591 | (866,000) | (2,499) | 248,525 | 3,472,960 | 285,605 | 47,590 |
| Schwab U.S. Aggregate Bond Index Fund | 11,796,171 | 5,864,163 | (3,708,624) | 14,269 | 435,887 | 14,401,866 | 1,340,956 | 336,520 |
| Schwab U.S. Mid-Cap Index Fund | 375,464 | 170,491 | (163,000) | 5,263 | 17,892 | 406,110 | 9,029 | 9,491 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 3,307,470 | 423,456 | (1,690,000) | 531 | (773) | 2,040,684 | 2,039,868 | 20,580 |
| Total | $38,624,090 | $13,171,440 | ($12,153,309) | $38,908 | $1,218,213 | $40,899,342 | $895,239 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $40,899,342 | $— | $— | $40,899,342 | |
| Unaffiliated Underlying Funds1 | 14,079,062 | — | — | 14,079,062 | |
| Short-Term Investment1 | — | 534,427 | — | 534,427 | |
| Total | $54,978,404 | $534,427 | $— | $55,512,831 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
45
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $34,989,562) | $40,899,342 | |
| Investments in unaffiliated funds and issuers, at value (cost $13,431,934) | 14,613,489 | |
| Receivables: | ||
| Fund shares sold | 65,603 | |
| Dividends | 41,543 | |
| Due from investment adviser | 5,531 | |
| Prepaid expenses | + | 10,536 |
| Total assets | 55,636,044 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 96,385 | |
| Accrued expenses | + | 32,887 |
| Total liabilities | 129,272 | |
| Net Assets | ||
| Total assets | 55,636,044 | |
| Total liabilities | – | 129,272 |
| Net assets | $55,506,772 | |
| Net Assets by Source | ||
| Capital received from investors | 47,718,298 | |
| Total distributable earnings | 7,788,474 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $55,506,772 | 4,035,122 | $13.76 | ||
46
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $809,484 | |
| Dividends received from unaffiliated underlying funds | 277,149 | |
| Interest | + | 1,655 |
| Total investment income | 1,088,288 | |
| Expenses | ||
| Professional fees | 21,717 | |
| Registration fees | 21,196 | |
| Portfolio accounting fees | 11,485 | |
| Independent trustees’ fees | 7,994 | |
| Shareholder reports | 4,460 | |
| Custodian fees | 1,842 | |
| Transfer agent fees | 1,635 | |
| Other expenses | + | 3,831 |
| Total expenses | 74,160 | |
| Expense reduction by CSIM and its affiliates | – | 74,160 |
| Net expenses | – | — |
| Net investment income | 1,088,288 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 85,755 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 233,637 | |
| Net realized gains on sales of affiliated underlying funds | 38,908 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 33,354 |
| Net realized gains | 391,654 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 1,218,213 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 534,192 |
| Net change in unrealized appreciation (depreciation) | + | 1,752,405 |
| Net realized and unrealized gains | 2,144,059 | |
| Increase in net assets resulting from operations | $3,232,347 | |
47
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $1,088,288 | $1,200,215 | ||
| Net realized gains | 391,654 | 1,269,295 | ||
| Net change in unrealized appreciation (depreciation) | + | 1,752,405 | 2,675,510 | |
| Increase in net assets from operations | 3,232,347 | 5,145,020 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($2,519,058) | ($2,901,734) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 1,235,019 | $16,620,379 | 451,805 | $5,747,022 | ||||
| Shares reinvested | 172,129 | 2,273,818 | 218,767 | 2,638,341 | ||||
| Shares redeemed | + | (1,139,051) | (15,206,801) | (886,220) | (11,518,751) | |||
| Net transactions in fund shares | 268,097 | $3,687,396 | (215,648) | ($3,133,388) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 3,767,025 | $51,106,087 | 3,982,673 | $51,996,189 | ||||
| Total increase or decrease | + | 268,097 | 4,400,685 | (215,648) | (890,102) | |||
| End of period | 4,035,122 | $55,506,772 | 3,767,025 | $51,106,087 | ||||
48
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.07 | $11.49 | $12.21 | $11.72 | $12.23 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.25 | 0.27 | 0.25 | 0.20 | 0.18 | |
| Net realized and unrealized gains (losses) | 0.50 | 0.86 | (0.30) | 0.88 | 0.11 | |
| Total from investment operations | 0.75 | 1.13 | (0.05) | 1.08 | 0.29 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.31) | (0.30) | (0.27) | (0.22) | (0.21) | |
| Distributions from net realized gains | (0.33) | (0.25) | (0.40) | (0.37) | (0.59) | |
| Total distributions | (0.64) | (0.55) | (0.67) | (0.59) | (0.80) | |
| Net asset value at end of period | $12.18 | $12.07 | $11.49 | $12.21 | $11.72 | |
| Total return | 6.41% | 10.48% | (0.57%) | 9.67% | 2.59% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% 3 | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.10% | 0.11% | 0.07% | 0.09% | 0.08% | |
| Net investment income (loss) | 2.07% | 2.35% | 2.12% | 1.74% | 1.59% | |
| Portfolio turnover rate | 15% | 10% | 14% | 52% 4 | 14% | |
| Net assets, end of period (x 1,000,000) | $77 | $81 | $90 | $103 | $104 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
4
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 33% without including these transactions. There were no transaction costs
associated with these transactions.
49
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
50
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $5,121,917 | $842,059 | ($1,107,000) | ($3,622) | $539,156 | $5,392,510 | 221,277 | $102,059 |
| Schwab Core Equity Fund | 4,602,775 | 456,756 | (1,482,000) | 392,136 | (231,947) | 3,737,720 | 168,063 | 126,756 |
| Schwab Dividend Equity Fund | 237,989 | 7,303 | (140,000) | 15,616 | (31,908) | 89,000 | 7,331 | 7,303 |
| Schwab Global Real Estate Fund | 1,634,776 | 289,596 | (195,000) | (6,396) | (404,883) | 1,318,093 | 214,324 | 89,594 |
| Schwab International Core Equity Fund | 3,436,913 | 370,383 | (762,000) | (77,187) | (212,958) | 2,755,151 | 302,431 | 120,383 |
| Schwab S&P 500 Index Fund | 9,206,847 | 1,759,539 | (3,390,000) | 844,882 | (3,142) | 8,418,126 | 165,874 | 179,539 |
| Schwab Short-Term Bond Index Fund | 7,539,057 | 841,255 | (1,288,726) | 18,250 | 155,698 | 7,265,534 | 701,306 | 128,539 |
| Schwab Small-Cap Equity Fund | 1,389,668 | 1,394 | (257,000) | (2,412) | (127,930) | 1,003,720 | 66,826 | 1,394 |
| Schwab Treasury Inflation Protected Securities Index Fund | 4,928,698 | 136,417 | (660,000) | 21,771 | 318,503 | 4,745,389 | 390,246 | 66,304 |
| Schwab U.S. Aggregate Bond Index Fund | 17,696,214 | 3,461,645 | (2,723,009) | 10,564 | 594,486 | 19,039,900 | 1,772,803 | 460,592 |
| Schwab U.S. Mid-Cap Index Fund | 583,167 | 74,742 | (80,000) | 5,567 | 25,146 | 608,622 | 13,531 | 14,742 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 4,837,629 | 32,756 | (2,580,000) | 911 | (1,367) | 2,289,929 | 2,289,013 | 28,538 |
| Total | $61,215,650 | $8,273,845 | ($14,664,735) | $1,220,080 | $618,854 | $56,663,694 | $1,325,743 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $56,663,694 | $— | $— | $56,663,694 | |
| Unaffiliated Underlying Funds1 | 19,621,706 | — | — | 19,621,706 | |
| Short-Term Investments1 | — | 953,182 | — | 953,182 | |
| Total | $76,285,400 | $953,182 | $— | $77,238,582 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
51
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $46,255,658) | $56,663,694 | |
| Investments in unaffiliated funds and issuers, at value (cost $18,877,335) | 20,574,888 | |
| Receivables: | ||
| Investments sold | 36,001 | |
| Dividends | 54,951 | |
| Fund shares sold | 22,957 | |
| Due from investment adviser | 5,442 | |
| Prepaid expenses | + | 4,869 |
| Total assets | 77,362,802 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 54,734 | |
| Fund shares redeemed | 19 | |
| Accrued expenses | + | 33,756 |
| Total liabilities | 88,509 | |
| Net Assets | ||
| Total assets | 77,362,802 | |
| Total liabilities | – | 88,509 |
| Net assets | $77,274,293 | |
| Net Assets by Source | ||
| Capital received from investors | 62,962,335 | |
| Total distributable earnings | 14,311,958 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $77,274,293 | 6,344,789 | $12.18 | ||
52
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $1,191,828 | |
| Dividends received from unaffiliated underlying funds | 410,942 | |
| Interest | + | 2,317 |
| Total investment income | 1,605,087 | |
| Expenses | ||
| Professional fees | 21,831 | |
| Registration fees | 20,326 | |
| Portfolio accounting fees | 11,751 | |
| Independent trustees’ fees | 8,102 | |
| Shareholder reports | 4,641 | |
| Transfer agent fees | 2,306 | |
| Custodian fees | 2,088 | |
| Other expenses | + | 4,081 |
| Total expenses | 75,126 | |
| Expense reduction by CSIM and its affiliates | – | 75,126 |
| Net expenses | – | — |
| Net investment income | 1,605,087 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 133,915 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 367,401 | |
| Net realized gains on sales of affiliated underlying funds | 1,220,080 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 189,211 |
| Net realized gains | 1,910,607 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 618,854 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 633,077 |
| Net change in unrealized appreciation (depreciation) | + | 1,251,931 |
| Net realized and unrealized gains | 3,162,538 | |
| Increase in net assets resulting from operations | $4,767,625 | |
53
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $1,605,087 | $1,963,769 | ||
| Net realized gains | 1,910,607 | 2,268,491 | ||
| Net change in unrealized appreciation (depreciation) | + | 1,251,931 | 3,984,094 | |
| Increase in net assets from operations | 4,767,625 | 8,216,354 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($4,189,125) | ($4,192,333) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 767,274 | $9,075,200 | 663,357 | $7,656,603 | ||||
| Shares reinvested | 335,649 | 3,930,448 | 364,172 | 3,892,994 | ||||
| Shares redeemed | + | (1,481,051) | (17,448,525) | (2,164,691) | (24,726,747) | |||
| Net transactions in fund shares | (378,128) | ($4,442,877) | (1,137,162) | ($13,177,150) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 6,722,917 | $81,138,670 | 7,860,079 | $90,291,799 | ||||
| Total decrease | + | (378,128) | (3,864,377) | (1,137,162) | (9,153,129) | |||
| End of period | 6,344,789 | $77,274,293 | 6,722,917 | $81,138,670 | ||||
54
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.46 | $13.87 | $14.71 | $13.84 | $14.33 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.30 | 0.32 | 0.30 | 0.23 | 0.22 | |
| Net realized and unrealized gains (losses) | 0.58 | 1.04 | (0.33) | 1.39 | 0.06 | |
| Total from investment operations | 0.88 | 1.36 | (0.03) | 1.62 | 0.28 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.36) | (0.35) | (0.33) | (0.24) | (0.27) | |
| Distributions from net realized gains | (0.43) | (0.42) | (0.48) | (0.51) | (0.50) | |
| Total distributions | (0.79) | (0.77) | (0.81) | (0.75) | (0.77) | |
| Net asset value at end of period | $14.55 | $14.46 | $13.87 | $14.71 | $13.84 | |
| Total return | 6.33% | 10.58% | (0.32%) | 12.28% | 2.05% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.02% | 0.03% | 0.02% | 0.03% | 0.03% | |
| Net investment income (loss) | 2.13% | 2.28% | 2.07% | 1.67% | 1.59% | |
| Portfolio turnover rate | 17% | 14% | 18% | 47% 4 | 9% | |
| Net assets, end of period (x 1,000,000) | $525 | $549 | $542 | $579 | $530 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
4
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 31% without including these transactions. There were no transaction costs
associated with these transactions.
55
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
56
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $40,354,107 | $5,185,592 | ($8,610,000) | ($188,838) | $3,558,660 | $40,299,521 | 1,653,653 | $805,593 |
| Laudus U.S. Large Cap Growth Fund | 1,023,113 | 85,851 | (1,126,845) | 645,348 | (627,467) | — | — | 85,851 |
| Schwab Core Equity Fund | 34,762,217 | 2,532,450 | (11,390,000) | 1,730,963 | (815,987) | 26,819,643 | 1,205,919 | 982,449 |
| Schwab Dividend Equity Fund | 1,361,750 | 89,499 | (660,000) | (46,978) | (249,503) | 494,768 | 40,755 | 89,499 |
| Schwab Global Real Estate Fund | 12,461,685 | 2,245,796 | (2,180,000) | (34,413) | (3,023,788) | 9,469,280 | 1,539,721 | 675,796 |
| Schwab International Core Equity Fund | 27,044,335 | 2,314,297 | (6,600,000) | (606,597) | (1,736,303) | 20,415,732 | 2,241,024 | 974,296 |
| Schwab S&P 500 Index Fund | 66,191,930 | 9,890,641 | (21,080,000) | 3,845,372 | 1,201,426 | 60,049,369 | 1,183,239 | 1,350,641 |
| Schwab Short-Term Bond Index Fund | 45,506,292 | 8,038,425 | (6,965,286) | 91,247 | 1,037,927 | 47,708,605 | 4,605,078 | 823,171 |
| Schwab Small-Cap Equity Fund | 10,124,182 | 10,761 | (2,090,000) | (264,372) | (749,677) | 7,030,894 | 468,102 | 10,761 |
| Schwab Treasury Inflation Protected Securities Index Fund | 27,550,743 | 5,268,140 | (4,210,000) | 25,878 | 2,133,690 | 30,768,451 | 2,530,300 | 388,140 |
| Schwab U.S. Aggregate Bond Index Fund | 109,012,348 | 31,832,224 | (19,119,473) | 65,650 | 3,861,778 | 125,652,527 | 11,699,490 | 2,980,439 |
| Schwab U.S. Mid-Cap Index Fund | 5,143,346 | 626,961 | (1,450,000) | 44,515 | 157,270 | 4,522,092 | 100,536 | 106,961 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 29,511,748 | 208,438 | (14,970,000) | 2,880 | (4,640) | 14,748,426 | 14,742,530 | 182,716 |
| Total | $410,047,796 | $68,329,075 | ($100,451,604) | $5,310,655 | $4,743,386 | $387,979,308 | $9,456,313 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $387,979,308 | $— | $— | $387,979,308 | |
| Unaffiliated Underlying Funds1 | 131,214,240 | — | — | 131,214,240 | |
| Short-Term Investment1 | — | 4,397,342 | — | 4,397,342 | |
| Total | $519,193,548 | $4,397,342 | $— | $523,590,890 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
57
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $315,611,183) | $387,979,308 | |
| Investments in unaffiliated funds and issuers, at value (cost $123,790,870) | 135,611,582 | |
| Receivables: | ||
| Investments sold | 1,916,004 | |
| Fund shares sold | 390,052 | |
| Dividends | 362,935 | |
| Due from investment adviser | 7,026 | |
| Prepaid expenses | + | 14,742 |
| Total assets | 526,281,649 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 361,450 | |
| Fund shares redeemed | 421,869 | |
| Accrued expenses | + | 54,737 |
| Total liabilities | 838,056 | |
| Net Assets | ||
| Total assets | 526,281,649 | |
| Total liabilities | – | 838,056 |
| Net assets | $525,443,593 | |
| Net Assets by Source | ||
| Capital received from investors | 427,548,146 | |
| Total distributable earnings | 97,895,447 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $525,443,593 | 36,101,483 | $14.55 | ||
58
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $8,310,227 | |
| Dividends received from unaffiliated underlying funds | 2,955,117 | |
| Interest | + | 11,950 |
| Total investment income | 11,277,294 | |
| Expenses | ||
| Registration fees | 30,467 | |
| Portfolio accounting fees | 25,432 | |
| Professional fees | 23,534 | |
| Shareholder reports | 18,127 | |
| Independent trustees’ fees | 10,109 | |
| Transfer agent fees | 8,850 | |
| Custodian fees | 2,148 | |
| Other expenses | + | 8,862 |
| Total expenses | 127,529 | |
| Expense reduction by CSIM and its affiliates | – | 127,529 |
| Net expenses | – | — |
| Net investment income | 11,277,294 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 1,146,086 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 2,681,479 | |
| Net realized gains on sales of affiliated underlying funds | 5,310,655 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 924,346 |
| Net realized gains | 10,062,566 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 4,743,386 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 4,306,511 |
| Net change in unrealized appreciation (depreciation) | + | 9,049,897 |
| Net realized and unrealized gains | 19,112,463 | |
| Increase in net assets resulting from operations | $30,389,757 | |
59
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $11,277,294 | $12,429,435 | ||
| Net realized gains | 10,062,566 | 17,864,060 | ||
| Net change in unrealized appreciation (depreciation) | + | 9,049,897 | 24,386,674 | |
| Increase in net assets from operations | 30,389,757 | 54,680,169 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($29,966,408) | ($29,733,328) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 5,736,654 | $81,673,353 | 5,237,831 | $72,332,026 | ||||
| Shares reinvested | 1,985,761 | 27,880,086 | 2,194,423 | 27,913,053 | ||||
| Shares redeemed | + | (9,574,984) | (133,223,621) | (8,554,258) | (118,357,642) | |||
| Net transactions in fund shares | (1,852,569) | ($23,670,182) | (1,122,004) | ($18,112,563) | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 37,954,052 | $548,690,426 | 39,076,056 | $541,856,148 | ||||
| Total increase or decrease | + | (1,852,569) | (23,246,833) | (1,122,004) | 6,834,278 | |||
| End of period | 36,101,483 | $525,443,593 | 37,954,052 | $548,690,426 | ||||
60
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.74 | $14.10 | $14.71 | $13.45 | $14.11 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.31 | 0.30 | 0.28 | 0.22 | 0.20 | |
| Net realized and unrealized gains (losses) | 0.55 | 1.10 | (0.34) | 1.73 | 0.06 | |
| Total from investment operations | 0.86 | 1.40 | (0.06) | 1.95 | 0.26 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.35) | (0.34) | (0.34) | (0.23) | (0.26) | |
| Distributions from net realized gains | (0.44) | (0.42) | (0.21) | (0.46) | (0.66) | |
| Total distributions | (0.79) | (0.76) | (0.55) | (0.69) | (0.92) | |
| Net asset value at end of period | $14.81 | $14.74 | $14.10 | $14.71 | $13.45 | |
| Total return | 5.98% | 10.79% | (0.53%) | 15.17% | 2.01% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.02% | 0.03% | 0.02% | 0.03% | 0.04% | |
| Net investment income (loss) | 2.14% | 2.10% | 1.88% | 1.59% | 1.53% | |
| Portfolio turnover rate | 16% | 15% | 13% | 36% 4 | 5% | |
| Net assets, end of period (x 1,000,000) | $572 | $577 | $531 | $521 | $443 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
4
The portfolio turnover rate increased due to the in-kind
transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 26% without including these transactions. There were no transaction costs
associated with these transactions.
61
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
62
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $56,558,130 | $6,000,280 | ($9,280,000) | ($1,134,854) | $5,593,932 | $57,737,488 | 2,369,203 | $1,140,280 |
| Laudus U.S. Large Cap Growth Fund | 6,728,398 | 1,954,592 | (2,770,000) | 881,920 | 675,735 | 7,470,645 | 275,670 | 564,591 |
| Schwab Core Equity Fund | 53,527,691 | 1,548,243 | (9,609,999) | (581) | 1,014,978 | 46,480,332 | 2,089,943 | 1,548,244 |
| Schwab Dividend Equity Fund | 2,066,652 | 132,681 | (700,000) | (124,946) | (444,130) | 930,257 | 76,627 | 132,682 |
| Schwab Global Real Estate Fund | 16,958,713 | 3,056,551 | (1,310,000) | (102,214) | (4,354,997) | 14,248,053 | 2,316,757 | 936,551 |
| Schwab International Core Equity Fund | 37,091,229 | 2,926,245 | (4,383,002) | (938,846) | (2,423,412) | 32,272,214 | 3,542,504 | 1,336,245 |
| Schwab S&P 500 Index Fund | 81,277,045 | 9,400,602 | (19,520,000) | 3,219,189 | 2,728,210 | 77,105,046 | 1,519,311 | 1,640,602 |
| Schwab Short-Term Bond Index Fund | 33,442,382 | 8,024,128 | (6,281,436) | 96,341 | 752,926 | 36,034,341 | 3,478,218 | 612,717 |
| Schwab Small-Cap Equity Fund | 15,913,251 | 757,039 | (2,940,000) | (1,482,407) | 31,564 | 12,279,447 | 817,540 | 17,038 |
| Schwab Treasury Inflation Protected Securities Index Fund | 10,429,385 | 3,438,437 | (2,190,000) | 16,342 | 866,281 | 12,560,445 | 1,032,931 | 158,438 |
| Schwab U.S. Aggregate Bond Index Fund | 82,065,620 | 27,403,428 | (19,068,667) | 70,861 | 2,949,823 | 93,421,065 | 8,698,423 | 2,280,588 |
| Schwab U.S. Mid-Cap Index Fund | 6,334,698 | 160,134 | — | — | 96,028 | 6,590,860 | 146,529 | 160,134 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 21,391,508 | 150,634 | (10,890,000) | 1,795 | (3,050) | 10,650,887 | 10,646,628 | 131,988 |
| Total | $423,784,702 | $64,952,994 | ($88,943,104) | $502,600 | $7,483,888 | $407,781,080 | $10,660,098 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $407,781,080 | $— | $— | $407,781,080 | |
| Unaffiliated Underlying Funds1 | 156,894,374 | — | — | 156,894,374 | |
| Short-Term Investment1 | — | 5,508,601 | — | 5,508,601 | |
| Total | $564,675,454 | $5,508,601 | $— | $570,184,055 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
63
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $340,927,443) | $407,781,080 | |
| Investments in unaffiliated funds and issuers, at value (cost $150,413,324) | 162,402,975 | |
| Receivables: | ||
| Investments sold | 920,003 | |
| Fund shares sold | 706,504 | |
| Dividends | 311,634 | |
| Due from investment adviser | 8,222 | |
| Prepaid expenses | + | 11,852 |
| Total assets | 572,142,270 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 310,414 | |
| Fund shares redeemed | 38,770 | |
| Accrued expenses | + | 55,252 |
| Total liabilities | 404,436 | |
| Net Assets | ||
| Total assets | 572,142,270 | |
| Total liabilities | – | 404,436 |
| Net assets | $571,737,834 | |
| Net Assets by Source | ||
| Capital received from investors | 484,345,381 | |
| Total distributable earnings | 87,392,453 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $571,737,834 | 38,597,550 | $14.81 | ||
64
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $8,507,774 | |
| Dividends received from unaffiliated underlying funds | 3,708,829 | |
| Interest | + | 19,208 |
| Total investment income | 12,235,811 | |
| Expenses | ||
| Registration fees | 35,797 | |
| Portfolio accounting fees | 25,846 | |
| Professional fees | 23,549 | |
| Shareholder reports | 18,937 | |
| Transfer agent fees | 11,000 | |
| Independent trustees’ fees | 10,298 | |
| Custodian fees | 2,202 | |
| Other expenses | + | 9,111 |
| Total expenses | 136,740 | |
| Expense reduction by CSIM and its affiliates | – | 136,740 |
| Net expenses | – | — |
| Net investment income | 12,235,811 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 2,152,324 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 3,355,295 | |
| Net realized gains on sales of affiliated underlying funds | 502,600 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 156,815 |
| Net realized gains | 6,167,034 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 7,483,888 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 4,182,099 |
| Net change in unrealized appreciation (depreciation) | + | 11,665,987 |
| Net realized and unrealized gains | 17,833,021 | |
| Increase in net assets resulting from operations | $30,068,832 | |
65
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $12,235,811 | $11,528,934 | ||
| Net realized gains | 6,167,034 | 18,998,513 | ||
| Net change in unrealized appreciation (depreciation) | + | 11,665,987 | 25,891,364 | |
| Increase in net assets from operations | 30,068,832 | 56,418,811 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($31,204,773) | ($28,587,026) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 6,665,930 | $96,099,310 | 6,370,762 | $89,570,449 | ||||
| Shares reinvested | 2,073,359 | 29,960,039 | 2,152,966 | 27,536,429 | ||||
| Shares redeemed | + | (9,291,366) | (130,280,378) | (7,018,067) | (98,439,951) | |||
| Net transactions in fund shares | (552,077) | ($4,221,029) | 1,505,661 | $18,666,927 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 39,149,627 | $577,094,804 | 37,643,966 | $530,596,092 | ||||
| Total increase or decrease | + | (552,077) | (5,356,970) | 1,505,661 | 46,498,712 | |||
| End of period | 38,597,550 | $571,737,834 | 39,149,627 | $577,094,804 | ||||
66
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.79 | $15.24 | $16.10 | $14.51 | $15.59 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.33 | 0.30 | 0.29 | 0.23 | 0.22 | |
| Net realized and unrealized gains (losses) | 0.57 | 1.21 | (0.38) | 2.18 | 0.01 | |
| Total from investment operations | 0.90 | 1.51 | (0.09) | 2.41 | 0.23 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.37) | (0.37) | (0.39) | (0.24) | (0.30) | |
| Distributions from net realized gains | (0.65) | (0.59) | (0.38) | (0.58) | (1.01) | |
| Total distributions | (1.02) | (0.96) | (0.77) | (0.82) | (1.31) | |
| Net asset value at end of period | $15.67 | $15.79 | $15.24 | $16.10 | $14.51 | |
| Total return | 5.81% | 10.94% | (0.75%) | 17.47% | 1.72% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.02% | 0.02% | 0.02% | 0.02% | 0.03% | |
| Net investment income (loss) | 2.15% | 2.00% | 1.79% | 1.53% | 1.51% | |
| Portfolio turnover rate | 13% | 17% | 14% | 30% | 5% | |
| Net assets, end of period (x 1,000,000) | $965 | $999 | $958 | $966 | $814 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
67
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
68
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $114,060,550 | $7,871,075 | ($17,490,000) | ($1,375,670) | $9,930,123 | $112,996,078 | 4,636,688 | $2,321,075 |
| Laudus U.S. Large Cap Growth Fund | 22,578,525 | 3,214,603 | (7,280,000) | 2,715,477 | 1,843,536 | 23,072,141 | 851,371 | 1,894,602 |
| Schwab Core Equity Fund | 104,714,833 | 3,063,115 | (17,050,000) | 567,086 | 1,340,932 | 92,635,966 | 4,165,286 | 3,063,115 |
| Schwab Dividend Equity Fund | 11,389,803 | 782,137 | (2,240,000) | (113,021) | (2,064,513) | 7,754,406 | 638,748 | 782,139 |
| Schwab Global Real Estate Fund | 34,719,157 | 5,653,990 | (2,620,000) | (125,878) | (8,730,852) | 28,896,417 | 4,698,604 | 1,913,991 |
| Schwab International Core Equity Fund | 75,878,157 | 4,533,579 | (6,830,000) | (1,770,122) | (5,299,404) | 66,512,210 | 7,301,011 | 2,733,579 |
| Schwab S&P 500 Index Fund | 147,472,503 | 15,279,165 | (30,590,000) | 5,016,164 | 5,414,821 | 142,592,653 | 2,809,707 | 3,009,164 |
| Schwab Short-Term Bond Index Fund | 41,847,840 | 8,914,945 | (8,599,785) | 124,416 | 885,147 | 43,172,563 | 4,167,236 | 744,212 |
| Schwab Small-Cap Equity Fund | 34,020,480 | 2,237,327 | (4,390,000) | (910,951) | (2,055,897) | 28,900,959 | 1,924,165 | 37,327 |
| Schwab Treasury Inflation Protected Securities Index Fund | — | 4,359,020 | — | — | 248,954 | 4,607,974 | 378,945 | 19,021 |
| Schwab U.S. Aggregate Bond Index Fund | 104,917,645 | 27,420,433 | (23,614,664) | 53,880 | 3,612,283 | 112,389,577 | 10,464,579 | 2,791,714 |
| Schwab U.S. Mid-Cap Index Fund | 12,651,067 | 319,804 | (1,590,000) | 24,654 | 98,156 | 11,503,681 | 255,751 | 319,804 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 26,491,561 | 187,602 | (14,020,000) | 1,309 | (3,761) | 12,656,711 | 12,651,650 | 164,502 |
| Total | $730,742,121 | $83,836,795 | ($136,314,449) | $4,207,344 | $5,219,525 | $687,691,336 | $19,794,245 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $687,691,336 | $— | $— | $687,691,336 | |
| Unaffiliated Underlying Funds1 | 267,092,561 | — | — | 267,092,561 | |
| Short-Term Investments1 | — | 10,841,951 | — | 10,841,951 | |
| Total | $954,783,897 | $10,841,951 | $— | $965,625,848 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
69
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $529,258,446) | $687,691,336 | |
| Investments in unaffiliated funds and issuers, at value (cost $258,878,336) | 277,934,512 | |
| Receivables: | ||
| Investments sold | 3,000,009 | |
| Fund shares sold | 674,325 | |
| Dividends | 407,932 | |
| Due from investment adviser | 7,849 | |
| Prepaid expenses | + | 21,108 |
| Total assets | 969,737,071 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 3,406,172 | |
| Fund shares redeemed | 969,534 | |
| Accrued expenses | + | 73,188 |
| Total liabilities | 4,448,894 | |
| Net Assets | ||
| Total assets | 969,737,071 | |
| Total liabilities | – | 4,448,894 |
| Net assets | $965,288,177 | |
| Net Assets by Source | ||
| Capital received from investors | 770,273,118 | |
| Total distributable earnings | 195,015,059 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $965,288,177 | 61,612,086 | $15.67 | ||
70
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $14,387,704 | |
| Dividends received from unaffiliated underlying funds | 6,514,934 | |
| Interest | + | 26,357 |
| Total investment income | 20,928,995 | |
| Expenses | ||
| Registration fees | 34,389 | |
| Shareholder reports | 33,474 | |
| Portfolio accounting fees | 29,888 | |
| Professional fees | 25,108 | |
| Transfer agent fees | 12,335 | |
| Independent trustees’ fees | 12,098 | |
| Custodian fees | 2,345 | |
| Other expenses | + | 13,335 |
| Total expenses | 162,972 | |
| Expense reduction by CSIM and its affiliates | – | 162,972 |
| Net expenses | – | — |
| Net investment income | 20,928,995 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 5,406,541 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 6,375,882 | |
| Net realized gains on sales of affiliated underlying funds | 4,207,344 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 580,894 |
| Net realized gains | 16,570,661 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 5,219,525 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 6,178,332 |
| Net change in unrealized appreciation (depreciation) | + | 11,397,857 |
| Net realized and unrealized gains | 27,968,518 | |
| Increase in net assets resulting from operations | $48,897,513 | |
71
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $20,928,995 | $19,375,183 | ||
| Net realized gains | 16,570,661 | 44,516,378 | ||
| Net change in unrealized appreciation (depreciation) | + | 11,397,857 | 36,469,471 | |
| Increase in net assets from operations | 48,897,513 | 100,361,032 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($64,665,015) | ($59,673,092) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 8,331,450 | $126,649,806 | 6,655,676 | $100,210,585 | ||||
| Shares reinvested | 4,044,928 | 62,251,430 | 4,238,554 | 57,474,786 | ||||
| Shares redeemed | + | (14,016,675) | (206,526,474) | (10,487,734) | (157,448,421) | |||
| Net transactions in fund shares | (1,640,297) | ($17,625,238) | 406,496 | $236,950 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 63,252,383 | $998,680,917 | 62,845,887 | $957,756,027 | ||||
| Total increase or decrease | + | (1,640,297) | (33,392,740) | 406,496 | 40,924,890 | |||
| End of period | 61,612,086 | $965,288,177 | 63,252,383 | $998,680,917 | ||||
72
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.46 | $14.94 | $15.58 | $13.82 | $14.70 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.31 | 0.28 | 0.27 | 0.21 | 0.20 | |
| Net realized and unrealized gains (losses) | 0.53 | 1.19 | (0.38) | 2.32 | 0.01 | |
| Total from investment operations | 0.84 | 1.47 | (0.11) | 2.53 | 0.21 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.34) | (0.36) | (0.39) | (0.22) | (0.28) | |
| Distributions from net realized gains | (0.62) | (0.59) | (0.14) | (0.55) | (0.81) | |
| Total distributions | (0.96) | (0.95) | (0.53) | (0.77) | (1.09) | |
| Net asset value at end of period | $15.34 | $15.46 | $14.94 | $15.58 | $13.82 | |
| Total return | 5.51% | 10.90% | (0.88%) | 19.19% | 1.63% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% 3 | 0.00% | 0.00% 3 | |
| Gross operating expenses2 | 0.03% | 0.03% | 0.03% | 0.04% | 0.04% | |
| Net investment income (loss) | 2.06% | 1.87% | 1.70% | 1.48% | 1.46% | |
| Portfolio turnover rate | 12% | 15% | 14% | 24% | 3% | |
| Net assets, end of period (x 1,000,000) | $477 | $483 | $447 | $440 | $361 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
73
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
74
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $60,904,081 | $3,629,368 | ($5,540,000) | ($844,013) | $5,450,574 | $63,600,010 | 2,609,767 | $1,239,368 |
| Laudus U.S. Large Cap Growth Fund | 16,567,813 | 1,390,233 | (4,630,000) | 1,653,524 | 1,702,329 | 16,683,899 | 615,642 | 1,390,233 |
| Schwab Core Equity Fund | 55,646,758 | 1,628,170 | (6,950,000) | (79,018) | 1,030,584 | 51,276,494 | 2,305,598 | 1,628,170 |
| Schwab Dividend Equity Fund | 8,124,685 | 577,985 | — | — | (1,658,965) | 7,043,705 | 580,206 | 577,985 |
| Schwab Global Real Estate Fund | 18,642,442 | 3,025,174 | (730,000) | (90,706) | (4,820,302) | 16,026,608 | 2,605,953 | 1,035,175 |
| Schwab International Core Equity Fund | 41,017,479 | 3,127,691 | (4,060,000) | (1,196,641) | (2,562,127) | 36,326,402 | 3,987,530 | 1,477,691 |
| Schwab S&P 500 Index Fund | 73,858,143 | 6,543,335 | (14,380,000) | 2,338,793 | 2,871,051 | 71,231,322 | 1,403,573 | 1,483,335 |
| Schwab Short-Term Bond Index Fund | 14,485,816 | 3,267,286 | (2,997,327) | 41,302 | 311,789 | 15,108,866 | 1,458,385 | 259,969 |
| Schwab Small-Cap Equity Fund | 19,559,286 | 1,781,473 | (1,770,000) | (1,009,066) | (825,662) | 17,736,031 | 1,180,828 | 21,472 |
| Schwab U.S. Aggregate Bond Index Fund | 36,869,413 | 11,057,180 | (9,195,389) | 6,827 | 1,322,739 | 40,060,770 | 3,730,053 | 1,001,717 |
| Schwab U.S. Mid-Cap Index Fund | 6,842,087 | 172,960 | — | — | 103,720 | 7,118,767 | 158,265 | 172,960 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 9,182,420 | 63,951 | (5,230,000) | 71 | (918) | 4,015,524 | 4,013,918 | 55,939 |
| Total | $361,700,423 | $36,264,806 | ($55,482,716) | $821,073 | $2,924,812 | $346,228,398 | $10,344,014 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $346,228,398 | $— | $— | $346,228,398 | |
| Unaffiliated Underlying Funds1 | 126,004,301 | — | — | 126,004,301 | |
| Short-Term Investment1 | — | 4,645,484 | — | 4,645,484 | |
| Total | $472,232,699 | $4,645,484 | $— | $476,878,183 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
75
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $285,174,710) | $346,228,398 | |
| Investments in unaffiliated funds and issuers, at value (cost $122,215,559) | 130,649,785 | |
| Receivables: | ||
| Investments sold | 800,004 | |
| Fund shares sold | 328,019 | |
| Dividends | 150,419 | |
| Due from investment adviser | 8,881 | |
| Prepaid expenses | + | 10,272 |
| Total assets | 478,175,778 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 949,809 | |
| Fund shares redeemed | 259,217 | |
| Accrued expenses | + | 56,201 |
| Total liabilities | 1,265,227 | |
| Net Assets | ||
| Total assets | 478,175,778 | |
| Total liabilities | – | 1,265,227 |
| Net assets | $476,910,551 | |
| Net Assets by Source | ||
| Capital received from investors | 399,608,958 | |
| Total distributable earnings | 77,301,593 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $476,910,551 | 31,080,107 | $15.34 | ||
76
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $6,988,863 | |
| Dividends received from unaffiliated underlying funds | 2,813,446 | |
| Interest | + | 12,040 |
| Total investment income | 9,814,349 | |
| Expenses | ||
| Registration fees | 31,398 | |
| Portfolio accounting fees | 24,860 | |
| Professional fees | 23,229 | |
| Shareholder reports | 19,210 | |
| Transfer agent fees | 11,152 | |
| Independent trustees’ fees | 9,883 | |
| Custodian fees | 2,127 | |
| Other expenses | + | 7,851 |
| Total expenses | 129,710 | |
| Expense reduction by CSIM and its affiliates | – | 129,710 |
| Net expenses | – | — |
| Net investment income | 9,814,349 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 3,355,151 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 3,188,714 | |
| Net realized gains on sales of affiliated underlying funds | 821,073 | |
| Net realized gains on sales of unaffiliated underlying funds | + | 28,320 |
| Net realized gains | 7,393,258 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 2,924,812 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 2,973,533 |
| Net change in unrealized appreciation (depreciation) | + | 5,898,345 |
| Net realized and unrealized gains | 13,291,603 | |
| Increase in net assets resulting from operations | $23,105,952 | |
77
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $9,814,349 | $8,647,898 | ||
| Net realized gains | 7,393,258 | 20,972,631 | ||
| Net change in unrealized appreciation (depreciation) | + | 5,898,345 | 18,014,725 | |
| Increase in net assets from operations | 23,105,952 | 47,635,254 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($30,104,205) | ($27,960,017) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 4,950,446 | $73,475,207 | 4,397,034 | $64,804,146 | ||||
| Shares reinvested | 1,911,963 | 29,023,597 | 2,053,408 | 27,084,446 | ||||
| Shares redeemed | + | (7,041,886) | (101,780,856) | (5,092,947) | (75,084,216) | |||
| Net transactions in fund shares | (179,477) | $717,948 | 1,357,495 | $16,804,376 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 31,259,584 | $483,190,856 | 29,902,089 | $446,711,243 | ||||
| Total increase or decrease | + | (179,477) | (6,280,305) | 1,357,495 | 36,479,613 | |||
| End of period | 31,080,107 | $476,910,551 | 31,259,584 | $483,190,856 | ||||
78
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.61 | $16.27 | $17.14 | $15.12 | $16.42 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.32 | 0.28 | 0.28 | 0.23 | 0.22 | |
| Net realized and unrealized gains (losses) | 0.56 | 1.28 | (0.45) | 2.78 | (0.03) 2 | |
| Total from investment operations | 0.88 | 1.56 | (0.17) | 3.01 | 0.19 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.35) | (0.39) | (0.44) | (0.24) | (0.32) | |
| Distributions from net realized gains | (0.90) | (0.83) | (0.26) | (0.75) | (1.17) | |
| Total distributions | (1.25) | (1.22) | (0.70) | (0.99) | (1.49) | |
| Net asset value at end of period | $16.24 | $16.61 | $16.27 | $17.14 | $15.12 | |
| Total return | 5.31% | 10.90% | (1.17%) | 21.02% | 1.38% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses3 | 0.00% | 0.00% | 0.00% 4 | 0.00% | 0.00% 4 | |
| Gross operating expenses3 | 0.02% | 0.02% | 0.02% | 0.02% | 0.03% | |
| Net investment income (loss) | 2.01% | 1.78% | 1.65% | 1.44% | 1.45% | |
| Portfolio turnover rate | 10% | 15% | 17% | 21% | 4% | |
| Net assets, end of period (x 1,000,000) | $985 | $1,012 | $962 | $998 | $841 | |
1
Calculated based on the average shares outstanding during
the period.
2
The per share amount does not accord with the change in
aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.
3
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
4
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
79
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
80
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $140,453,404 | $9,498,156 | ($20,130,000) | ($2,177,702) | $12,333,797 | $139,977,655 | 5,743,851 | $2,858,156 |
| Laudus U.S. Large Cap Growth Fund | 48,618,750 | 4,079,681 | (16,180,000) | 6,411,739 | 2,936,109 | 45,866,279 | 1,692,483 | 4,079,681 |
| Schwab Core Equity Fund | 125,474,027 | 3,652,881 | (16,900,000) | (117,166) | 2,246,146 | 114,355,888 | 5,141,901 | 3,652,881 |
| Schwab Dividend Equity Fund | 23,122,489 | 1,636,057 | (630,000) | (11,528) | (4,603,362) | 19,513,656 | 1,607,385 | 1,636,057 |
| Schwab Global Real Estate Fund | 42,514,092 | 7,359,633 | (1,980,000) | (101,679) | (10,983,416) | 36,808,630 | 5,985,143 | 2,359,632 |
| Schwab International Core Equity Fund | 92,910,361 | 5,487,179 | (6,100,000) | (1,684,848) | (6,990,615) | 83,622,077 | 9,179,152 | 3,347,179 |
| Schwab S&P 500 Index Fund | 153,253,679 | 7,787,128 | (23,300,000) | 4,244,040 | 6,799,187 | 148,784,034 | 2,931,705 | 3,127,129 |
| Schwab Short-Term Bond Index Fund | 20,806,043 | 4,787,432 | (4,555,041) | 65,225 | 451,322 | 21,554,981 | 2,080,597 | 372,406 |
| Schwab Small-Cap Equity Fund | 46,725,134 | 2,912,384 | (2,920,000) | (1,313,705) | (2,773,835) | 42,629,978 | 2,838,214 | 52,384 |
| Schwab U.S. Aggregate Bond Index Fund | 52,449,147 | 18,328,463 | (14,311,807) | 101,221 | 1,801,782 | 58,368,806 | 5,434,712 | 1,448,349 |
| Schwab U.S. Mid-Cap Index Fund | 14,836,274 | 375,044 | — | — | 224,905 | 15,436,223 | 343,180 | 375,044 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 12,553,710 | 85,286 | (7,760,000) | 646 | (2,529) | 4,877,113 | 4,875,163 | 74,323 |
| Total | $773,717,110 | $65,989,324 | ($114,766,848) | $5,416,243 | $1,439,491 | $731,795,320 | $23,383,221 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $731,795,320 | $— | $— | $731,795,320 | |
| Unaffiliated Underlying Funds1 | 244,477,497 | — | — | 244,477,497 | |
| Short-Term Investment1 | — | 7,541,813 | — | 7,541,813 | |
| Total | $976,272,817 | $7,541,813 | $— | $983,814,630 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
81
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $556,011,541) | $731,795,320 | |
| Investments in unaffiliated funds and issuers, at value (cost $236,537,990) | 252,019,310 | |
| Receivables: | ||
| Investments sold | 1,965,004 | |
| Fund shares sold | 497,135 | |
| Dividends | 226,279 | |
| Due from investment adviser | 7,949 | |
| Prepaid expenses | + | 21,164 |
| Total assets | 986,532,161 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 225,356 | |
| Fund shares redeemed | 894,370 | |
| Accrued expenses | + | 87,079 |
| Total liabilities | 1,206,805 | |
| Net Assets | ||
| Total assets | 986,532,161 | |
| Total liabilities | – | 1,206,805 |
| Net assets | $985,325,356 | |
| Net Assets by Source | ||
| Capital received from investors | 775,497,181 | |
| Total distributable earnings | 209,828,175 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $985,325,356 | 60,688,112 | $16.24 | ||
82
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $14,658,395 | |
| Dividends received from unaffiliated underlying funds | 5,132,842 | |
| Interest | + | 18,073 |
| Total investment income | 19,809,310 | |
| Expenses | ||
| Shareholder reports | 49,240 | |
| Registration fees | 37,059 | |
| Portfolio accounting fees | 29,898 | |
| Professional fees | 25,168 | |
| Transfer agent fees | 15,865 | |
| Independent trustees’ fees | 12,166 | |
| Custodian fees | 2,396 | |
| Other expenses | + | 13,507 |
| Total expenses | 185,299 | |
| Expense reduction by CSIM and its affiliates | – | 185,299 |
| Net expenses | – | — |
| Net investment income | 19,809,310 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 8,724,826 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 6,841,238 | |
| Net realized gains on sales of affiliated underlying funds | 5,416,243 | |
| Net realized losses on sales of unaffiliated underlying funds | + | (839,876) |
| Net realized gains | 20,142,431 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 1,439,491 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 6,485,784 |
| Net change in unrealized appreciation (depreciation) | + | 7,925,275 |
| Net realized and unrealized gains | 28,067,706 | |
| Increase in net assets resulting from operations | $47,877,016 | |
83
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $19,809,310 | $17,515,301 | ||
| Net realized gains | 20,142,431 | 58,610,358 | ||
| Net change in unrealized appreciation (depreciation) | + | 7,925,275 | 25,987,197 | |
| Increase in net assets from operations | 47,877,016 | 102,112,856 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($75,661,959) | ($71,258,344) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 7,287,918 | $111,975,602 | 6,025,941 | $95,176,212 | ||||
| Shares reinvested | 4,584,013 | 74,123,497 | 4,962,246 | 69,868,426 | ||||
| Shares redeemed | + | (12,097,184) | (184,546,752) | (9,203,118) | (146,239,888) | |||
| Net transactions in fund shares | (225,253) | $1,552,347 | 1,785,069 | $18,804,750 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 60,913,365 | $1,011,557,952 | 59,128,296 | $961,898,690 | ||||
| Total increase or decrease | + | (225,253) | (26,232,596) | 1,785,069 | 49,659,262 | |||
| End of period | 60,688,112 | $985,325,356 | 60,913,365 | $1,011,557,952 | ||||
84
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $13.88 | $13.35 | $13.92 | $12.00 | $12.51 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.25 | 0.22 | 0.21 | 0.17 | 0.16 | |
| Net realized and unrealized gains (losses) | 0.46 | 1.09 | (0.39) | 2.37 | 0.00 2 | |
| Total from investment operations | 0.71 | 1.31 | (0.18) | 2.54 | 0.16 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.28) | (0.31) | (0.36) | (0.18) | (0.23) | |
| Distributions from net realized gains | (0.48) | (0.47) | (0.03) | (0.44) | (0.44) | |
| Total distributions | (0.76) | (0.78) | (0.39) | (0.62) | (0.67) | |
| Net asset value at end of period | $13.83 | $13.88 | $13.35 | $13.92 | $12.00 | |
| Total return | 5.10% | 10.91% | (1.43%) | 22.11% | 1.40% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses3 | 0.00% | 0.00% | 0.00% 4 | 0.00% | 0.00% 4 | |
| Gross operating expenses3 | 0.05% | 0.08% | 0.06% | 0.10% | 0.13% | |
| Net investment income (loss) | 1.87% | 1.65% | 1.52% | 1.31% | 1.34% | |
| Portfolio turnover rate | 6% | 8% | 12% | 11% | 1% | |
| Net assets, end of period (x 1,000,000) | $178 | $162 | $139 | $121 | $82 | |
1
Calculated based on the average shares outstanding during
the period.
2
Per-share amount was less than $0.005.
3
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
4
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
85
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
86
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $23,910,113 | $2,732,081 | ($1,560,000) | ($266,436) | $2,360,030 | $27,175,788 | 1,115,133 | $492,081 |
| Laudus U.S. Large Cap Growth Fund | 9,771,857 | 819,973 | (1,805,000) | 248,891 | 1,766,973 | 10,802,694 | 398,623 | 819,973 |
| Schwab Core Equity Fund | 20,871,037 | 1,331,169 | (580,001) | 6,881 | 447,010 | 22,076,096 | 992,630 | 621,169 |
| Schwab Dividend Equity Fund | 4,609,450 | 327,913 | — | — | (941,195) | 3,996,168 | 329,174 | 327,913 |
| Schwab Global Real Estate Fund | 7,507,982 | 1,583,356 | — | — | (2,028,086) | 7,063,252 | 1,148,496 | 423,357 |
| Schwab International Core Equity Fund | 15,675,852 | 2,864,659 | (510,000) | (170,252) | (1,401,468) | 16,458,791 | 1,806,673 | 584,658 |
| Schwab S&P 500 Index Fund | 24,345,193 | 1,883,659 | (1,139,997) | (18,572) | 1,945,571 | 27,015,854 | 532,332 | 508,659 |
| Schwab Short-Term Bond Index Fund | 2,096,302 | 673,280 | (362,806) | 7,898 | 48,207 | 2,462,881 | 237,730 | 40,478 |
| Schwab Small-Cap Equity Fund | 8,357,484 | 689,559 | — | — | (765,596) | 8,281,447 | 551,361 | 9,558 |
| Schwab U.S. Aggregate Bond Index Fund | 5,695,409 | 2,149,776 | (1,507,557) | 19,140 | 217,812 | 6,574,580 | 612,158 | 166,208 |
| Schwab U.S. Mid-Cap Index Fund | 2,674,726 | 67,614 | — | — | 40,546 | 2,782,886 | 61,869 | 67,614 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 1,078,348 | 7,025 | (660,000) | 196 | (238) | 425,331 | 425,161 | 6,083 |
| Total | $126,593,753 | $15,130,064 | ($8,125,361) | ($172,254) | $1,689,566 | $135,115,768 | $4,067,751 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $135,115,768 | $— | $— | $135,115,768 | |
| Unaffiliated Underlying Funds1 | 41,465,746 | — | — | 41,465,746 | |
| Short-Term Investment1 | — | 1,262,912 | — | 1,262,912 | |
| Total | $176,581,514 | $1,262,912 | $— | $177,844,426 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
87
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $122,768,919) | $135,115,768 | |
| Investments in unaffiliated funds and issuers, at value (cost $40,617,087) | 42,728,658 | |
| Receivables: | ||
| Investments sold | 143,001 | |
| Fund shares sold | 134,189 | |
| Dividends | 26,372 | |
| Due from investment adviser | 6,294 | |
| Prepaid expenses | + | 5,625 |
| Total assets | 178,159,907 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 26,257 | |
| Fund shares redeemed | 100,992 | |
| Accrued expenses | + | 40,946 |
| Total liabilities | 168,195 | |
| Net Assets | ||
| Total assets | 178,159,907 | |
| Total liabilities | – | 168,195 |
| Net assets | $177,991,712 | |
| Net Assets by Source | ||
| Capital received from investors | 160,728,266 | |
| Total distributable earnings | 17,263,446 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $177,991,712 | 12,870,707 | $13.83 | ||
88
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $2,421,546 | |
| Dividends received from unaffiliated underlying funds | 739,711 | |
| Interest | + | 4,540 |
| Total investment income | 3,165,797 | |
| Expenses | ||
| Registration fees | 24,254 | |
| Professional fees | 22,079 | |
| Shareholder reports | 13,012 | |
| Portfolio accounting fees | 12,554 | |
| Independent trustees’ fees | 8,507 | |
| Transfer agent fees | 4,310 | |
| Custodian fees | 1,930 | |
| Other expenses | + | 4,881 |
| Total expenses | 91,527 | |
| Expense reduction by CSIM and its affiliates | – | 91,527 |
| Net expenses | – | — |
| Net investment income | 3,165,797 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 1,646,205 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 1,091,817 | |
| Net realized losses on sales of affiliated underlying funds | (172,254) | |
| Net realized gains on sales of unaffiliated underlying funds | + | 46,856 |
| Net realized gains | 2,612,624 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 1,689,566 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 1,170,416 |
| Net change in unrealized appreciation (depreciation) | + | 2,859,982 |
| Net realized and unrealized gains | 5,472,606 | |
| Increase in net assets resulting from operations | $8,638,403 | |
89
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $3,165,797 | $2,478,428 | ||
| Net realized gains | 2,612,624 | 6,627,236 | ||
| Net change in unrealized appreciation (depreciation) | + | 2,859,982 | 6,450,937 | |
| Increase in net assets from operations | 8,638,403 | 15,556,601 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($8,999,527) | ($8,203,160) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 2,950,192 | $38,924,237 | 2,379,015 | $31,439,276 | ||||
| Shares reinvested | 634,950 | 8,781,363 | 685,490 | 8,033,942 | ||||
| Shares redeemed | + | (2,390,959) | (31,369,522) | (1,786,094) | (23,623,378) | |||
| Net transactions in fund shares | 1,194,183 | $16,336,078 | 1,278,411 | $15,849,840 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 11,676,524 | $162,016,758 | 10,398,113 | $138,813,477 | ||||
| Total increase | + | 1,194,183 | 15,974,954 | 1,278,411 | 23,203,281 | |||
| End of period | 12,870,707 | $177,991,712 | 11,676,524 | $162,016,758 | ||||
90
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.03 | $13.49 | $14.07 | $12.08 | $12.60 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.25 | 0.21 | 0.21 | 0.16 | 0.15 | |
| Net realized and unrealized gains (losses) | 0.45 | 1.11 | (0.41) | 2.47 | 0.01 | |
| Total from investment operations | 0.70 | 1.32 | (0.20) | 2.63 | 0.16 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.31) | (0.36) | (0.18) | (0.23) | |
| Distributions from net realized gains | (0.43) | (0.47) | (0.02) | (0.46) | (0.45) | |
| Total distributions | (0.70) | (0.78) | (0.38) | (0.64) | (0.68) | |
| Net asset value at end of period | $14.03 | $14.03 | $13.49 | $14.07 | $12.08 | |
| Total return | 4.96% | 10.87% | (1.50%) | 22.68% | 1.39% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% 3 | 0.00% | 0.01% 4 | |
| Gross operating expenses2 | 0.06% | 0.08% | 0.07% | 0.11% | 0.16% | |
| Net investment income (loss) | 1.83% | 1.54% | 1.45% | 1.27% | 1.31% | |
| Portfolio turnover rate | 5% | 7% | 10% | 10% | 1% | |
| Net assets, end of period (x 1,000,000) | $181 | $161 | $122 | $104 | $68 | |
1
Calculated based on the average shares outstanding during
the period.
2
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
3
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
4
The ratio of net operating expenses would have been 0.00%,
if certain non-routine expenses had not been incurred.
91
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
92
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $24,584,626 | $3,676,793 | ($909,000) | ($145,645) | $1,993,860 | $29,200,634 | 1,198,221 | $506,793 |
| Laudus U.S. Large Cap Growth Fund | 10,892,497 | 914,008 | (1,830,000) | 175,111 | 2,065,264 | 12,216,880 | 450,807 | 914,008 |
| Schwab Core Equity Fund | 21,314,438 | 1,668,961 | (160,000) | (21,610) | 385,546 | 23,187,335 | 1,042,596 | 638,961 |
| Schwab Dividend Equity Fund | 4,969,277 | 1,110,853 | — | — | (1,092,191) | 4,987,939 | 410,868 | 360,853 |
| Schwab Global Real Estate Fund | 7,550,419 | 2,126,019 | — | — | (2,091,701) | 7,584,737 | 1,233,291 | 436,017 |
| Schwab International Core Equity Fund | 16,318,911 | 2,866,817 | (390,000) | (145,488) | (1,454,882) | 17,195,358 | 1,887,526 | 597,816 |
| Schwab S&P 500 Index Fund | 24,190,315 | 2,620,033 | (1,340,000) | (115,604) | 1,893,410 | 27,248,154 | 536,909 | 506,002 |
| Schwab Short-Term Bond Index Fund | 1,678,637 | 441,719 | (452,046) | 8,932 | 32,123 | 1,709,365 | 164,997 | 29,675 |
| Schwab Small-Cap Equity Fund | 8,852,260 | 1,119,924 | — | — | (769,153) | 9,203,031 | 612,718 | 9,924 |
| Schwab U.S. Aggregate Bond Index Fund | 4,110,083 | 863,863 | (389,963) | 3,673 | 152,709 | 4,740,365 | 441,375 | 113,875 |
| Schwab U.S. Mid-Cap Index Fund | 2,677,178 | 317,675 | — | — | 41,365 | 3,036,218 | 67,502 | 67,676 |
| Schwab Variable Share Price Money Fund, Ultra Shares | 694,379 | 3,673 | (670,000) | 152 | (154) | 28,050 | 28,039 | 3,064 |
| Total | $127,833,020 | $17,730,338 | ($6,141,009) | ($240,479) | $1,156,196 | $140,338,066 | $4,184,664 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $140,338,066 | $— | $— | $140,338,066 | |
| Unaffiliated Underlying Funds1 | 39,582,486 | — | — | 39,582,486 | |
| Short-Term Investment1 | — | 1,735,340 | — | 1,735,340 | |
| Total | $179,920,552 | $1,735,340 | $— | $181,655,892 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
93
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $128,994,923) | $140,338,066 | |
| Investments in unaffiliated funds and issuers, at value (cost $39,532,522) | 41,317,826 | |
| Receivables: | ||
| Fund shares sold | 160,227 | |
| Dividends | 18,605 | |
| Due from investment adviser | 6,354 | |
| Prepaid expenses | + | 5,897 |
| Total assets | 181,846,975 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 375,580 | |
| Fund shares redeemed | 36,865 | |
| Accrued expenses | + | 43,349 |
| Total liabilities | 455,794 | |
| Net Assets | ||
| Total assets | 181,846,975 | |
| Total liabilities | – | 455,794 |
| Net assets | $181,391,181 | |
| Net Assets by Source | ||
| Capital received from investors | 165,649,580 | |
| Total distributable earnings | 15,741,601 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $181,391,181 | 12,925,813 | $14.03 | ||
94
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $2,411,977 | |
| Dividends received from unaffiliated underlying funds | 669,288 | |
| Interest | + | 3,835 |
| Total investment income | 3,085,100 | |
| Expenses | ||
| Registration fees | 23,847 | |
| Professional fees | 22,045 | |
| Shareholder reports | 15,144 | |
| Portfolio accounting fees | 12,541 | |
| Independent trustees’ fees | 8,503 | |
| Transfer agent fees | 5,280 | |
| Custodian fees | 1,735 | |
| Other expenses | + | 4,878 |
| Total expenses | 93,973 | |
| Expense reduction by CSIM and its affiliates | – | 93,973 |
| Net expenses | – | — |
| Net investment income | 3,085,100 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 1,772,687 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 1,094,367 | |
| Net realized losses on sales of affiliated underlying funds | (240,479) | |
| Net realized losses on sales of unaffiliated underlying funds | + | (126,698) |
| Net realized gains | 2,499,877 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 1,156,196 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 1,083,415 |
| Net change in unrealized appreciation (depreciation) | + | 2,239,611 |
| Net realized and unrealized gains | 4,739,488 | |
| Increase in net assets resulting from operations | $7,824,588 | |
95
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $3,085,100 | $2,199,900 | ||
| Net realized gains | 2,499,877 | 5,687,326 | ||
| Net change in unrealized appreciation (depreciation) | + | 2,239,611 | 6,762,154 | |
| Increase in net assets from operations | 7,824,588 | 14,649,380 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($8,146,453) | ($7,175,224) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 3,278,640 | $44,358,522 | 3,665,701 | $48,849,543 | ||||
| Shares reinvested | 564,445 | 7,947,390 | 591,705 | 6,993,949 | ||||
| Shares redeemed | + | (2,395,025) | (31,595,800) | (1,854,387) | (24,773,359) | |||
| Net transactions in fund shares | 1,448,060 | $20,710,112 | 2,403,019 | $31,070,133 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 11,477,753 | $161,002,934 | 9,074,734 | $122,458,645 | ||||
| Total increase | + | 1,448,060 | 20,388,247 | 2,403,019 | 38,544,289 | |||
| End of period | 12,925,813 | $181,391,181 | 11,477,753 | $161,002,934 | ||||
96
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
11/1/15–
10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.15 | $13.60 | $14.18 | $12.09 | $12.63 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.24 | 0.21 | 0.20 | 0.16 | 0.15 | |
| Net realized and unrealized gains (losses) | 0.45 | 1.10 | (0.39) | 2.55 | 0.00 2 | |
| Total from investment operations | 0.69 | 1.31 | (0.19) | 2.71 | 0.15 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.31) | (0.37) | (0.17) | (0.23) | |
| Distributions from net realized gains | (0.46) | (0.45) | (0.02) | (0.45) | (0.46) | |
| Total distributions | (0.73) | (0.76) | (0.39) | (0.62) | (0.69) | |
| Net asset value at end of period | $14.11 | $14.15 | $13.60 | $14.18 | $12.09 | |
| Total return | 4.86% | 10.73% | (1.49%) | 23.35% | 1.28% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses3 | 0.00% | 0.00% | 0.00% 4 | 0.00% | 0.01% 5 | |
| Gross operating expenses3 | 0.09% | 0.13% | 0.11% | 0.19% | 0.27% | |
| Net investment income (loss) | 1.78% | 1.53% | 1.41% | 1.24% | 1.26% | |
| Portfolio turnover rate | 6% | 6% | 10% | 9% | 1% | |
| Net assets, end of period (x 1,000,000) | $107 | $94 | $73 | $60 | $38 | |
1
Calculated based on the average shares outstanding during
the period.
2
Per-share amount was less than $0.005.
3
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
4
Less than 0.005%; the ratio of net operating expenses would
have been 0.00%, if certain non-routine expenses had not been incurred.
5
The ratio of net operating expenses would have been 0.00%,
if certain non-routine expenses had not been incurred.
97
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
98
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $14,779,238 | $2,485,750 | ($979,000) | ($114,694) | $1,360,618 | $17,531,912 | 719,406 | $300,750 |
| Laudus U.S. Large Cap Growth Fund | 6,907,119 | 850,446 | (1,015,000) | (6,751) | 1,390,953 | 8,126,767 | 299,881 | 600,445 |
| Schwab Core Equity Fund | 12,628,257 | 995,845 | — | — | 211,412 | 13,835,514 | 622,100 | 375,845 |
| Schwab Dividend Equity Fund | 3,133,035 | 658,363 | — | — | (665,371) | 3,126,027 | 257,498 | 228,363 |
| Schwab Global Real Estate Fund | 4,497,300 | 1,490,772 | — | — | (1,301,030) | 4,687,042 | 762,121 | 266,772 |
| Schwab International Core Equity Fund | 9,755,219 | 2,355,508 | (638,000) | (171,932) | (777,496) | 10,523,299 | 1,155,137 | 361,508 |
| Schwab S&P 500 Index Fund | 13,941,998 | 1,538,531 | (450,000) | (43,477) | 1,179,123 | 16,166,175 | 318,545 | 293,530 |
| Schwab Short-Term Bond Index Fund | 778,773 | 94,007 | (160,873) | 3,232 | 14,440 | 729,579 | 70,423 | 13,135 |
| Schwab Small-Cap Equity Fund | 5,251,592 | 1,164,175 | (377,000) | (264,068) | (199,058) | 5,575,641 | 371,214 | 6,175 |
| Schwab U.S. Aggregate Bond Index Fund | 1,593,363 | 1,202,564 | (960,221) | 13,692 | 59,911 | 1,909,309 | 177,776 | 48,339 |
| Schwab U.S. Mid-Cap Index Fund | 1,579,537 | 239,928 | — | — | 68,601 | 1,888,066 | 41,976 | 39,929 |
| Total | $74,845,431 | $13,075,889 | ($4,580,094) | ($583,998) | $1,342,103 | $84,099,331 | $2,534,791 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $84,099,331 | $— | $— | $84,099,331 | |
| Unaffiliated Underlying Funds1 | 22,572,642 | — | — | 22,572,642 | |
| Short-Term Investment1 | — | 574,395 | — | 574,395 | |
| Total | $106,671,973 | $574,395 | $— | $107,246,368 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
99
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $77,083,048) | $84,099,331 | |
| Investments in unaffiliated funds and issuers, at value (cost $22,039,156) | 23,147,037 | |
| Receivables: | ||
| Investments sold | 99,000 | |
| Fund shares sold | 130,364 | |
| Dividends | 7,839 | |
| Due from investment adviser | 6,824 | |
| Prepaid expenses | + | 4,620 |
| Total assets | 107,495,015 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 7,810 | |
| Fund shares redeemed | 45,098 | |
| Accrued expenses | + | 40,834 |
| Total liabilities | 93,742 | |
| Net Assets | ||
| Total assets | 107,495,015 | |
| Total liabilities | – | 93,742 |
| Net assets | $107,401,273 | |
| Net Assets by Source | ||
| Capital received from investors | 98,121,276 | |
| Total distributable earnings | 9,279,997 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $107,401,273 | 7,609,639 | $14.11 | ||
100
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $1,417,885 | |
| Dividends received from unaffiliated underlying funds | 364,748 | |
| Interest | + | 2,562 |
| Total investment income | 1,785,195 | |
| Expenses | ||
| Professional fees | 21,831 | |
| Registration fees | 21,559 | |
| Shareholder reports | 15,552 | |
| Portfolio accounting fees | 11,895 | |
| Independent trustees’ fees | 8,201 | |
| Transfer agent fees | 4,104 | |
| Custodian fees | 1,936 | |
| Other expenses | + | 4,229 |
| Total expenses | 89,307 | |
| Expense reduction by CSIM and its affiliates | – | 89,307 |
| Net expenses | – | — |
| Net investment income | 1,785,195 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 1,116,906 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 635,730 | |
| Net realized losses on sales of affiliated underlying funds | (583,998) | |
| Net realized losses on sales of unaffiliated underlying funds | + | (139,775) |
| Net realized gains | 1,028,863 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 1,342,103 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 809,345 |
| Net change in unrealized appreciation (depreciation) | + | 2,151,448 |
| Net realized and unrealized gains | 3,180,311 | |
| Increase in net assets resulting from operations | $4,965,506 | |
101
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $1,785,195 | $1,267,248 | ||
| Net realized gains | 1,028,863 | 3,688,542 | ||
| Net change in unrealized appreciation (depreciation) | + | 2,151,448 | 3,614,466 | |
| Increase in net assets from operations | 4,965,506 | 8,570,256 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($4,969,426) | ($4,215,901) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 2,219,735 | $29,888,670 | 1,825,581 | $24,571,388 | ||||
| Shares reinvested | 340,618 | 4,836,775 | 343,303 | 4,088,743 | ||||
| Shares redeemed | + | (1,576,305) | (21,062,762) | (930,807) | (12,531,078) | |||
| Net transactions in fund shares | 984,048 | $13,662,683 | 1,238,077 | $16,129,053 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 6,625,591 | $93,742,510 | 5,387,514 | $73,259,102 | ||||
| Total increase | + | 984,048 | 13,658,763 | 1,238,077 | 20,483,408 | |||
| End of period | 7,609,639 | $107,401,273 | 6,625,591 | $93,742,510 | ||||
102
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Financial Statements
Financial
Highlights
| 11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
8/25/16
1– 10/31/16 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.16 | $11.53 | $12.02 | $9.83 | $10.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.20 | 0.16 | 0.14 | 0.08 | 0.01 | |
| Net realized and unrealized gains (losses) | 0.38 | 0.99 | (0.32) | 2.22 | (0.18) | |
| Total from investment operations | 0.58 | 1.15 | (0.18) | 2.30 | (0.17) | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.22) | (0.26) | (0.29) | (0.11) | — | |
| Distributions from net realized gains | (0.31) | (0.26) | (0.02) | — | — | |
| Total distributions | (0.53) | (0.52) | (0.31) | (0.11) | — | |
| Net asset value at end of period | $12.21 | $12.16 | $11.53 | $12.02 | $9.83 | |
| Total return | 4.73% | 10.85% | (1.64%) | 23.63% | (1.70%) 3 | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% 5 | |
| Gross operating expenses4 | 0.41% | 0.67% | 0.73% | 1.89% | 7.87% 5 | |
| Net investment income (loss) | 1.67% | 1.42% | 1.18% | 0.75% | 0.43% 5 | |
| Portfolio turnover rate | 8% | 13% | 22% | 7% | 0% 3 | |
| Net assets, end of period (x 1,000,000) | $22 | $16 | $10 | $6 | $1 | |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during
the period.
3
Not annualized.
4
Ratio excludes acquired fund fees and expenses, which are
indirect expenses incurred by the fund through its investments in underlying funds.
5
Annualized (except for non-recurring professional fees and
shareholder report fees).
103
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Portfolio
Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
104
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Portfolio
Holdings as of October 31, 2020 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2020:
| Affiliated Underlying Funds |
Value at 10/31/19 |
Gross
Purchases |
Gross
Sales |
Realized
Gains (Losses) |
Net
Change in Unrealized Appreciation (depreciation) |
Value at 10/31/20 |
Balance
of Shares Held at 10/31/20 |
Distributions
Received* |
| Laudus International MarketMasters Fund | $2,530,622 | $990,507 | ($214,000) | ($46,512) | $301,994 | $3,562,611 | 146,188 | $52,507 |
| Laudus U.S. Large Cap Growth Fund | 1,244,898 | 369,395 | (134,000) | 205 | 282,538 | 1,763,036 | 65,057 | 107,395 |
| Schwab Core Equity Fund | 2,162,028 | 786,687 | (166,000) | (21,046) | 57,345 | 2,819,014 | 126,754 | 65,687 |
| Schwab Dividend Equity Fund | 542,402 | 308,932 | (40,000) | (12,523) | (121,590) | 677,221 | 55,784 | 43,932 |
| Schwab Global Real Estate Fund | 769,641 | 411,152 | — | — | (236,751) | 944,042 | 153,503 | 47,151 |
| Schwab International Core Equity Fund | 1,682,737 | 688,790 | (60,000) | (11,624) | (172,525) | 2,127,378 | 233,521 | 61,790 |
| Schwab S&P 500 Index Fund | 2,369,029 | 1,053,859 | (350,000) | (33,028) | 213,426 | 3,253,286 | 64,104 | 49,859 |
| Schwab Short-Term Bond Index Fund | 75,020 | 1,447 | (94) | — | 1,868 | 78,241 | 7,552 | 1,353 |
| Schwab Small-Cap Equity Fund | 925,151 | 458,062 | (90,000) | (66,181) | (25,612) | 1,201,420 | 79,988 | 1,062 |
| Schwab U.S. Aggregate Bond Index Fund | 200,897 | 152,067 | (128,488) | 1,706 | 6,167 | 232,349 | 21,634 | 5,578 |
| Schwab U.S. Mid-Cap Index Fund | 274,719 | 90,944 | — | — | 12,292 | 377,955 | 8,403 | 6,945 |
| Total | $12,777,144 | $5,311,842 | ($1,182,582) | ($189,003) | $319,152 | $17,036,553 | $443,259 |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2020 (see financial note 2(a) for additional information):
| Description | Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Other
Significant Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |
| Assets | |||||
| Affiliated Underlying Funds1 | $17,036,553 | $— | $— | $17,036,553 | |
| Unaffiliated Underlying Funds1 | 4,368,009 | — | — | 4,368,009 | |
| Short-Term Investment1 | — | 162,141 | — | 162,141 | |
| Total | $21,404,562 | $162,141 | $— | $21,566,703 |
| 1 | As categorized in Portfolio Holdings. |
Fund investments in
underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.
105
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Statement of
Assets and Liabilities
As of October 31, 2020
| Assets | ||
| Investments in affiliated underlying funds, at value (cost $16,261,158) | $17,036,553 | |
| Investments in unaffiliated funds and issuers, at value (cost $4,339,307) | 4,530,150 | |
| Receivables: | ||
| Fund shares sold | 42,014 | |
| Due from investment adviser | 5,539 | |
| Dividends | 972 | |
| Prepaid expenses | + | 12,043 |
| Total assets | 21,627,271 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 19,968 | |
| Fund shares redeemed | 63,753 | |
| Accrued expenses | + | 34,639 |
| Total liabilities | 118,360 | |
| Net Assets | ||
| Total assets | 21,627,271 | |
| Total liabilities | – | 118,360 |
| Net assets | $21,508,911 | |
| Net Assets by Source | ||
| Capital received from investors | 20,531,997 | |
| Total distributable earnings | 976,914 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $21,508,911 | 1,761,437 | $12.21 | ||
106
Schwab Target Funds | Annual Report
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Schwab Target 2060 Fund
Statement of
Operations
For the period November 1, 2019 through October 31, 2020
| Investment Income | ||
| Dividends received from affiliated underlying funds | $243,533 | |
| Dividends received from unaffiliated underlying funds | 59,726 | |
| Interest | + | 206 |
| Total investment income | 303,465 | |
| Expenses | ||
| Professional fees | 21,538 | |
| Registration fees | 20,949 | |
| Portfolio accounting fees | 11,117 | |
| Independent trustees’ fees | 7,836 | |
| Shareholder reports | 6,479 | |
| Custodian fees | 1,970 | |
| Transfer agent fees | 1,309 | |
| Other expenses | + | 3,491 |
| Total expenses | 74,689 | |
| Expense reduction by CSIM and its affiliates | – | 74,689 |
| Net expenses | – | — |
| Net investment income | 303,465 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from affiliated underlying funds | 199,726 | |
| Realized capital gain distributions received from unaffiliated underlying funds | 106,232 | |
| Net realized losses on sales of affiliated underlying funds | (189,003) | |
| Net realized losses on sales of unaffiliated underlying funds | + | (32,559) |
| Net realized gains | 84,396 | |
| Net change in unrealized appreciation (depreciation) on affiliated underlying funds | 319,152 | |
| Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds | + | 152,336 |
| Net change in unrealized appreciation (depreciation) | + | 471,488 |
| Net realized and unrealized gains | 555,884 | |
| Increase in net assets resulting from operations | $859,349 | |
107
Schwab Target Funds | Annual Report
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Schwab Target 2060 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| Operations | ||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||
| Net investment income | $303,465 | $188,772 | ||
| Net realized gains | 84,396 | 412,453 | ||
| Net change in unrealized appreciation (depreciation) | + | 471,488 | 760,621 | |
| Increase in net assets from operations | 859,349 | 1,361,846 | ||
| Distributions to Shareholders | ||||
| Total distributions | ($715,136) | ($501,444) | ||
| Transactions in Fund Shares | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | VALUE | SHARES | VALUE | |||||
| Shares sold | 930,416 | $10,935,135 | 663,372 | $7,706,262 | ||||
| Shares reinvested | 55,993 | 689,274 | 46,852 | 478,361 | ||||
| Shares redeemed | + | (521,878) | (6,024,879) | (321,911) | (3,759,126) | |||
| Net transactions in fund shares | 464,531 | $5,599,530 | 388,313 | $4,425,497 | ||||
| Shares Outstanding and Net Assets | ||||||||
| 11/1/19-10/31/20 | 11/1/18-10/31/19 | |||||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | |||||
| Beginning of period | 1,296,906 | $15,765,168 | 908,593 | $10,479,269 | ||||
| Total increase | + | 464,531 | 5,743,743 | 388,313 | 5,285,899 | |||
| End of period | 1,761,437 | $21,508,911 | 1,296,906 | $15,765,168 | ||||
108
Schwab Target Funds | Annual Report
See financial notes
Schwab Target Funds
Financial
Notes
1. Business Structure of the Funds:
Each of
the funds 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 Large-Cap Growth Fund |
| Schwab Target 2015 Fund | Schwab Small-Cap Equity Fund |
| Schwab Target 2020 Fund | Schwab Hedged Equity Fund |
| Schwab Target 2025 Fund | Schwab Health Care Fund |
| Schwab Target 2030 Fund | Schwab International Core Equity Fund |
| Schwab Target 2035 Fund | Schwab Fundamental US Large Company Index Fund |
| Schwab Target 2040 Fund | Schwab Fundamental US Small Company Index Fund |
| Schwab Target 2045 Fund | Schwab Fundamental International Large Company Index Fund |
| Schwab Target 2050 Fund | Schwab Fundamental International Small Company Index Fund |
| Schwab Target 2055 Fund | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab Target 2060 Fund | Schwab Fundamental Global Real Estate Index Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2010 Index Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2015 Index Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2020 Index Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2025 Index Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Target 2030 Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Target 2035 Index Fund |
| Schwab International Index Fund® | Schwab Target 2040 Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Target 2045 Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Target 2050 Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Target 2055 Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2060 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 | |
The Schwab Target Funds are “funds of funds.” Each
of the funds seeks to achieve its investment objective by investing in a combination of other affiliated Schwab and/or Laudus Funds and other unaffiliated, third-party mutual funds, in accordance with its target portfolio allocation. Each fund may
also invest directly in equity and fixed-income securities, exchange-traded funds (ETFs), and cash and cash equivalents, including money market securities.
Each fund in this report offers one share class. Shares are
bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. 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:
The following is
a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting
Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America
(GAAP).
The financial statements of the funds should be
read in conjunction with the underlying funds’ financial statements. For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the
U.S. Securities and Exchange Commission (SEC) and are available on the SEC’s website at www.sec.gov.
109
Schwab Target Funds | Annual Report
Schwab Target Funds
Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(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 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:
• Underlying funds: Mutual funds are valued at their respective NAVs.
•
Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable.
For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is
closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when
arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing,
disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a
fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
In accordance with the authoritative guidance on fair value
measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority
to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3
measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the
volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and
management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as
follows:
•
Level 1—quoted prices in active markets for identical securities—Investments
whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. Investments in mutual funds are valued daily at their NAVs, which are classified as Level
1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by
alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage
products, less liquid listed equities, and state, municipal and provincial obligations.
•
Level 3—significant unobservable inputs (including the funds’ own assumptions in determining the fair value of
investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When
observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the
original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
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, 2020 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments
(if held):
Cash Management Transactions: The funds may subscribe to the Brown Brothers Harriman & Co. (BBH) Cash Management Service Sweep (CMS Sweep). The BBH CMS Sweep is an investment product that automatically sweeps the funds’ cash balances into
overnight offshore time deposits with either the BBH Grand Cayman branch or a branch of a pre-approved commercial bank. This fully automated program allows the funds to earn interest on cash balances. Excess cash invested with deposit institutions
domiciled outside of the U.S., as with any offshore deposit, may be subject to sovereign actions in the jurisdiction of the deposit institution including, but not limited to, freeze, seizure or diminution. The funds bear the risk associated with the
repayment of principal and payment of interest on such instruments by the institution with which the deposit is ultimately placed.
(c) Security Transactions:
Security transactions are recorded as of the date the order
to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and
distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date). Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated
by the underlying funds.
(e) Expenses:
Expenses that are specific to a fund are charged directly
to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets. Each fund bears its share of the acquired fund fees and expenses of the underlying
funds, which are indirect expenses incurred by the fund through its investments in the underlying funds. Such expenses are reflected in the net asset values of the underlying funds.
(f) Distributions to Shareholders:
The funds make distributions from net investment income and
net realized capital gains, if any, once a year.
(g)
Accounting Estimates:
The accounting policies
described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial
statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The funds intend to meet federal income and excise tax
requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their
shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
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Financial Notes
(continued)
2. Significant
Accounting Policies (continued):
(i)
Indemnification:
Under the funds’
organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their
vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect
the risk of loss attributable to these arrangements to be remote.
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.
Asset Allocation Risk. The
funds are subject to the risk that the selection of the underlying funds and the allocation of a fund’s assets among the various asset classes and market segments may cause the fund to underperform other funds with a similar investment
objective.
Conflicts of Interest Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds and ETFs may create a conflict of interest because the fees paid to it and
its affiliates by some underlying funds are higher than the fees paid by other underlying funds. The investment adviser also may have an incentive to select an affiliated underlying fund for other reasons, including to increase assets under
management or to support new investment strategies. In addition, other conflicts of interest may exist where the best interests of the affiliated underlying fund may not be aligned with those of a fund. However, the investment adviser is a fiduciary
to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds.
Market Risk. Financial markets
rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition, the
occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics may also negatively affect the financial markets. As with any investment whose performance is tied to these markets, the value of an
investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.
Direct Investment Risk. The
funds may invest directly in cash, cash equivalents and equity and fixed-income securities, including money market securities, to maintain their allocations. A fund’s direct investment in these securities is subject to the same or similar
risks as an underlying fund’s investment in the same securities.
Underlying Fund Investment Risk. Before investing in the funds, investors should assess the risks associated with the underlying funds in which the funds may invest, which include any combination of the risks described below.
•
Investment Risk. The funds may experience losses with respect to their investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
•
Management Risk. Generally, the underlying funds are actively managed mutual funds. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser(s)) will make poor
security selections. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the underlying fund, but there can be no guarantee that they will produce the desired results.
•
Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. A change in a central bank’s monetary policy or economic conditions,
among other things, may result in a change in interest rates. A rise in interest rates could cause an underlying fund’s share price to fall. The credit quality of a portfolio investment could also cause an underlying fund’s share price
to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or otherwise honor its obligations. Fixed income
securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade
bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.
•
Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition,
equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.
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Financial Notes
(continued)
3. Risk
Factors (continued):
•
Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a
particular market capitalization fall behind other types of investments, an underlying fund’s performance could be impacted.
•
Money Market Fund Risk. The funds may invest in underlying money market funds that either seek to maintain a stable $1 net asset value (“stable share price money market funds”) or that have a
share price that fluctuates (“variable share price money market funds”). Although an underlying stable share price money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in such a money
market fund. Because the share price of an underlying variable share price money market fund will fluctuate, when the fund sells the shares it owns they may be worth more or less than what the fund originally paid for them. In addition, neither type
of money market fund is designed to offer capital appreciation. Certain underlying money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability to sell shares if such fund’s liquidity falls below required
minimums.
•
ETF Risk. When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its
value being more volatile than the underlying portfolio of securities.
•
Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S.
issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the
imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may
negatively impact the value or liquidity of an underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that
investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar.
•
Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market
countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be
more precarious than in developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated with an underlying fund’s investments in emerging market countries, which may be magnified by currency
fluctuations relative to the U.S. dollar, and, at times, it may be difficult to value such investments.
•
Derivatives Risk. An underlying fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the
right to buy or sell an instrument at a specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment
streams calculated in relation to a rate, index, instrument or certain securities and a predetermined amount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified credit event in
exchange for a fixed payment or series of fixed payments.
An underlying fund’s use of
derivative instruments involves risks different from or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as leverage risk, liquidity risk, market risk
and management risk, are discussed elsewhere in this section. An underlying fund’s use of derivatives is also subject to 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. 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 an underlying fund to realize higher amounts of short-term capital gains. An underlying
fund’s use of derivatives could reduce the underlying fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested. The use of derivatives that are subject to regulation by the
Commodity Futures Trading Commission (CFTC) by an underlying fund could cause a fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.
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Financial Notes
(continued)
3. Risk
Factors (continued):
•
Leverage Risk. Certain underlying fund transactions, such as derivatives transactions, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may
expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately
large impact on the underlying fund.
•
Liquidity Risk. An underlying fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the underlying fund may have to sell them at a loss.
•
Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the
underlying fund’s performance and may increase the likelihood of capital gains distributions.
•
Securities Lending Risk. An underlying fund may lend its portfolio securities to brokers, dealers, and other financial institutions. Securities lending involves the risk of loss of rights in, or delay in
recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
Please refer to the funds’ prospectus for a more
complete description of the principal risks of investing in the funds.
4. Affiliates and Affiliated Transactions:
Investment Adviser
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 between CSIM and the trust. The
investment adviser does not receive a fee for the services it performs for the funds. However, the investment adviser is entitled to receive an annual management fee from each of the affiliated Schwab Funds and/or Laudus Funds that serve as
underlying funds.
Shareholder Servicing
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 financial intermediaries, including Charles Schwab & Co., Inc., a broker-dealer affiliate of CSIM (together, service providers), of certain account
maintenance, customer liaison and shareholder services to the current shareholders of the funds. The funds are not subject to any fee under the Plan.
Expense Limitation
CSIM and its affiliates have agreed 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 charged, excluding interest, taxes and certain non-routine expenses to
0.00%.
The agreement to limit the funds’ total
expenses charged is limited to each fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying funds.
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Financial Notes
(continued)
4. Affiliates and
Affiliated Transactions (continued):
Investments
in Affiliates
The funds may engage in certain
transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the funds may invest in other related funds. As of October 31, 2020, each Schwab Target Fund’s ownership percentages of other related funds’ shares
are:
| Underlying Funds | 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
Target 2045 Fund |
Schwab
Target 2050 Fund |
Schwab
Target 2055 Fund |
Schwab
Target 2060 Fund |
| Laudus International MarketMasters Fund | 0.3% | 0.4% | 3.2% | 4.6% | 9.1% | 5.1% | 11.3% | 2.2% | 2.4% | 1.4% | 0.3% |
| Laudus U.S. Large Cap Growth Fund | —% | —% | —% | 0.3% | 0.8% | 0.6% | 1.7% | 0.4% | 0.4% | 0.3% | 0.1% |
| Schwab Core Equity Fund | 0.1% | 0.2% | 1.4% | 2.4% | 4.7% | 2.6% | 5.8% | 1.1% | 1.2% | 0.7% | 0.1% |
| Schwab Dividend Equity Fund | 0.0%* | 0.0%* | 0.1% | 0.2% | 1.3% | 1.2% | 3.4% | 0.7% | 0.9% | 0.5% | 0.1% |
| Schwab Global Real Estate Fund | 0.3% | 0.5% | 3.9% | 5.8% | 11.8% | 6.5% | 15.0% | 2.9% | 3.1% | 1.9% | 0.4% |
| Schwab International Core Equity Fund | 0.3% | 0.4% | 3.1% | 4.9% | 10.0% | 5.5% | 12.6% | 2.5% | 2.6% | 1.6% | 0.3% |
| Schwab S&P 500 Index Fund | 0.0%* | 0.0%* | 0.1% | 0.2% | 0.3% | 0.2% | 0.3% | 0.1% | 0.1% | 0.0%* | 0.0%* |
| Schwab Short-Term Bond Index Fund | 0.3% | 0.4% | 2.5% | 1.9% | 2.3% | 0.8% | 1.1% | 0.1% | 0.1% | 0.0%* | 0.0%* |
| Schwab Small-Cap Equity Fund | 0.1% | 0.2% | 1.4% | 2.5% | 5.9% | 3.6% | 8.7% | 1.7% | 1.9% | 1.1% | 0.2% |
| Schwab Treasury Inflation Protected Securities Index Fund | 0.2% | 0.3% | 2.0% | 0.8% | 0.3% | —% | —% | —% | —% | —% | —% |
| Schwab U.S. Aggregate Bond Index Fund | 0.3% | 0.4% | 2.6% | 1.9% | 2.3% | 0.8% | 1.2% | 0.1% | 0.1% | 0.0%* | 0.0%* |
| Schwab U.S. Mid-Cap Index Fund | 0.1% | 0.1% | 0.9% | 1.4% | 2.4% | 1.5% | 3.2% | 0.6% | 0.6% | 0.4% | 0.1% |
| Schwab Variable Share Price Money Fund, Ultra Shares | 0.1% | 0.1% | 0.4% | 0.3% | 0.3% | 0.1% | 0.1% | 0.0%* | 0.0%* | —% | —% |
| * | Less than 0.05% |
Interfund Borrowing and
Lending
Pursuant to an exemptive order issued by the SEC,
the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged
will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. 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.
5. Board of Trustees:
The Board may include people
who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trusts were in compliance with these limitations
throughout the report period. The trusts did not pay any of these interested persons for their services as trustees, but they did pay non-interested persons (independent trustees), as noted on each fund’s Statement of Operations. For
information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
6. Borrowing from Banks:
During the period, the funds
were participants with other funds in the Fund Complex in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 1, 2020. On October 1, 2020, the Syndicated Credit Facility was amended
to run for a new 364 day period with a line of credit of $850 million, maturing on September 30, 2021. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment
fee of 0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other funds
in the Fund Complex in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility
was amended to run for a new 364 day period, which
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Schwab Target Funds
Financial Notes
(continued)
6. Borrowing from
Banks (continued):
was scheduled to mature on
November 27, 2020. However, on October 1, 2020, the Uncommitted Credit Facility was amended to run for a new 364 day period with a line of credit of $400 million, maturing on September 30, 2021. Under the terms of the Uncommitted Credit Facility,
each fund pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft
facilities. A fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current
Federal Funds Rate.
7. Purchases and Sales of Investment Securities:
For
the period ended October 31, 2020, purchases and sales of securities (excluding short-term obligations) were as follows:
| Purchases
of Securities |
Sales
of Securities | |
| Schwab Target 2010 Fund | $16,988,947 | $14,558,308 |
| Schwab Target 2015 Fund | 11,477,741 | 18,354,735 |
| Schwab Target 2020 Fund | 89,788,480 | 130,589,190 |
| Schwab Target 2025 Fund | 91,293,477 | 111,533,103 |
| Schwab Target 2030 Fund | 126,681,950 | 180,034,449 |
| Schwab Target 2035 Fund | 57,134,668 | 71,932,716 |
| Schwab Target 2040 Fund | 100,550,041 | 143,122,389 |
| Schwab Target 2045 Fund | 23,381,161 | 10,385,361 |
| Schwab Target 2050 Fund | 25,740,736 | 7,861,009 |
| Schwab Target 2055 Fund | 18,074,253 | 5,920,094 |
| Schwab Target 2060 Fund | 6,930,796 | 1,473,582 |
8. Federal Income Taxes:
As of October 31, 2020, the
tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| 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 | |||||||
| Tax cost | $48,736,970 | $65,652,272 | $441,300,463 | $494,812,378 | $794,447,317 | $409,930,196 | $800,940,147 | ||||||
| Gross unrealized appreciation | $7,449,046 | $12,405,294 | $87,386,975 | $88,709,729 | $188,686,748 | $77,596,910 | $207,751,978 | ||||||
| Gross unrealized depreciation | (673,185) | (818,984) | (5,096,548) | (13,338,052) | (17,508,217) | (10,648,923) | (24,877,495) | ||||||
| Net unrealized appreciation (depreciation) | $6,775,861 | $11,586,310 | $82,290,427 | $75,371,677 | $171,178,531 | $66,947,987 | $182,874,483 |
| Schwab
Target 2045 Fund |
Schwab
Target 2050 Fund |
Schwab
Target 2055 Fund |
Schwab
Target 2060 Fund | ||||
| Tax cost | $163,896,724 | $169,217,916 | $99,813,919 | $20,865,432 | |||
| Gross unrealized appreciation | $20,912,499 | $21,520,220 | $11,182,831 | $1,743,034 | |||
| Gross unrealized depreciation | (6,964,797) | (9,082,244) | (3,750,382) | (1,041,763) | |||
| Net unrealized appreciation (depreciation) | $13,947,702 | $12,437,976 | $7,432,449 | $701,271 |
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Financial Notes
(continued)
8. Federal Income
Taxes (continued):
As of October 31, 2020, the
components of distributable earnings on a tax basis were as follows:
| 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 | |||||||
| Undistributed ordinary income | $627,490 | $861,545 | $5,351,060 | $4,753,627 | $6,896,010 | $2,873,223 | $5,008,632 | ||||||
| Undistributed long-term capital gains | 385,123 | 1,864,103 | 10,253,960 | 7,267,149 | 16,940,518 | 7,480,383 | 21,945,060 | ||||||
| Net unrealized appreciation (depreciation) on investments | 6,775,861 | 11,586,310 | 82,290,427 | 75,371,677 | 171,178,531 | 66,947,987 | 182,874,483 | ||||||
| Total | $7,788,474 | $14,311,958 | $97,895,447 | $87,392,453 | $195,015,059 | $77,301,593 | $209,828,175 |
| Schwab
Target 2045 Fund |
Schwab
Target 2050 Fund |
Schwab
Target 2055 Fund |
Schwab
Target 2060 Fund | ||||
| Undistributed ordinary income | $722,521 | $630,488 | $340,162 | $57,261 | |||
| Undistributed long-term capital gains | 2,593,223 | 2,673,137 | 1,507,386 | 218,382 | |||
| Net unrealized appreciation (depreciation) on investments | 13,947,702 | 12,437,976 | 7,432,449 | 701,271 | |||
| Total | $17,263,446 | $15,741,601 | $9,279,997 | $976,914 |
The primary difference between book
basis and tax basis unrealized appreciation or unrealized depreciation of investments is the tax deferral of losses on wash sales. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect
these unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future
realized capital gains for federal income tax purposes. As of October 31, 2020, the funds had no capital loss carryforwards available to offset future net capital gains.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| 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 | |
| Current fiscal year end distributions | |||||||
| Ordinary income | $1,314,831 | $2,018,665 | $13,636,822 | $13,898,587 | $23,515,128 | $10,709,488 | $21,322,805 |
| Long-term capital gains | 1,204,227 | 2,170,460 | 16,329,586 | 17,306,186 | 41,149,887 | 19,394,717 | 54,339,154 |
| Prior fiscal year end distributions | |||||||
| Ordinary income | $1,495,169 | $2,479,149 | $14,329,454 | $13,118,422 | $23,478,753 | $10,929,045 | $23,580,844 |
| Long-term capital gains | 1,406,565 | 1,713,184 | 15,403,874 | 15,468,604 | 36,194,339 | 17,030,972 | 47,677,500 |
| Schwab
Target 2045 Fund |
Schwab
Target 2050 Fund |
Schwab
Target 2055 Fund |
Schwab
Target 2060 Fund | |
| Current fiscal year end distributions | ||||
| Ordinary income | $3,301,292 | $3,187,945 | $1,817,735 | $302,277 |
| Long-term capital gains | 5,698,235 | 4,958,508 | 3,151,691 | 412,859 |
| Prior fiscal year end distributions | ||||
| Ordinary income | $3,334,924 | $2,879,645 | $1,737,352 | $258,171 |
| Long-term capital gains | 4,868,236 | 4,295,579 | 2,478,549 | 243,273 |
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Schwab Target Funds
Financial Notes
(continued)
8. Federal Income
Taxes (continued):
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 reflect the differing character
of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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, 2020, 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 fiscal year ended October 31, 2020, the funds did not incur
any interest or penalties.
9. Independent Registered Public Accounting Firm:
On
June 8, 2020, the Audit, Compliance and Valuation Committee of the Board approved, and on June 9, 2020, the Board approved, Deloitte & Touche LLP as the independent registered accounting firm of the Schwab Funds Complex for fiscal periods ending
after June 8, 2020.
On June 8, 2020, the
PricewaterhouseCoopers LLP (the “Prior Auditor”) resigned as the independent registered public accounting firm of the Schwab Funds Complex. The Prior Auditor’s reports on the financial statements of the funds for the past two
fiscal years, the years ended October 31, 2018 and October 31, 2019, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the last two fiscal
year-ends and through June 8, 2020, there were no (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to
the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its reports on the funds’ financial statements for such periods; or (2) “reportable events,” as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
10. Subsequent Events:
Management has determined there
are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Target Funds
Report of
Independent Registered Public Accounting Firm
To the Board of Trustees of Schwab Capital Trust and
Shareholders of 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 Target 2045 Fund, Schwab Target 2050 Fund, Schwab
Target 2055 Fund and Schwab Target 2060 Fund:
Opinion on
the Financial Statements and Financial Highlights
We have
audited the accompanying statements of assets and liabilities, including the portfolio holdings, of 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 Target 2045 Fund, Schwab Target 2050 Fund, Schwab Target 2055 Fund and Schwab Target 2060 Fund (the “Funds”), eleven of the funds constituting Schwab Capital Trust, as of October 31, 2020, and the related
statements of operations, statements of changes in net assets, and the financial highlights for the year then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects,
the financial position of each of the Funds as of October 31, 2020, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended in conformity with accounting principles generally
accepted in the United States of America. The statements of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019; except for Schwab Target 2060 Fund,
the financial highlights for the three years in the period ended October 31, 2019 and for the period from August 25, 2016 to October 31, 2016, were audited by other auditors, whose report, dated December 16, 2019, expressed an unqualified opinion on
such statements of changes in net assets and financial highlights.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud.
The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and transfer agent. We believe that our audits provide a reasonable basis for our
opinion.
Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Schwab Target Funds
Other Federal
Tax Information (unaudited)
The funds may elect to pass on the benefits of the foreign tax
credit to their shareholders for the fiscal year ended October 31, 2020. The foreign tax credit and the foreign source income amounts are as follows:
| Foreign Tax Credit | Foreign Source Income | |
| Schwab Target 2010 Fund | $14,853 | $123,290 |
| Schwab Target 2015 Fund | 24,871 | 206,451 |
| Schwab Target 2020 Fund | 201,125 | 1,648,543 |
| Schwab Target 2025 Fund | 300,493 | 2,381,625 |
| Schwab Target 2030 Fund | 643,194 | 4,994,184 |
| Schwab Target 2035 Fund | 360,385 | 2,752,465 |
| Schwab Target 2040 Fund | 852,985 | 6,413,166 |
| Schwab Target 2045 Fund | 153,331 | 1,141,621 |
| Schwab Target 2050 Fund | 160,076 | 1,183,837 |
| Schwab Target 2055 Fund | 97,079 | 716,865 |
| Schwab Target 2060 Fund | 16,983 | 125,072 |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2020, qualify for the corporate dividends received deduction:
| Percentage | |
| Schwab Target 2010 Fund | 18.11 |
| Schwab Target 2015 Fund | 20.21 |
| Schwab Target 2020 Fund | 22.65 |
| Schwab Target 2025 Fund | 25.88 |
| Schwab Target 2030 Fund | 28.91 |
| Schwab Target 2035 Fund | 31.25 |
| Schwab Target 2040 Fund | 33.84 |
| Schwab Target 2045 Fund | 33.15 |
| Schwab Target 2050 Fund | 35.38 |
| Schwab Target 2055 Fund | 36.20 |
| Schwab Target 2060 Fund | 37.23 |
For the fiscal year ended October
31, 2020, 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 2021 via IRS
Form 1099 of the amounts for use in preparing their 2020 income tax return.
| Schwab Target 2010 Fund | $384,055 |
| Schwab Target 2015 Fund | 667,128 |
| Schwab Target 2020 Fund | 5,186,716 |
| Schwab Target 2025 Fund | 6,526,117 |
| Schwab Target 2030 Fund | 12,976,350 |
| Schwab Target 2035 Fund | 6,672,008 |
| Schwab Target 2040 Fund | 14,993,217 |
| Schwab Target 2045 Fund | 2,430,391 |
| Schwab Target 2050 Fund | 2,522,027 |
| Schwab Target 2055 Fund | 1,501,755 |
| Schwab Target 2060 Fund | 257,907 |
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Schwab Target Funds
Other Federal
Tax Information (unaudited) (continued)
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, 2020:
| Schwab Target 2010 Fund | $1,204,227 |
| Schwab Target 2015 Fund | 2,170,460 |
| Schwab Target 2020 Fund | 16,329,586 |
| Schwab Target 2025 Fund | 17,306,186 |
| Schwab Target 2030 Fund | 41,149,887 |
| Schwab Target 2035 Fund | 19,394,717 |
| Schwab Target 2040 Fund | 54,339,154 |
| Schwab Target 2045 Fund | 5,698,235 |
| Schwab Target 2050 Fund | 4,958,508 |
| Schwab Target 2055 Fund | 3,151,691 |
| Schwab Target 2060 Fund | 412,859 |
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Schwab Target Funds
Liquidity Risk
Management Program (Unaudited)
The Funds have adopted and implemented a liquidity risk
management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The Funds’ Board of Trustees (the “Board”) has designated the Funds’ investment adviser, Charles
Schwab Investment Management, Inc. (“CSIM”) as the administrator of the program. Personnel of CSIM or its affiliates conduct the day-to-day operation of the program.
Under the program, CSIM manages a Fund’s liquidity risk,
which is the risk that the Fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Fund. The program is reasonably designed to assess and manage a Fund’s liquidity
risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and
its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. CSIM’s process of determining the degree of liquidity of each Fund’s investments is supported by third-party liquidity
assessment vendors.
The Funds’ Board reviewed a
report at its meeting held on September 22, 2020 prepared by CSIM regarding the operation and effectiveness of the program for the period June 1, 2019, through May 31, 2020. No significant liquidity events impacting any of the Funds were noted in
the report. In addition, CSIM provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Schwab Target Funds
| 1 | The meeting on June 9, 2020 was held telephonically in reliance on exemptive relief from the in-person voting requirement under the 1940 Act as provided by the Securities and Exchange Commission. |
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Schwab Target Funds
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 and Laudus Trust. The Fund Complex includes 100 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 1-877-824-5615.
| Independent Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Robert
W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. | 100 | None |
| John
F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. | 100 | Director (2005 – 2020), Gilead Sciences, Inc. |
| Nancy
F. Heller 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). | 100 | None |
| Stephen
Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016) |
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). | 100 | None |
| David
L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Private Investor. | 100 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jane
P. Moncreiff 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). | 100 | None |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 100 | Director (2008 – present), KLA-Tencor Corporation |
| Kimberly
S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Consultant (2008 – present), Patmore Management Consulting (management consulting). | 100 | None |
| Gerald
B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016) |
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). | 100 | Director (2012 – present), Eaton Corporation plc |
| Interested Trustees | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Walter
W. Bettinger II2 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010) |
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – present), Charles Schwab Investment Management, Inc. | 100 | Director (2008 – present), The Charles Schwab Corporation |
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| Interested Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Jonathan
de St. Paer2 1973 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. | 100 | None |
| Joseph
R. Martinetto2 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016) |
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation. | 100 | 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 |
| Jonathan
de St. Paer 1973 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018) |
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present), Charles Schwab Investment Advisory, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. |
| Mark
Fischer 1970 Treasurer, Chief Financial Officer and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013) |
Treasurer and Chief Financial Officer (Jan. 2016 – present) and Chief Operating Officer (Dec. 2020 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management. |
| Omar
Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management. |
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| Officers of the Trust (continued) | |
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served3) |
Principal Occupations During the Past Five Years |
| Brett
Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm). |
| David
Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011) |
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
| Catherine
MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009) |
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs. |
| 1 | Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first. |
| 2 | Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co. |
| 3 | The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
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Schwab Target Funds | Annual Report
Schwab Target Funds
Charles Schwab
Investment Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab
Funds®.
Investors should carefully consider information contained in
the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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 the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s
website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s
website at www.sec.gov.
Schwab Funds
| ¹ | State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation. |
| ² | You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. |
Item 2: Code of Ethics.
| (a) | Registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and any other persons who perform a similar function, regardless of whether these individuals are employed by Registrant or a third party. |
| (c) | During the period covered by the report, no amendments were made to the provisions of this code of ethics. |
| (d) | During the period covered by the report, Registrant did not grant any waivers, including implicit waivers, from the provisions of this code of ethics. |
| (f)(1) | Registrant has filed this code of ethics as an exhibit pursuant to Item 13(a)(1) of Form N-CSR. |
Item 3: Audit Committee Financial Expert.
Registrant’s Board of Trustees has determined that Kiran M. Patel and Kimberly S. Patmore, each currently serving on its audit, compliance and valuation committee, are each an “audit committee financial expert,” as such term is defined in Item 3 of Form N-CSR. Each member of Registrant’s audit, compliance and valuation committee is “independent” under the standards set forth in Item 3 of Form N-CSR.
The designation of each of Mr. Patel and Ms. Patmore as an “audit committee financial expert” pursuant to Item 3 of Form N-CSR does not (i) impose upon such individual any duties, obligations, or liability that are greater than the duties, obligations and liability imposed upon such individual as a member of Registrant’s audit, compliance and valuation committee or Board of Trustees in the absence of such designation; and (ii) affect the duties, obligations or liability of any other member of Registrant’s audit, compliance and valuation committee or Board of Trustees.
Item 4: Principal Accountant Fees and Services.
Registrant is composed of fifty-one operational series. Thirty-six series have a fiscal year-end of October 31, whose annual financial statements are reported in Item 1, three series have a fiscal year-end of December 31, eleven series have a fiscal year-end of March 31, and one series has a fiscal year-end of the last day of February. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to the fifty-one operational series during 2020/2021 and 2019/2020, based on their respective 2020/2021 and 2019/2020 fiscal years, as applicable.
The following table presents fees billed by the principal accountant in each of the last two fiscal years for the services rendered to the Funds:
| (a) Audit Fees | (b) Audit-Related Fees1 | (c) Tax Fees2 | (d) All Other Fees | |||||||||||
|
Fiscal Year |
Fiscal Year 2018/2019 |
Fiscal Year 2019/2020 |
Fiscal Year 2018/2019 |
Fiscal Year 2019/2020 |
Fiscal Year 2018/2019 |
Fiscal Year 2019/2020 |
Fiscal Year 2018/2019 | |||||||
| $1,203,450 | $1,517,001 | $90,000 | $87,870 | $158,100 | $177,307 | $0 | $0 | |||||||
| 1 | The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. |
| 2 | The nature of the services includes tax compliance, tax advice and tax planning. |
| (e) (1) | Registrant’s audit, compliance and valuation committee does not have pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
| (2) | There were no services described in each of paragraphs (b) through (d) above (including services required to be approved by Registrant’s audit, compliance and valuation committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant’s audit, compliance and valuation committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) Not applicable.
(g) Below are the aggregate non-audit fees billed in each of the last two fiscal years by Registrant’s principal accountant for services rendered to Registrant, to Registrant’s investment adviser, and to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant.
2019/2020: $3,570,594 2018/2019: $265,177
| (h) | During the past fiscal year, all non-audit services provided by Registrant’s principal accountant to either Registrant’s investment adviser or to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit, compliance and valuation committee’s pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant’s independence. |
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Schedule of Investments.
Except as noted below, the condensed schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form. The schedules of investments for the Schwab Fundamental 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 S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund, Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, Schwab U.S. Mid-Cap Index Fund and Schwab International Index Fund are filed under this Item.
Schwab S&P 500 Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
1
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
2
Schwab Equity Index Funds | Annual Report
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Schwab S&P 500 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
3
Schwab Equity Index Funds | Annual Report
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Schwab S&P 500 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
4
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
5
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
6
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
7
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
8
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
9
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
10
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
11
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
12
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
13
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
14
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
15
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
16
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
17
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
18
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
19
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
20
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
21
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
22
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
23
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
24
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
25
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
26
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
27
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
28
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
29
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
30
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| Oncternal Therapeutics, Inc. CVR *(a)(b) | 1,506 | 3,087 |
| Tobira Therapeutics, Inc. CVR *(b) | 14,029 | 167,575 |
| 254,263 | ||
| Total Rights | ||
| (Cost $6,703) | 269,146 | |
| Warrants 0.0% of net assets | ||
| Energy 0.0% | ||
| Pulse
Biosciences, Inc. expires 05/14/25 *(b) |
948 | 9,962 |
| Total Warrants | ||
| (Cost $—) | 9,962 | |
| Other Investment Company 1.5% of net assets | ||
| Securities Lending Collateral 1.5% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (c) | 57,653,589 | 57,653,589 |
| Total Other Investment Company | ||
| (Cost $57,653,589) | 57,653,589 | |
| Security
Rate, Maturity Date |
Face
Amount ($) |
Value ($) |
| Short-Term Investment 0.3% of net assets | ||
| Time Deposit 0.3% | ||
| Sumitomo Mitsui Banking Corp. | ||
| 0.01%, 11/02/20 (d) | 13,572,108 | 13,572,108 |
| Total Short-Term Investment | ||
| (Cost $13,572,108) | 13,572,108 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| Russell 2000 Index, e-mini, expires 12/18/20 | 160 | 12,294,400 | (514,409) | |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $53,460,251. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| (d) | The rate shown is the current daily overnight rate. |
| CVR — | Contingent Value Rights |
| REIT — | Real Estate Investment Trust |
31
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
32
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
33
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
34
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
35
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
36
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
37
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
38
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
39
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
40
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
41
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
42
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
43
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
44
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
45
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
46
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
47
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
48
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
49
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
50
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
51
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
52
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
53
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
54
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
55
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
56
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security
Rate, Maturity Date |
Face
Amount ($) |
Value ($) |
| Short-Term Investment 0.5% of net assets | ||
| Time Deposit 0.5% | ||
| Skandinaviska Enskilda Banken | ||
| 0.01%, 11/02/20 (e) | 53,766,597 | 53,766,597 |
| Total Short-Term Investment | ||
| (Cost $53,766,597) | 53,766,597 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Appreciation (Depreciation) ($) | ||
| Futures Contracts | ||||
| Long | ||||
| Russell 2000 Index, e-mini, expires 12/18/20 | 150 | 11,526,000 | 105,271 | |
| S&P 500 Index, e-mini, expires 12/18/20 | 404 | 65,946,940 | (1,624,776) | |
| Net Unrealized Depreciation | (1,519,505) | |||
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $17,807,791. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (c) | Issuer is affiliated with the fund’s investment adviser. |
| (d) | The rate shown is the 7-day yield. |
| (e) | The rate shown is the current daily overnight rate. |
| CVR — | Contingent Value Rights |
| REIT — | Real Estate Investment Trust |
57
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth Index Fund
Portfolio Holdings as of October 31, 2020
This section shows all the securities in the fund’s
portfolio and their values as of the report date.
The
fund files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
58
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
59
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
60
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
61
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| Ubiquiti, Inc. | 207 | 38,421 |
| Zebra Technologies Corp., Class A * | 1,459 | 413,831 |
| 56,335,432 | ||
| Transportation 1.3% | ||
| C.H. Robinson Worldwide, Inc. | 638 | 56,418 |
| Expeditors International of Washington, Inc. | 3,080 | 272,180 |
| JB Hunt Transport Services, Inc. | 690 | 84,001 |
| Landstar System, Inc. | 947 | 118,091 |
| Old Dominion Freight Line, Inc. | 2,554 | 486,205 |
| Uber Technologies, Inc. * | 32,245 | 1,077,306 |
| Union Pacific Corp. | 10,533 | 1,866,342 |
| United Parcel Service, Inc., Class B | 14,158 | 2,224,363 |
| XPO Logistics, Inc. * | 124 | 11,160 |
| 6,196,066 | ||
| Utilities 0.0% | ||
| NRG Energy, Inc. | 2,588 | 81,833 |
| Total Common Stock | ||
| (Cost $360,904,879) | 484,974,088 | |
| Other Investment Companies 0.8% of net assets | ||
| Equity Funds 0.1% | ||
| iShares Russell 1000 Growth ETF | 2,300 | 482,034 |
| Money Market Fund 0.7% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (c) | 3,525,848 | 3,525,848 |
| Securities Lending Collateral 0.0% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (c) | 18,600 | 18,600 |
| Total Other Investment Companies | ||
| (Cost $4,005,638) | 4,026,482 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| Russell 1000 Index, e-mini, expires 12/18/20 | 20 | 2,108,600 | (53,043) | |
| S&P 500 Index, e-mini, expires 12/18/20 | 1 | 163,235 | (10,492) | |
| Net Unrealized Depreciation | (63,535) | |||
| * | Non-income producing security. |
| (a) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by fund’s Board of Trustees. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $17,700. |
| (c) | The rate shown is the 7-day yield. |
| ETF — | Exchange-traded fund |
| REIT — | Real Estate Investment Trust |
62
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
63
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
64
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
65
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
66
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
67
Schwab Equity Index Funds | Annual Report
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Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
68
Schwab Equity Index Funds | Annual Report
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Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
69
Schwab Equity Index Funds | Annual Report
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Schwab U.S. Large-Cap Value Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| IDACORP, Inc. | 1,134 | 99,486 |
| MDU Resources Group, Inc. | 4,477 | 106,374 |
| National Fuel Gas Co. | 1,957 | 78,202 |
| NextEra Energy, Inc. | 44,212 | 3,236,761 |
| NiSource, Inc. | 8,648 | 198,645 |
| NRG Energy, Inc. | 3,574 | 113,010 |
| OGE Energy Corp. | 4,494 | 138,280 |
| PG&E Corp. * | 29,260 | 279,726 |
| Pinnacle West Capital Corp. | 2,546 | 207,677 |
| PPL Corp. | 17,382 | 478,005 |
| Public Service Enterprise Group, Inc. | 11,397 | 662,736 |
| Sempra Energy | 6,540 | 819,854 |
| The AES Corp. | 14,935 | 291,233 |
| The Southern Co. | 23,843 | 1,369,780 |
| UGI Corp. | 4,666 | 150,898 |
| Vistra Corp. | 11,029 | 191,574 |
| WEC Energy Group, Inc. | 7,123 | 716,218 |
| Xcel Energy, Inc. | 11,851 | 829,926 |
| 20,887,808 | ||
| Total Common Stock | ||
| (Cost $308,297,025) | 330,224,187 | |
| Other Investment Companies 0.4% of net assets | ||
| Equity Funds 0.1% | ||
| iShares Russell 1000 Value ETF | 2,600 | 303,498 |
| Money Market Fund 0.2% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (c) | 686,767 | 686,767 |
| Securities Lending Collateral 0.1% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (c) | 356,750 | 356,750 |
| Total Other Investment Companies | ||
| (Cost $1,347,755) | 1,347,015 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| Russell 1000 Index, e-mini, expires 12/18/20 | 21 | 1,204,245 | (58,082) | |
| S&P 500 Index, e-mini, expires 12/18/20 | 1 | 163,235 | (342) | |
| Net Unrealized Depreciation | (58,424) | |||
| * | Non-income producing security. |
| (a) | Issuer is affiliated with the fund’s investment adviser. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $349,151. |
| (c) | The rate shown is the 7-day yield. |
| ETF — | Exchange-traded fund |
| REIT — | Real Estate Investment Trust |
70
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020
This section shows all the securities in the fund’s
portfolio and their values as of the report date.
The
fund files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
71
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
72
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
73
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
74
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
75
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
76
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
77
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| Other Investment Companies 0.6% of net assets | ||
| Equity Funds 0.1% | ||
| iShares Russell Mid-Cap ETF | 9,250 | 534,188 |
| Money Market Fund 0.3% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (c) | 1,321,608 | 1,321,608 |
| Securities Lending Collateral 0.2% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (c) | 1,047,925 | 1,047,925 |
| Total Other Investment Companies | ||
| (Cost $2,904,664) | 2,903,721 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| S&P 400 Mid-Cap Index, e-mini, expires 12/18/20 | 12 | 2,274,720 | (107,774) | |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $1,016,695. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by fund’s Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| ETF — | Exchange-traded fund |
| REIT — | Real Estate Investment Trust |
78
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
79
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
80
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
81
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
82
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
83
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
84
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
85
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
86
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab International Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| Other Investment Company 0.1% of net assets | ||
| United States 0.1% | ||
| Securities Lending Collateral 0.1% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (d) | 6,847,633 | 6,847,633 |
| Total Other Investment Company | ||
| (Cost $6,847,633) | 6,847,633 | |
| Security
Rate, Maturity Date |
Face
Amount Local Currency |
Value ($) |
| Short-Term Investments 0.1% of net assets | ||
| Time Deposits 0.1% | ||
| BNP Paribas | ||
| Euro | ||
| (0.70%), 11/02/20 (e)(f) | 25,455 | 29,646 |
| Brown Brothers Harriman | ||
| Australian Dollar | ||
| (0.02%), 11/02/20 (e)(f) | 5,510 | 3,873 |
| Hong Kong Dollar | ||
| 0.04%, 11/02/20 (e) | 153,175 | 19,758 |
| Singapor Dollar | ||
| 0.01%, 11/02/20 (e) | 346,254 | 253,490 |
| Swedish Krona | ||
| (0.26%), 11/02/20 (e)(f) | 1,665,084 | 187,122 |
| Citibank | ||
| Pound Sterling | ||
| 0.01%, 11/02/20 (e) | 22,029 | 28,538 |
| Sumitomo Mitsui Banking Corp. | ||
| Japanese Yen | ||
| (0.27%), 11/02/20 (e)(f) | 6,873,797 | 65,656 |
| Sumitomo Mitsui Banking Corp. | ||
| U.S. Dollar | ||
| 0.01%, 11/02/20 (e) | 6,333,959 | 6,333,959 |
| Total Short-Term Investments | ||
| (Cost $6,922,042) | 6,922,042 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| MSCI EAFE Index, expires 12/18/20 | 406 | 36,213,170 | (1,705,238) | |
| * | Non-income producing security. |
| (a) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by fund’s Board of Trustees. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $5,890,477. |
| (c) | Securities are traded on separate exchanges for the same entity. |
| (d) | The rate shown is the 7-day yield. |
| (e) | The rate shown is the current daily overnight rate. |
| (f) | Rate is negative due to the current daily overnight rate at the central bank of the denominated currency and therefore is non-income producing. |
| ADR — | American Depositary Receipt |
| CVA — | Dutch Certificate |
| REIT — | Real Estate Investment Trust |
| RSP — | Risparmio (Convertible Savings Shares) |
87
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
1
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
2
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
3
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
4
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
5
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
6
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security | Number
of Shares |
Value ($) |
| NRG Energy, Inc. | 41,127 | 1,300,436 |
| OGE Energy Corp. | 41,471 | 1,276,063 |
| PG&E Corp. * | 481,238 | 4,600,635 |
| Pinnacle West Capital Corp. | 27,657 | 2,255,982 |
| Portland General Electric Co. | 21,669 | 851,592 |
| PPL Corp. | 208,692 | 5,739,030 |
| Public Service Enterprise Group, Inc. | 117,016 | 6,804,480 |
| Sempra Energy | 40,296 | 5,051,507 |
| Southwest Gas Holdings, Inc. | 13,312 | 874,865 |
| The AES Corp. | 280,065 | 5,461,268 |
| The Southern Co. | 204,376 | 11,741,401 |
| UGI Corp. | 64,010 | 2,070,083 |
| Vistra Corp. | 123,941 | 2,152,855 |
| WEC Energy Group, Inc. | 42,796 | 4,303,138 |
| Xcel Energy, Inc. | 88,962 | 6,230,009 |
| 174,349,933 | ||
| Total Common Stock | ||
| (Cost $3,097,661,049) | 4,536,929,983 | |
| Other Investment Companies 0.3% of net assets | ||
| Money Market Fund 0.0% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (c) | 1,383,897 | 1,383,897 |
| Securities Lending Collateral 0.3% | ||
| Wells Fargo Government Money Market Fund, Select Class 0.04% (c) | 11,209,213 | 11,209,213 |
| Total Other Investment Companies | ||
| (Cost $12,593,110) | 12,593,110 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| S&P 500 Index, e-mini, expires 12/18/20 | 59 | 9,630,865 | (541,323) | |
| * | Non-income producing security. |
| (a) | Issuer is affiliated with the fund’s investment adviser. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $10,257,993. |
| (c) | The rate shown is the 7-day yield. |
| REIT — | Real Estate Investment Trust |
7
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
8
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
9
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
10
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
11
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
12
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
13
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
14
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
15
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| Russell 2000 Index, e-mini, expires 12/18/20 | 113 | 8,682,920 | (329,056) | |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $13,731,147. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| REIT — | Real Estate Investment Trust |
16
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
17
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
18
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
19
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
20
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
21
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
22
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
23
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
24
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
25
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020
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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
26
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
27
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
28
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
29
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
30
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
31
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
32
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
33
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
34
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
35
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
36
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
37
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
38
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
39
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental International Small Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| MSCI EAFE Index, expires 12/18/20 | 27 | 2,408,265 | (138,487) | |
| * | Non-income producing security. |
| (a) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (b) | All or a portion of this security is on loan. Securities on loan were valued at $7,928,976. |
| (c) | The rate shown is the 7-day yield. |
| (d) | The rate shown is the current daily overnight rate. |
| (e) | Rate is negative due to the current daily overnight rate at the central bank of the denominated currency and therefore is non-income producing. |
| CVA — | Dutch Certificate |
| REIT — | Real Estate Investment Trust |
40
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging Markets Large Company Index Fund
Portfolio Holdings as of October 31, 2020
This section shows all the securities in the fund’s
portfolio and their values as of the report date.
The
fund files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the
SEC’s website at www.sec.gov and on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus. The fund also makes available its complete schedule of
portfolio holdings 15 to 20 days after the end of the month on the fund’s website.
41
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
42
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging Markets Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
43
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging Markets Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
44
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging Markets Large Company Index Fund
Portfolio Holdings as of October 31, 2020 (continued)
| Security
Rate, Maturity Date |
Face
Amount Local Currency |
Value ($) |
| Sumitomo Mitsui Trust Bank, Limited | ||
| U.S. Dollar | ||
| 0.01%, 11/02/20 (d) | 25,068 | 25,068 |
| Total Short-Term Investments | ||
| (Cost $91,937) | 91,937 | |
| Number
of Contracts |
Notional
Amount ($) |
Current
Value/ Unrealized Depreciation ($) | ||
| Futures Contracts | ||||
| Long | ||||
| MSCI Emerging Markets Index, expires 12/18/20 | 28 | 1,542,660 | (32,981) | |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $398,843. |
| (b) | Fair-valued by management using significant unobservable inputs in accordance with procedures approved by the fund’s Board of Trustees. |
| (c) | The rate shown is the 7-day yield. |
| (d) | The rate shown is the current daily overnight rate. |
| (e) | Rate is negative due to the current daily overnight rate at the central bank of the denominated currency and therefore is non-income producing. |
| ADR — | American Depositary Receipt |
| GDR — | Global Depositary Receipt |
| NVDR — | Non-Voting Depositary Receipt |
45
Schwab Fundamental Index Funds | Annual
Report
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notes
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of Schwab Investments and Schwab Capital Trust and Shareholders of 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 1000 Index Fund, Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund, Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, Schwab U.S. Mid-Cap Index Fund and Schwab International Index Fund:
Opinion on the Financial Statements, Financial Highlights, and Portfolio Holdings
We have audited the accompanying statements of assets and liabilities of 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 1000 Index Fund, Schwab S&P 500 Index Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market Index Fund, Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, Schwab U.S. Mid-Cap Index Fund and Schwab International Index Fund (the “Funds”), including the condensed portfolio holdings, as of October 31, 2020, the related statements of operations, statements of changes in net assets and the financial highlights for the year then ended, and the related notes (the financial statements and financial highlights are included in Item 1 of this Form N-CSR), and the portfolio holdings as of October 31, 2020 (included in Item 6 of this Form N-CSR). In our opinion, the financial statements, financial highlights, and portfolio holdings present fairly, in all material respects, the financial position of the Funds as of October 31, 2020, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. The statements of changes in net assets for the year ended October 31, 2019 and the financial highlights for each of the four years in the period ended October 31, 2019; except for Schwab U.S. Large-Cap Growth Index Fund, Schwab U.S. Large-Cap Value Index Fund, and Schwab U.S. Mid-Cap Index Fund, the financial highlights for the year ended October 31, 2019 and for the period from December 20, 2017 to October 31, 2018, were audited by other auditors, whose report, dated December 16, 2019, expressed an unqualified opinion on such statements of changes in net assets and financial highlights.
Basis for Opinion
These financial statements, financial highlights, and portfolio holdings are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements, financial highlights, and portfolio holdings based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements, financial highlights, and portfolio holdings are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, financial highlights, and portfolio holdings, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements, financial highlights, and portfolio holdings. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements, financial highlights, and portfolio holdings. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Denver, Colorado
December 16, 2020
We have served as the auditor of one or more investment companies in the Schwab Funds Complex since 2020.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
| (a) | Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Jonathan de St. Paer and Registrant’s Chief Financial Officer, Mark Fischer, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. |
| (b) | During the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting. |
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
| (2) |
| (3) | Not applicable. |
| (b) |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Schwab Capital Trust
| By: | /s/ Jonathan de St. Paer | |
| Jonathan de St. Paer Chief Executive Officer | ||
| Date: | December 16, 2020 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Jonathan de St. Paer | |
| Jonathan de St. Paer Chief Executive Officer | ||
| Date: | December 16, 2020 | |
| By: | /s/ Mark Fischer | |
| Mark Fischer Chief Financial Officer | ||
| Date: | December 16, 2020 | |