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, 2021
Item 1: Report(s) to Shareholders.
Annual
Report | October 31, 2021
Laudus International MarketMasters Fund™
Laudus International MarketMasters Fund
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab
Asset ManagementTM
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.
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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.schwabassetmanagement.com/laudusfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2021 | |
| Laudus International MarketMasters Fund1 (Ticker Symbol: SWMIX) | 33.50% |
| MSCI EAFE® Index (Net)2 | 34.18% |
| Fund Category: Morningstar Foreign Large Growth3 | 27.70% |
| 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.
For index definitions, please see the
Glossary.
Fund expenses may have been partially absorbed
by the investment adviser 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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MarketMasters 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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | 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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Laudus International
MarketMasters Fund
The Investment Environment
For the 12-month reporting period ended October 31, 2021,
international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where
it began, despite exhibiting volatility along the way. For the reporting period, the S&P 500® Index, a bellwether for the overall U.S. stock market, returned 42.91%.
Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance, returned 34.18% and the MSCI Emerging Markets Index
(Net)* returned 16.96%.
Bolstered by the extensive
emergency rescue and fiscal stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of
2020. Outside the United States, global economies also displayed resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the
reporting period, except for a dip in July and August, on growing demand and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for
both the fourth quarter of 2020 and the first quarter of 2021. GDP growth turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more
than three centuries over the course of 2020, effectively wiping out its growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent
restrictions during the summer and posted a strong gain in GDP growth for the second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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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Laudus International
MarketMasters Fund
The Investment Environment
(continued)
quarter of 2020. Japan’s economy subsequently contracted
in the first quarter of 2021 on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related
shocks, maintained positive GDP growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis
on domestic consumption over globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of
2021.
For the most part, central banks around the world,
including the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed
reiterated several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the
reporting period. However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to
reduce its bond-buying program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing.
The European Central Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term
interest rate target of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained
its key official bank rate at 0.1% and continued to support its bond-buying program. Emerging markets were mixed. Central banks in China, India, and Indonesia maintained their low rates to help counter the ongoing effects of the COVID-19 pandemic.
Mexico, Brazil, Russia, and Pakistan raised their rates, citing a stronger-than-expected recovery or to counteract the impacts of inflation.
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Laudus International
MarketMasters Fund
Fund Management
 |
Omar Aguilar, Ph.D., Managing Director and Chief Investment Officer of all investment strategies for Schwab Asset Management, is responsible for the day-to-day co-management of the fund. Mr. Aguilar has more than 20 years of broad investment management experience in the equity markets, including managing index, quantitative equity, asset allocation, and multi-manager strategies. Prior to joining Schwab in April 2011, Mr. Aguilar was with Financial Engines, where he was responsible for managing more than $40 billion in 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 more than $20 billion in assets with 15 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. Her responsibilities include performance attribution and portfolio reporting, as well as making recommendations for tactical portfolio allocations using quantitative models. Ms. Shi also collaborates with the Schwab Asset Management Investment Manager Research Team to evaluate and monitor current and new subadvisers. Ms. Shi joined Schwab in 2011 as a research analyst. Prior to that, Ms. Shi was a vice president and 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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Laudus International
MarketMasters Fund
The
Laudus International MarketMasters Fund (the fund) uses a multi-manager strategy. Charles Schwab Investment Management, Inc.—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, the investment adviser is responsible for monitoring and coordinating the overall management of
the fund. Each subadviser’s portfolio is compared to its respective comparative index that reflects its individual process and philosophy. The subadviser comparative indices may differ from the fund’s comparative index.
Market Highlights. For the
12-month reporting period ended October 31, 2021, international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the
summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing
economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of foreign
currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
Performance. For the 12-month
period ended October 31, 2021, the fund returned 33.50%, underperforming the fund’s comparative index, the MSCI EAFE® Index (Net) (the index), which returned
34.18%.
Positioning and Strategies. Over the 12-month reporting period, all five of the fund’s active subadvisers posted positive returns, contributing to the fund’s total return. Two of the fund’s active subadvisers underperformed
their comparative indices and three of fund’s active subadvisers outperformed their comparative indices.
Among the fund’s five active subadvisers, American
Century Investment Management, Inc., which focuses on international small-cap growth, posted a positive return but underperformed its comparative index. Stock selection was weakest in the consumer discretionary and industrials sectors and strongest
in the health care and consumer staples sectors. From a sector allocation perspective, an underweight to the materials and energy sectors detracted from relative performance while an underweight to the consumer staples and health care sectors
contributed to relative performance. From a geographic perspective, stock selection in China and Sweden detracted from relative performance and stock selection in Israel and United Kingdom contributed to relative performance.
Mondrian Investment Partners Limited, with its international
small-cap value focus, also posted a positive return but underperformed its comparative index. Mondrian’s stock selection was weakest in the utilities and energy sectors and strongest in the industrials and financials sectors. From a sector
allocation perspective, Mondrian’s underweight to the financials sector and overweight to the consumer staples sector detracted from relative performance while an overweight to the industrials sector and underweight to the materials sector
contributed to relative return. From a geographic perspective, stock selection in France and Germany detracted from relative performance, while stock selection in Japan, as well as an overweight to Japan, contributed to relative performance.
Baillie Gifford Overseas Limited posted a positive return and
outperformed its international growth comparative index. Stock selection was strongest in the consumer discretionary and information technology sectors and weakest in the financials and consumer staples sectors. From a sector allocation perspective,
an underweight to the consumer staples sector and an overweight to the health care sector contributed to relative return, while an overweight to the consumer discretionary sector and an underweight to the industrials sector detracted from relative
return. From a geographic perspective, an allocation to the United States and stock selection in China contributed to relative performance and stock selection in Germany and the lack of an allocation to Switzerland detracted from relative
performance.
William Blair Investment Management, LLC
posted a positive total return and outperformed its international multi-cap growth comparative index. Stock selection was strongest in the consumer discretionary and health care sectors and weakest in the financials and energy sectors. From a sector
allocation perspective, William Blair’s overweight to the information technology and industrials sectors contributed to relative performance, while an underweight to the materials sector detracted from relative performance. From a geographic
perspective, stock selection in China and Switzerland contributed to relative performance, while an overweight to China and stock selection in India detracted from relative performance.
Harris Associates L.P. posted the strongest total return and
outperformed its international growth comparative index. Stock selection was strongest in the industrials and materials sectors and weakest in the consumer discretionary and consumer staples sectors. From a sector allocation perspective,
Harris’ underweight to the consumer staples sector and overweight to the financials sector contributed to relative performance, while an underweight to the energy sector and overweight to the communications services sector detracted from
relative performance. From a geographic perspective, stock selection in the United Kingdom and Italy contributed to relative performance, while an overweight to China and stock selection in Australia detracted from relative performance.
Mellon Investments Corporation, the fund’s smallest
subadviser allocation, was liquidated to cash on January 31, 2020. The raised funds were reallocated within the portfolio. Mellon is currently a dormant subadviser for the fund.
Management views and portfolio holdings may have changed since
the report date.
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Laudus International
MarketMasters Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/laudusfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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 | 33.50% | 12.85% | 9.79% |
| MSCI EAFE® Index (Net)4 | 34.18% | 9.79% | 7.37% |
| Fund Category: Morningstar Foreign Large Growth5 | 27.70% | 13.76% | 9.74% |
| Fund Expense Ratios6: Net 1.25%; Gross 1.51% | |||
Investment
Managers and Allocations7
| Investment Managers | Investment Style | %
of Net Assets |
| American Century Investment Management, Inc. | International Small-Cap Growth | 28.7% |
| William Blair Investment Management, LLC | International Multi-Cap Growth | 25.6% |
| Mondrian Investment Partners Limited | International Small-Cap Value | 18.2% |
| Harris Associates L.P. | International Large-Cap Value | 18.0% |
| Baillie Gifford Overseas Limited | International Growth | 8.5% |
| Mellon Investment Corporation | International Blend | 0.0% 8 |
| Cash and other assets | 1.0% |
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 the investment adviser 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 Schwab Asset Management 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 | Less than 0.05%. |
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Laudus International
MarketMasters Fund
Performance and Fund Facts as
of October 31, 2021 (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
MarketMasters Fund
Fund Expenses
(Unaudited)
Examples for a $1,000 Investment
| EXPENSE
RATIO (ANNUALIZED) 1 |
BEGINNING
ACCOUNT VALUE AT 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212 | |
| Laudus International MarketMasters Fund | ||||
| Actual Return | 1.25% | $1,000.00 | $1,035.50 | $6.41 |
| Hypothetical 5% Return | 1.25% | $1,000.00 | $1,018.90 | $6.36 |
| 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 the 365 days of the fiscal year. |
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Laudus International
MarketMasters Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/191 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $24.37 | $22.89 | $22.89 | $26.96 | $21.16 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.01 | 0.00 3 | 0.31 | 0.24 | 0.22 | |
| Net realized and unrealized gains (losses) | 7.94 | 1.95 | 1.74 | (3.09) | 5.76 | |
| Total from investment operations | 7.95 | 1.95 | 2.05 | (2.85) | 5.98 | |
| Less distributions: | ||||||
| Distributions from net investment income | — | (0.43) | (0.29) | (0.36) | (0.18) | |
| Distributions from net realized gains | (1.72) | (0.04) | (1.76) | (0.86) | — | |
| Total distributions | (1.72) | (0.47) | (2.05) | (1.22) | (0.18) | |
| Net asset value at end of period | $30.60 | $24.37 | $22.89 | $22.89 | $26.96 | |
| Total return | 33.50% | 8.56% | 10.50% | (11.09%) | 28.52% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 1.25% | 1.25% | 1.25% | 1.25% | 1.25% | |
| Gross operating expenses | 1.47% | 1.51% | 1.50% | 1.51% | 1.53% | |
| Net investment income (loss) | 0.05% | 0.00% 4 | 1.43% | 0.92% | 0.92% | |
| Portfolio turnover rate | 59% | 65% | 54% | 69% | 71% | |
| Net assets, end of period (x 1,000,000) | $1,495 | $1,243 | $1,413 | $1,127 | $1,229 | |
| 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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Laudus International MarketMasters Fund | Annual
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/laudusfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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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Laudus International MarketMasters Fund | Annual
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Laudus International MarketMasters Fund | Annual
Report
See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Laudus International MarketMasters Fund | Annual
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Laudus International MarketMasters Fund | Annual
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Laudus International MarketMasters Fund | Annual
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (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
APPRECIATION ($) |
| FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS | ||||||
| 12/15/21 | State Street Bank & Trust Co. | USD | 3,321,186 | CHF | 2,972,000 | 71,094 |
| * | 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) | 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 |
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See financial
notes
Laudus International
MarketMasters Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $— | $251,466,153 | $— | $251,466,153 |
| Argentina | 14,176,293 | — | — | 14,176,293 |
| Australia | 4,152,032 | 55,220,791 | — | 59,372,823 |
| Brazil | 9,767,827 | — | — | 9,767,827 |
| Canada | 92,180,524 | — | 4,259,329 | 96,439,853 |
| China | 10,251,659 | 59,604,339 | — | 69,855,998 |
| Denmark | 4,965,613 | 24,602,528 | — | 29,568,141 |
| France | 2,210,543 | 121,462,268 | — | 123,672,811 |
| Germany | 11,920,459 | 127,669,246 | — | 139,589,705 |
| India | 7,152,137 | 26,704,080 | — | 33,856,217 |
| Ireland | 9,904,761 | 7,037,818 | — | 16,942,579 |
| Israel | 19,900,272 | — | — | 19,900,272 |
| Italy | — | 23,774,058 | 1,781,699 | 25,555,757 |
| Mexico | 6,661,704 | — | — | 6,661,704 |
| Netherlands | 2,971,178 | 79,903,175 | — | 82,874,353 |
| Norway | 349,637 | 10,245,875 | — | 10,595,512 |
| Poland | 724,222 | 555,306 | — | 1,279,528 |
| Portugal | — | — | 0* | 0 |
| Russia | 2,133,213 | — | — | 2,133,213 |
| Singapore | 5,605,339 | 5,777,023 | 2,840,420 | 14,222,782 |
| Spain | 1,558,800 | 9,361,556 | — | 10,920,356 |
| Sweden | 10,419,524 | 69,409,550 | — | 79,829,074 |
| Switzerland | 7,327,113 | 72,713,546 | — | 80,040,659 |
| Taiwan | 5,536,963 | 23,583,754 | — | 29,120,717 |
| Thailand | 4,398,208 | — | — | 4,398,208 |
| United Kingdom | 45,142,035 | 172,575,718 | — | 217,717,753 |
| United States | 19,517,626 | — | — | 19,517,626 |
| Uruguay | 691,656 | — | — | 691,656 |
| Preferred Stocks1 | — | 3,000,433 | — | 3,000,433 |
| Brazil | 984,540 | — | — | 984,540 |
| Corporate Bonds1 | — | 852,866 | — | 852,866 |
| Rights 1 | — | 199,930 | — | 199,930 |
| Short-Term Investments1 | 31,253,777 | — | — | 31,253,777 |
| Foreign Currency Exchange Contracts2 | — | 71,094 | — | 71,094 |
| Liabilities | ||||
| Futures Contracts2 | (133,434) | — | — | (133,434) |
| Total | $331,724,221 | $1,145,791,107 | $8,881,448 | $1,486,396,776 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts and foreign currency contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
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notes
Laudus International
MarketMasters Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $1,060,679,634) | $1,486,459,116 | |
| Foreign currency, at value (cost $1,712,716) | 1,712,033 | |
| Deposit with broker for futures contracts | 4,561,919 | |
| Receivables: | ||
| Investments sold | 10,665,011 | |
| Dividends | 1,281,202 | |
| Foreign tax reclaims | 758,111 | |
| Fund shares sold | 20,224 | |
| Interest | 10,829 | |
| Unrealized apppreciation on forward foreign currency contracts | 71,094 | |
| Prepaid expenses | + | 16,438 |
| Total assets | 1,505,555,977 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 7,077,524 | |
| Investment adviser and administrator fees | 1,303,806 | |
| Fund shares redeemed | 1,172,597 | |
| Foreign capital gains tax | 335,373 | |
| Shareholder service fees | 189,572 | |
| Variation margin on futures contracts | 116,191 | |
| Due to custodian | 74,039 | |
| Accrued expenses | + | 572,147 |
| Total liabilities | 10,841,249 | |
| Net assets | $1,494,714,728 | |
| Net Assets by Source | ||
| Capital received from investors | $886,508,744 | |
| Total distributable earnings | + | 608,205,984 |
| Net assets | $1,494,714,728 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,494,714,728 | 48,847,852 | $30.60 | ||
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Laudus International
MarketMasters Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $2,589,829) | $18,834,857 | |
| Interest received from securities - unaffiliated | + | 9,272 |
| Total investment income | 18,844,129 | |
| Expenses | ||
| Investment adviser and administrator fees | 18,500,489 | |
| Shareholder service fees | 2,268,373 | |
| Custodian fees | 281,576 | |
| Portfolio accounting fees | 139,104 | |
| Professional fees | 67,674* | |
| Shareholder reports | 59,668 | |
| Registration fees | 32,064 | |
| Independent trustees’ fees | 11,639 | |
| Transfer agent fees | 9,932 | |
| Other expenses | + | 44,225 |
| Total expenses | 21,414,744 | |
| Expense reduction by investment adviser and its affiliates | – | 3,237,566* |
| Net expenses | – | 18,177,178 |
| Net investment income | 666,951 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated (net of foreign capital gains tax paid of $99,593) | 201,600,091 | |
| Net realized gains on futures contracts | 13,415,746 | |
| Net realized losses on forward foreign currency exchange contracts | (81,115) | |
| Net realized losses on foreign currency transactions | + | (207,012) |
| Net realized gains | 214,727,710 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated (net of change in foreign capital gains tax of ($235,780)) | 187,102,503 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 239,299 | |
| Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | 134,877 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (121,578) |
| Net change in unrealized appreciation (depreciation) | + | 187,355,101 |
| Net realized and unrealized gains | 402,082,811 | |
| Increase in net assets resulting from operations | $402,749,762 | |
| * | Includes professional fees of $21,839 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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $666,951 | $55,632 | |
| Net realized gains | 214,727,710 | 89,185,162 | |
| Net change in unrealized appreciation (depreciation) | + | 187,355,101 | 21,758,004 |
| Increase in net assets from operations | $402,749,762 | $110,998,798 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($85,551,526) | ($27,899,553) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 2,560,644 | $74,676,320 | 4,963,270 | $95,437,857 | |
| Shares reinvested | 2,533,275 | 68,955,738 | 891,003 | 21,116,755 | |
| Shares redeemed | + | (7,230,462) | (208,820,997) | (16,594,568) | (369,846,702) |
| Net transactions in fund shares | (2,136,543) | ($65,188,939) | (10,740,295) | ($253,292,090) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 50,984,395 | $1,242,705,431 | 61,724,690 | $1,412,898,276 | |
| Total increase (decrease) | + | (2,136,543) | 252,009,297 | (10,740,295) | (170,192,845) |
| End of period | 48,847,852 | $1,494,714,728 | 50,984,395 | $1,242,705,431 | |
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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 2045 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2050 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2055 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2060 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2065 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 Health Care Fund | Schwab Target 2040 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2045 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2020 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2025 Fund | Schwab Target 2065 Index Fund |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund – Moderate Payout |
| Schwab Target 2035 Fund | Schwab Monthly Income Fund – Enhanced Payout |
| Schwab Target 2040 Fund | Schwab Monthly Income Fund – Maximum Payout |
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 may invest in mutual funds and exchange-traded funds
(ETFs), which are referred to as "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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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.
•
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.
• Mutual 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, mutual funds 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 underlying securities 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
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, 2021 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 value may change daily.
Passive Foreign Investment Companies: The fund may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a Passive Foreign Investment Company (PFIC). The fund may elect for tax purposes to mark-to-market annually the
shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked-to- market gains (as well as any gains realized on sale).
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.
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Financial Notes
(continued)
2. Significant Accounting Policies (continued):
When the fund closes out a futures contract, 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 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, 2021, 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.
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Laudus International
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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. The
investment adviser 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.
Multi-Manager Risk.
Although the investment adviser 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.
Management Risk. As an
actively managed mutual fund, 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.
Equity Risk. The prices of
equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to
fall over short or extended periods of time.
Market Capitalization Risk.
Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall
behind other types of investments, the fund’s performance could be impacted.
Large-Cap Company Risk.
Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.
Mid-Cap Company Risk.
Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.
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, auditing, financial
reporting and recordkeeping 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.
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Laudus International
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Financial Notes
(continued)
3. Risk
Factors (continued):
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.
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, but not the obligation, to buy or sell an instrument at a specific price on
or 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.
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., dba Schwab Asset
Management, 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 the investment adviser and the
trust.
For its advisory and administrative services to
the fund, the investment adviser is entitled to receive a graduated annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:
| % OF AVERAGE DAILY NET ASSETS | |
| First $500 million | 1.29% |
| $500 million to $1 billion | 1.275% |
| Over $1 billion | 1.25% |
For the period ended October 31,
2021, the aggregate advisory fees paid to the investment adviser by the fund was 1.27% 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 the investment adviser, (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
27
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Laudus International
MarketMasters Fund
Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
case of
payments made to Schwab acting as a service provider, pursuant to Schwab’s written agreement with the fund), and the 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, the investment adviser and its affiliates have made an additional agreement with the fund, for so long as the investment adviser 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, 2021, 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 | 2.7% |
| Schwab Target 2025 Fund | 4.4% |
| Schwab Target 2030 Fund | 8.9% |
| Schwab Target 2035 Fund | 5.4% |
| Schwab Target 2040 Fund | 11.6% |
| Schwab Target 2045 Fund | 2.5% |
| Schwab Target 2050 Fund | 2.5% |
| Schwab Target 2055 Fund | 1.7% |
| Schwab Target 2060 Fund | 0.4% |
| Schwab Target 2065 Fund | 0.0%* |
| * | 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 on behalf of the fund, subject to reimbursement to the extent the fund is able to successfully recover taxes
withheld in the future.
During the year ended October 31,
2021, the professional fees incurred by the fund were $21,839.
During the year ended October 31, 2021, the fund recovered
previously withheld foreign taxes from Finland. The payment received by the fund amounted to $204,791 and is recorded in the fund’s Statement of Operations. The investment adviser had paid upfront professional fees associated with recovering
these foreign taxes in the amount of $49,372. This amount has been reimbursed to the investment adviser by the fund.
As of October 31, 2021, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the fund was $149.
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.
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Laudus International
MarketMasters 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. 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 the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report
period. The fund 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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, 2021, purchases and sales of
securities (excluding short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES |
| $808,493,003 | $921,696,036 |
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 value and variation margin for futures contracts held at October 31, 2021 are presented in the Portfolio Holdings and Statement of Assets and Liabilities,
respectively. The net realized gains (losses) and net change in unrealized appreciation (depreciation) on futures contracts are presented in 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, 2021, the month-end average notional amounts of futures contracts held by the fund and the
month-end average number of contracts held were $35,122,104 and 324, respectively.
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Financial Notes
(continued)
8. Derivatives (continued):
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, 2021, the month-end average forward foreign currency notional amount and the month-end average unrealized
appreciation were $3,012,728 and $26,004, respectively.
As of October 31, 2021, 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 | 71,094 |
| LIABILITY DERIVATIVES | FAIR VALUE |
| Equity Index Futures Contracts3 | ($133,434) |
| Forward Foreign Currency Exchange Contracts4 | — |
| 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, 2021 were:
| Equity Index Futures Contracts | |
| Realized gains1 | $13,415,746 |
| Net change in unrealized appreciation (depreciation)2 | 239,299 |
| Forward Foreign Currency Exchange Contracts | |
| Realized losses1 | ($81,115) |
| Net change in unrealized appreciation (depreciation)2 | 134,877 |
| 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, 2021.
| COUNTERPARTY | GROSS
AMOUNTS OF ASSETS PRESENTED IN THE STATEMENT OF ASSETS AND LIABILITIES |
FINANCIAL
INSTRUMENTS AVAILABLE FOR OFFSET |
CASH
COLLATERAL PLEDGED |
NET
AMOUNT(a) | |||
| State Street Bank & Trust Co. | $71,094 | $— | $— | $71,094 | |||
| Total | $71,094 | $— | $— | $71,094 |
| (a) | Represents the net amount due to the counterparty in the event of default. |
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MarketMasters Fund
Financial Notes
(continued)
| 9. Federal Income Taxes: |
As of October 31, 2021, the tax basis
cost of the fund’s investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) |
| $1,092,800,126 | $465,164,035 | ($71,567,385) | $393,596,650 |
As of October 31, 2021, the
components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
NET
OTHER UNREALIZED APPRECIATION (DEPRECIATION) |
TOTAL |
| $57,001,007 | $157,867,816 | $393,596,650 | ($259,489) | $608,205,984 |
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, 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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the fund had no capital loss carryforwards.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| $— | $85,551,526 | $25,483,603 | $2,415,950 | |
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, 2021, 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, 2021, the fund did not incur
any interest or penalties.
10. Subsequent Events:
Management has determined there are no subsequent events or
transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
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, 2021, and the related statement of operations for
the year then ended, the related statement of changes in net assets and the financial highlights for the two years in the period 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, 2021, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the two years in the period then ended in
conformity with accounting principles generally accepted in the United States of America. The financial highlights for each of the three 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 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 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 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
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 $1,581,113 to its shareholders for the fiscal year ended October 31, 2021. The respective foreign source income on the fund is $21,255,859.
For the fiscal year ended October 31, 2021, the fund designates
$457,518 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 2022 via IRS Form 1099 of the amounts for use in
preparing their 2021 income tax return.
Under section
852(b)(3)(C) of the Internal Revenue Code, the fund hereby designates $85,551,526 as long-term capital gain dividends for the fiscal year ended October 31, 2021.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters 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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity metrics. No significant liquidity events
impacting the Fund were noted in the report. In addition, the investment adviser provided its assessment that the program had been operating effectively in managing the Fund’s liquidity risk.
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
Investment Advisory and Sub-Advisory Agreement Approval
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Laudus International MarketMasters Fund | Annual
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Laudus International
MarketMasters Fund
| 1 | The meeting on June 8, 2021 was held by means of videoconference 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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Laudus International MarketMasters Fund | Annual
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Laudus International
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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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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Laudus International MarketMasters Fund | Annual
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | Director (2008 – present), The Charles Schwab Corporation |
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MarketMasters 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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
40
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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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. |
41
Laudus International MarketMasters Fund | Annual
Report
Laudus International
MarketMasters Fund
Glossary
42
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 Schwab Asset Management, Laudus Funds offer single and multi-manager strategies as a complement to other funds managed by Schwab Asset
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.schwabassetmanagement.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.schwabassetmanagement.com/laudusfunds_prospectus or the
SEC’s website at www.sec.gov.
Laudus Funds®
Annual
Report | October 31, 2021
Schwab Active Equity Funds
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Health Care Fund
Schwab International Core Equity
Fund
This page is intentionally left blank.
Schwab Active Equity Funds
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab
Asset ManagementTM
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 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.schwabassetmanagement.com/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2021 | |
| Schwab Core Equity Fund (Ticker Symbol: SWANX) | 37.62% |
| S&P 500® Index | 42.91% |
| Fund Category: Morningstar Large Blend1 | 41.27% |
| Performance Details | pages 8-10 |
| Schwab Dividend Equity Fund2 (Ticker Symbol: SWDSX) | 42.38% |
| Russell 1000® Value Index | 43.76% |
| Fund Category: Morningstar Large Value1 | 43.70% |
| Performance Details | pages 11-13 |
| Schwab Large-Cap Growth Fund (Ticker Symbol: SWLSX) | 40.41% |
| Russell 1000® Growth Index | 43.21% |
| Fund Category: Morningstar Large Growth1 | 39.55% |
| Performance Details | pages 14-16 |
| Schwab Small-Cap Equity Fund (Ticker Symbol: SWSCX) | 58.55% |
| Russell 2000® Index | 50.80% |
| Fund Category: Morningstar Small Blend1 | 54.25% |
| Performance Details | pages 17-19 |
| Schwab Health Care Fund2 (Ticker Symbol: SWHFX) | 30.02% |
| Dow Jones Global Health Care Index | 27.34% |
| Fund Category: Morningstar Health1 | 25.98% |
| Performance Details | pages 20-22 |
| Schwab International Core Equity Fund2 (Ticker Symbol: SICNX) | 28.12% |
| MSCI EAFE® Index (Net)3 | 34.18% |
| Fund Category: Morningstar Foreign Large Blend1 | 31.56% |
| Performance Details | pages 23-25 |
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.
For index definitions, please see the
Glossary.
Fund expenses may have been partially absorbed
by the investment adviser 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. |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
3
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
The
Investment Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors, outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. The U.S. dollar, as
measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance, returned 34.18% for the reporting period.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program.
5
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Fund Management
 |
Bill McMahon, CFA, Managing Director and Chief Investment Officer of Active Equity Strategies for Schwab Asset Management, is responsible for the day-to-day co-management of the Schwab Large-Cap Growth Fund, Schwab Core Equity Fund, and Schwab Dividend Equity Fund. Mr. McMahon has more than 20 years of experience in the financial services industry. Prior to his current role, Mr. McMahon was an SVP in Charles Schwab Investment Advisory, Inc. (CSIA), serving as CIO and as a member of the portfolio management team for the ThomasPartners Strategies. Mr. McMahon co-founded ThomasPartners, Inc. in 2001 and served as partner of the firm until its acquisition by the Charles Schwab Corporation in 2012 and subsequent merger with CSIA in 2018. Mr. McMahon began his career at State Street Corporation, with the latter half of his tenure with State Street Global Advisors. |
 |
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 Schwab in 2013, Mr. Clayton spent more than five years at SSI Investment Management where he was a portfolio manager and the 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. Prior to joining Schwab 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. |
 |
Brian Hillburn, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Core Equity Fund. Mr. Hillburn also provides fundamental equity research coverage for the ThomasPartners Strategies and the Schwab Active Equity Funds. Previously, Mr. Hillburn was a director and senior equity research analyst for the ThomasPartners Strategies at Schwab Asset Management. Prior to joining the ThomasPartners Strategies, Mr. Hillburn was an equity analyst at Rockland Trust, and earlier positions include equity research analysis roles on mutual fund teams at Wells Capital and Morgan Stanley Investment Management. |
 |
Wei Li, Ph.D., CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab International Core Equity Fund, Schwab Dividend Equity Fund, Schwab Small-Cap Equity Fund, and Schwab Health Care Fund. Prior to joining Schwab in 2012, Ms. Li spent more than 10 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. |
 |
Gretchen Novak, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Large-Cap Growth Fund. Ms. Novak also provides fundamental equity research coverage of certain industry sectors for the ThomasPartners Strategies and the Schwab Active Equity Funds. Previously, Ms. Novak was a director and senior equity research analyst for the ThomasPartners Strategies at Schwab Asset Management. Prior to joining the ThomasPartners Strategies, Ms. Novak was a senior portfolio manager at Mazama Capital Management, Inc., where she oversaw the equity research and portfolio management of the firm’s consumer discretionary and staples sectors. Prior to Mazama Capital, Ms. Novak was an equity analyst at Cramer Rosenthal McGlynn, LLC. |
6
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Fund Management
(continued)
 |
Jim Serhant, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Dividend Equity Fund and the ThomasPartners Balanced Strategies. Mr. Serhant also provides fundamental equity research coverage of certain industry sectors for the ThomasPartners Strategies and the Schwab Active Equity Funds. Prior to joining Schwab in 2016, Mr. Serhant was an executive vice president at Hartford Investment Management where he was the head of high yield and a senior portfolio manager, overseeing the credit research and portfolio management of the firm’s high yield strategies. Previously, he was a fixed income analyst at Delaware Investments and JP Morgan. |
7
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund as of October 31, 2021
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. Under normal circumstances, the fund pursues its goal by investing at least 80% of its net
assets (including, for this purpose, any borrowings for investment purposes) in equity securities of U.S. companies. The fund typically invests in 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® and employs a research-driven, “bottom-up” approach focusing primarily
on individual securities. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs.
Performance. The fund returned
37.62% for the 12-month reporting period ended October 31, 2021, underperforming the S&P 500® Index (the index), which the fund uses for performance comparisons. The
index returned 42.91% for the reporting period.
Positioning and Strategies.
The fund’s underweight investment in Tesla, Inc., which designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components, weighed on the fund’s relative performance. The fund held shares of
Tesla between January 2021 and August 2021, which returned approximately -3% during that period. Tesla benefitted from strong sales growth on electric vehicle sales, particularly in China, improving financial performance, and flows into ESG funds,
as well as an upgrade that praised the internet of cars market and a possible Hertz deal.
NVIDIA Corp., which designs, develops, and markets 3D graphics
processors and related software, was another detractor from the fund’s relative performance over the reporting period. The fund’s underweight investment in NVIDIA returned approximately 7% for the reporting period. NVIDIA rose on strong
chip sales, strong pricing due to shortages, demand from the gaming and crypto mining industries, and rebound in economic growth. The fund sold its position in NVIDIA in January 2021.
The fund’s performance relative to the index was
enhanced by the fund’s Class A holdings of Alphabet, Inc., which, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and
hardware products. The fund’s overweight investment in Alphabet returned approximately 83% for the reporting period. Alphabet benefited from strong advertising revenues across multiple business.
The fund’s overweight position in financial holding
company Bank of America Corp. was another contributor to the fund’s relative performance as a result of financials sector stocks, particularly banks, recovering in 2021, on higher interest rates spreads, U.S. Federal Reserve policies, credit
reserve releases, strong capital markets, and client merger and acquisition activity. The fund’s holdings of Bank of America returned approximately 106% for the reporting period.
Management views and portfolio holdings may have changed since
the report date.
8
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Performance and
Fund Facts as of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 37.62% | 15.86% | 14.01% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Fund Category: Morningstar Large Blend3 | 41.27% | 17.14% | 14.63% |
| 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 the investment adviser 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. |
9
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Performance and
Fund Facts as of October 31, 2021 (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. |
10
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund as of October 31, 2021
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 Equity Ratings International® to aid its international stock selection and employs a research-driven, “bottom-up” approach focusing primarily on individual securities. For more information
concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of
foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way. Over the reporting period, value stocks slightly outperformed growth stocks, leading to similar performance between
dividend-paying stocks and the broader stock market.
Performance. The fund returned
42.38% for the 12-month reporting period ended October 31, 2021, underperforming the Russell 1000® Value Index (the index), which the fund uses for performance comparisons.
The index returned 43.76% for the reporting period.
As of October 31, 2021, the fund’s dividend yield was
1.73%, lower than the 2.16% dividend yield of the index. As of October 31, 2021, the fund’s 30-Day SEC yield was 1.73%.
Positioning and Strategies.
The fund’s overweight position in Verizon Communications, Inc., a telecommunications company that provides wireless and wireline voice and data services, weighed on relative performance. The fund’s holdings of Verizon returned
approximately -3% for the reporting period. Verizon shares declined as the company increased debt issuance to fund higher wireless spectrum acquisition costs and higher capital investment to upgrade its network to 5G.
Lockheed Martin Corp., a global security company that
primarily researches, designs, develops, manufactures, and integrates advanced technology products and services, was another detractor from the fund’s relative performance over the reporting period. The fund’s overweight investment in
Lockheed Martin returned approximately -2% for the reporting period. Deceleration in its end-market growth rate, supply chain challenges, and company-specific programmatic headwinds impacted Lockheed Martin’s performance.
The fund’s performance relative to the index was
enhanced by the fund’s holdings of Morgan Stanley, a bank holding company. The fund’s investment in Morgan Stanley returned approximately 118% for the reporting period, making it the largest contributor to excess return versus the
benchmark. Morgan Stanley posted strong earnings per share (EPS) growth and benefitted from a strong capital position that allowed the company to buy back shares and reduce its outstanding share count.
The fund’s position in Navient Corp., which focuses on
education loan portfolio management, servicing and asset recovery, was another contributor to the fund’s relative performance as a result of strong EPS growth, share buybacks, and debt reduction were also drivers of the stock during the
period. The fund’s holdings of Navient returned approximately 182% for the reporting period. Navient was a non-index stock. The fund’s position in Navient was sold prior to the end of the reporting period.
Management views and portfolio
holdings may have changed since the report date.
11
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund
Performance and Fund
Facts as of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 42.38% | 10.09% | 10.34% |
| Russell 1000® Value Index | 43.76% | 12.39% | 12.85% |
| Dividend Equity Spliced Index | 43.76% | 12.39% | 12.85% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Fund Category: Morningstar Large Value3 | 43.70% | 12.59% | 12.14% |
| Fund Expense Ratios4: Net 0.89%; Gross 0.90% | |||
Yields1
| 30-Day SEC Yield | 1.73% |
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.
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 the investment adviser 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. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as Schwab Asset Management 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. |
12
Schwab Active Equity Funds | Annual Report
Schwab Dividend Equity Fund
Performance and Fund
Facts as of October 31, 2021 (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. |
13
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund as of October 31, 2021
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® and employs a
research-driven, “bottom-up” approach focusing primarily on individual securities. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks, and among U.S. large-caps, value stocks slightly outperformed growth stocks.
Performance. The fund returned
40.41% for the 12-month reporting period ended October 31, 2021, underperforming the Russell 1000® Growth Index (the index), which the fund uses for performance
comparisons. The index returned 43.21% for the reporting period.
Positioning and Strategies.
The fund’s underweight position in Tesla, Inc., which designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components, weighed on relative performance. The fund’s holdings of Tesla returned
approximately 187% for the reporting period. Tesla benefitted from strong sales growth on electric vehicle sales, particularly in China, improving financial performance, and flows into ESG funds, as well as an upgrade that praised the internet of
cars market and a possible Hertz deal.
Moderna,
Inc., a clinical stage biotechnology company, was a detractor from the fund’s relative performance. Moderna returned approximately 412% for the index during the reporting period, surging on vaccine prospects. The fund did not hold Moderna
during the reporting period.
Zoom Video Communications,
Inc., a cloud service that provides a 3-in-1 meeting platform with video conferencing, mobility, and web meetings, contributed to the fund’s relative performance. Class A shares of Zoom retuned approximately -40% for the index during the
reporting period. Zoom benefitted when the COVID-19 pandemic began but reversed as effective vaccines were deployed. The fund did not hold Zoom during the reporting period.
Salesforce.com, Inc., which designs and develops enterprise
software, was another contributor to the fund’s relative performance as a result of prioritizing technology spending on digital transformation. The fund’s underweight investment in Salesforce returned approximately 28% for the reporting
period. The fund added to its position in Salesforce as it raised its guidance.
Management views and portfolio holdings may have changed since
the report date.
14
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Large-Cap Growth Fund (10/3/05) | 40.41% | 20.71% | 16.56% |
| Russell 1000® Growth Index | 43.21% | 25.49% | 19.42% |
| Fund Category: Morningstar Large Growth2 | 39.55% | 22.95% | 17.43% |
| Fund Expense Ratios3: Net 0.99%; Gross 1.02% | |||
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.
| 1 | Fund expenses may have been partially absorbed by the investment adviser 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 Schwab Asset Management 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. |
15
Schwab Active Equity Funds | Annual Report
Schwab Large-Cap
Growth Fund
Performance and Fund Facts as
of October 31, 2021 (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. |
16
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund as of October 31, 2021
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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks.
Performance. The fund returned
58.55% for the 12-month reporting period ended October 31, 2021, outperforming the Russell 2000® Index (the index), which the fund uses for performance comparisons. The
index returned 50.80% for the reporting period.
Positioning and Strategies.
The fund’s performance relative to the index was enhanced by the fund’s holdings of Cimarex Energy Co., which explores and produces crude oil and natural gas. The fund’s holdings of Cimarex Energy
returned approximately 250% for the reporting period. Strong cash flow and controlled capital expenditure helped the performance of Cimarex in a rising oil price environment. Cimarex Energy was a non-index stock. Cimarex Energy Co. and Cabot Oil
& Gas Corp. merged in October 2021 to form Coterra Energy, Inc.
The fund’s overweight position in Atkore, Inc., a
manufacturer and supplier of metal products and electrical raceway solutions, was another contributor to the fund’s relative performance. Atkore gained pricing power as its competitors were hampered by supply chain disruptions due to the
COVID-19 pandemic. The fund’s holdings of Atkore returned approximately 357% for the reporting period.
The fund’s position in Quidel Corp., which discovers,
develops, manufactures, and markets diagnostic healthcare products and solutions, weighed on relative performance. The fund’s holdings of Quidel returned approximately -51% for the reporting period. As the COVID-19 vaccination rate picked up
and cases subsided, Quidel, which is highly levered to COVID-19 test volume, disappointed in earnings. Quidel was a non-index stock.
Emergent BioSolutions, Inc., a global specialty
biopharmaceutical company, was another detractor from the fund’s relative performance over the reporting period. The fund’s overweight investment in Emergent BioSolutions returned approximately -47% for the reporting period. Emergent
BioSolutions halted production of the J&J COVID-19 vaccine due to manufacturing issues and continued to decrease revenue guidance.
Management views and portfolio holdings may have changed since
the report date.
17
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund
Performance and Fund
Facts as of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Small-Cap Equity Fund (7/1/03) | 58.55% | 12.79% | 13.07% |
| Russell 2000® Index | 50.80% | 15.52% | 13.50% |
| Fund Category: Morningstar Small Blend2 | 54.25% | 13.77% | 12.64% |
| Fund Expense Ratio3: 1.10% | |||
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.
| 1 | Fund expenses may have been partially absorbed by the investment adviser 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. |
18
Schwab Active Equity Funds | Annual Report
Schwab Small-Cap Equity Fund
Performance and Fund
Facts as of October 31, 2021 (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. |
19
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund as of October 31, 2021
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 Equity Ratings International® 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of
foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way. U.S. health care stocks performed well over the reporting period, though lagged broader global stock markets. Health care stocks
underperformed the S&P 500® Index and MSCI EAFE® Index.
Performance. The fund returned
30.02% for the 12-month reporting period ended October 31, 2021, outperforming the Dow Jones Global Health Care Index (the index), which the fund uses for performance comparisons. The index returned 27.34% for the reporting period.
Positioning and Strategies.
The fund’s performance relative to the index was enhanced by the fund’s holdings of Eli Lilly and Co., which discovers, develops, manufactures, and sells pharmaceutical products for humans and animals. The fund’s overweight
investment in Eli Lilly returned approximately 99% for the reporting period. Eli Lilly performed well on positive clinical data for an Alzheimer’s disease drug.
The fund’s overweight position in Getinge AB, a provider
of hospitals and life science institutions with products and solutions that aim to improve clinical results and optimize workflows, was another contributor to the fund’s relative performance as a result of strength of sales as well as margin
improvement from operating leverage. The fund’s Class B holdings of Getinge returned approximately 131% for the reporting period.
The fund’s position in Amedisys, Inc., a multi-regional
provider of alternate-site health care services, weighed on relative performance. The fund’s overweight investment in Amedisys returned approximately -35% for the reporting period. Underperformance of hospice businesses drove Amedisys’
underperformance.
Bristol-Myers Squibb Co., which
develops, licenses, manufactures, markets, and sells pharmaceutical and nutritional products, was another detractor from the fund’s relative performance over the reporting period. The fund’s overweight investment in Bristol-Myers Squibb
returned approximately 3% for the reporting period. Bristol-Myers Squibb underperformed as a result of concerns about generic competition in the future as well as a lack of new data on late-stage and new products.
Management views and portfolio
holdings may have changed since the report date.
20
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 30.02% | 14.93% | 15.40% |
| Dow Jones Global Health Care Index | 27.34% | 15.41% | 14.76% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Fund Category: Morningstar Health3 | 25.98% | 16.70% | 16.54% |
| 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 the investment adviser 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. |
21
Schwab Active Equity Funds | Annual Report
Schwab Health
Care Fund
Performance and Fund Facts as
of October 31, 2021 (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. |
22
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund as of October 31, 2021
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 United States,
however, the fund may also invest in stocks issued by companies located in emerging markets. To aid its stock selection, the fund uses Schwab Equity Ratings International®.
For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of
foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
Performance. The fund returned
28.12% for the 12-month reporting period ended October 31, 2021, underperforming the MSCI EAFE® Index (Net) (the index), which the fund uses for performance comparisons.
The index returned 34.18% for the reporting period.
Positioning and Strategies.
The fund’s overweight position in Nintendo Co., Ltd., which develops, manufactures and sells home-use video game hardware and software in home entertainment business, weighed on the fund’s relative performance. The fund’s holdings
of Nintendo returned approximately -17% for the reporting period. Nintendo underperformed as a result of concerns over the trajectory of Switch, a video game console, hardware sales, and chip shortages impacting future game development.
The fund’s underweight position in ASML Holding N.V.,
which develops, produces, and markets semiconductor manufacturing equipment, specifically machines for the production of chips, was another detractor from relative performance. The fund’s holdings of ASML Holding returned approximately 125%
for the reporting period, benefitting from a strong demand for semiconductors that increased demand for semiconductor equipment.
The fund’s performance relative to the index was
enhanced by the fund’s holdings of Compagnie de Saint-Gobain S.A., a manufacturer of glass products, high-performance materials, and construction materials. The fund’s overweight investment in Compagnie de Saint-Gobain returned
approximately 81% for the reporting period, benefitting from global economic and construction recovery.
Novo Nordisk A/S, which develops, produces, and markets
pharmaceutical products, was another contributor to the fund’s relative performance as a result of good trial data on a potential new drug. The fund’s overweight investment in Class B shares of Novo Nordisk A/S returned approximately 74%
for the reporting period.
Management views and portfolio holdings may have changed since
the report date.
23
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 28.12% | 7.29% | 7.47% |
| MSCI EAFE® Index (Net)3 | 34.18% | 9.79% | 7.37% |
| Fund Category: Morningstar Foreign Large Blend4 | 31.56% | 9.42% | 7.35% |
| Fund Expense Ratios5: Net 0.86%; Gross 0.88% | |||
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 the investment adviser 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 Schwab Asset Management 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. |
24
Schwab Active Equity Funds | Annual Report
Schwab International Core
Equity Fund
Performance and Fund Facts as
of October 31, 2021 (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. |
25
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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212 | |
| Schwab Core Equity Fund | ||||
| Actual Return | 0.73% | $1,000.00 | $1,086.60 | $3.84 |
| Hypothetical 5% Return | 0.73% | $1,000.00 | $1,021.53 | $3.72 |
| Schwab Dividend Equity Fund | ||||
| Actual Return | 0.89% | $1,000.00 | $1,056.40 | $4.61 |
| Hypothetical 5% Return | 0.89% | $1,000.00 | $1,020.72 | $4.53 |
| Schwab Large-Cap Growth Fund | ||||
| Actual Return | 0.99% | $1,000.00 | $1,140.60 | $5.34 |
| Hypothetical 5% Return | 0.99% | $1,000.00 | $1,020.21 | $5.04 |
| Schwab Small-Cap Equity Fund | ||||
| Actual Return | 1.08% | $1,000.00 | $1,057.40 | $5.60 |
| Hypothetical 5% Return | 1.08% | $1,000.00 | $1,019.76 | $5.50 |
| Schwab Health Care Fund | ||||
| Actual Return | 0.80% | $1,000.00 | $1,106.40 | $4.25 |
| Hypothetical 5% Return | 0.80% | $1,000.00 | $1,021.17 | $4.08 |
| Schwab International Core Equity Fund | ||||
| Actual Return | 0.86% | $1,000.00 | $1,043.40 | $4.43 |
| Hypothetical 5% Return | 0.86% | $1,000.00 | $1,020.87 | $4.38 |
| 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 the 365 days of the fiscal year. |
26
Schwab Active Equity Funds | Annual Report
Schwab Core Equity Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $22.24 | $21.87 | $22.40 | $24.36 | $19.65 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.21 | 0.20 | 0.21 | 0.26 | 0.34 | |
| Net realized and unrealized gains (losses) | 7.90 | 0.82 | 1.99 | 0.41 | 4.71 | |
| Total from investment operations | 8.11 | 1.02 | 2.20 | 0.67 | 5.05 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.20) | (0.20) | (0.27) | (0.34) | (0.34) | |
| Distributions from net realized gains | (0.93) | (0.45) | (2.46) | (2.29) | — | |
| Total distributions | (1.13) | (0.65) | (2.73) | (2.63) | (0.34) | |
| Net asset value at end of period | $29.22 | $22.24 | $21.87 | $22.40 | $24.36 | |
| Total return | 37.62% | 4.65% | 12.02% | 2.71% | 26.00% | |
| 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% | 0.73% | 0.74% | |
| Net investment income (loss) | 0.81% | 0.91% | 1.01% | 1.12% | 1.53% | |
| Portfolio turnover rate | 86% | 97% | 98% | 101% | 86% | |
| Net assets, end of period (x 1,000,000) | $1,860 | $1,957 | $2,182 | $2,138 | $2,353 | |
| 1 | Calculated based on the average shares outstanding during the period. |
27
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
28
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2021 (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 Stocks1 | $1,853,269,728 | $— | $— | $1,853,269,728 |
| Short-Term Investments1 | 15,728,522 | — | — | 15,728,522 |
| Total | $1,868,998,250 | $— | $— | $1,868,998,250 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as
Level 1, without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
29
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $1,223,385,071) | $1,868,998,250 | |
| Deposit with broker for futures contracts | 550,000 | |
| Receivables: | ||
| Dividends | 1,559,365 | |
| Foreign tax reclaims | 386,426 | |
| Fund shares sold | 52,971 | |
| Prepaid expenses | + | 17,135 |
| Total assets | 1,871,564,147 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 10,151,689 | |
| Investment adviser and administrator fees | 727,863 | |
| Shareholder service fees | 374,182 | |
| Accrued expenses | + | 187,341 |
| Total liabilities | 11,441,075 | |
| Net assets | $1,860,123,072 | |
| Net Assets by Source | ||
| Capital received from investors | $779,901,659 | |
| Total distributable earnings | + | 1,080,221,413 |
| Net assets | $1,860,123,072 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,860,123,072 | 63,668,512 | $29.22 | ||
30
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Core Equity Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $174,637) | $29,897,725 | |
| Securities on loan, net | + | 3,015 |
| Total investment income | 29,900,740 | |
| Expenses | ||
| Investment adviser and administrator fees | 9,120,924 | |
| Shareholder service fees | 4,709,524 | |
| Custodian fees | 75,834 | |
| Portfolio accounting fees | 69,629 | |
| Shareholder reports | 60,576 | |
| Professional fees | 35,407 | |
| Registration fees | 32,834 | |
| Transfer agent fees | 14,710 | |
| Independent trustees’ fees | 13,340 | |
| Other expenses | + | 21,102 |
| Total expenses | 14,153,880 | |
| Expense reduction by investment adviser and its affiliates | – | 14,710 |
| Net expenses | – | 14,139,170 |
| Net investment income | 15,761,570 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 429,863,961 | |
| Net realized losses on futures contracts | + | (3,983,885) |
| Net realized gains | 425,880,076 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 181,824,785 |
| Net realized and unrealized gains | 607,704,861 | |
| Increase in net assets resulting from operations | $623,466,431 | |
31
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $15,761,570 | $18,727,365 | |
| Net realized gains | 425,880,076 | 77,674,196 | |
| Net change in unrealized appreciation (depreciation) | + | 181,824,785 | (9,143,636) |
| Increase in net assets from operations | $623,466,431 | $87,257,925 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($97,998,756) | ($63,919,641) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,613,563 | $92,083,552 | 4,154,672 | $86,639,129 | |
| Shares reinvested | 3,088,327 | 73,440,411 | 2,083,874 | 46,553,727 | |
| Shares redeemed | + | (31,031,079) | (787,773,255) | (18,036,297) | (381,670,564) |
| Net transactions in fund shares | (24,329,189) | ($622,249,292) | (11,797,751) | ($248,477,708) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 87,997,701 | $1,956,904,689 | 99,795,452 | $2,182,044,113 | |
| Total decrease | + | (24,329,189) | (96,781,617) | (11,797,751) | (225,139,424) |
| End of period | 63,668,512 | $1,860,123,072 | 87,997,701 | $1,956,904,689 | |
32
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.14 | $15.07 | $15.43 | $17.21 | $14.39 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.31 | 0.28 | 0.23 | 0.22 | 0.29 | |
| Net realized and unrealized gains (losses) | 4.80 | (2.15) | 0.93 | (0.27) | 2.75 | |
| Total from investment operations | 5.11 | (1.87) | 1.16 | (0.05) | 3.04 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.33) | (0.26) | (0.24) | (0.30) | (0.22) | |
| Distributions from net realized gains | — | (0.80) | (1.28) | (1.43) | — | |
| Total distributions | (0.33) | (1.06) | (1.52) | (1.73) | (0.22) | |
| Net asset value at end of period | $16.92 | $12.14 | $15.07 | $15.43 | $17.21 | |
| Total return | 42.38% | (13.30%) | 8.78% | (0.63%) | 21.19% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.89% | 0.89% | 0.89% | 0.88% | 0.88% | |
| Gross operating expenses | 0.90% | 0.90% | 0.89% | 0.88% | 0.88% | |
| Net investment income (loss) | 2.01% | 2.16% | 1.58% | 1.36% | 1.78% | |
| Portfolio turnover rate | 83% | 70% | 70% | 79% | 70% | |
| Net assets, end of period (x 1,000,000) | $671 | $577 | $847 | $1,249 | $1,469 | |
| 1 | Calculated based on the average shares outstanding during the period. |
33
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
34
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
35
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $494,520,533 | $— | $— | $494,520,533 |
| Food, Beverage & Tobacco | 48,571,059 | 12,556,204 | — | 61,127,263 |
| Materials | 12,611,004 | 2,413,252 | — | 15,024,256 |
| Pharmaceuticals, Biotechnology & Life Sciences | 43,654,385 | 20,970,642 | — | 64,625,027 |
| Technology Hardware & Equipment | 23,462,377 | 6,083,827 | — | 29,546,204 |
| Short-Term Investments1 | — | 5,385,003 | — | 5,385,003 |
| Total | $622,819,358 | $47,408,928 | $— | $670,228,286 |
| 1 | As categorized in the Portfolio Holdings. |
36
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $547,990,248) | $670,228,286 | |
| Deposit with broker for futures contracts | 275,000 | |
| Receivables: | ||
| Dividends | 1,111,713 | |
| Foreign tax reclaims | 180,446 | |
| Fund shares sold | 82,647 | |
| Prepaid expenses | + | 39,211 |
| Total assets | 671,917,303 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 536,938 | |
| Investment adviser and administrator fees | 340,268 | |
| Shareholder service fees | 133,730 | |
| Accrued expenses | + | 141,812 |
| Total liabilities | 1,152,748 | |
| Net assets | $670,764,555 | |
| Net Assets by Source | ||
| Capital received from investors | $461,698,916 | |
| Total distributable earnings | + | 209,065,639 |
| Net assets | $670,764,555 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $670,764,555 | 39,633,491 | $16.92 | ||
37
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Dividend Equity
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $139,767) | $18,528,920 | |
| Interest received from securities - unaffiliated | 162 | |
| Securities on loan, net | + | 6,525 |
| Total investment income | 18,535,607 | |
| Expenses | ||
| Investment adviser and administrator fees | 3,959,781 | |
| Shareholder service fees | 1,524,963 | |
| Portfolio accounting fees | 115,489 | |
| Shareholder reports | 38,689 | |
| Professional fees | 31,950 | |
| Registration fees | 29,275 | |
| Independent trustees’ fees | 9,055 | |
| Custodian fees | 7,770 | |
| Transfer agent fees | 4,088 | |
| Other expenses | + | 11,837 |
| Total expenses | 5,732,897 | |
| Expense reduction by investment adviser and its affiliates | – | 47,754 |
| Net expenses | – | 5,685,143 |
| Net investment income | 12,850,464 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 117,117,474 | |
| Net realized losses on futures contracts | (1,812,038) | |
| Net realized losses on foreign currency transactions | + | (17,731) |
| Net realized gains | 115,287,705 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 90,531,181 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (579) |
| Net change in unrealized appreciation (depreciation) | + | 90,530,602 |
| Net realized and unrealized gains | 205,818,307 | |
| Increase in net assets resulting from operations | $218,668,771 | |
38
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $12,850,464 | $14,918,815 | |
| Net realized gains (losses) | 115,287,705 | (28,745,649) | |
| Net change in unrealized appreciation (depreciation) | + | 90,530,602 | (91,563,439) |
| Increase (decrease) in net assets from operations | $218,668,771 | ($105,390,273) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($13,599,106) | ($57,745,153) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,539,840 | $56,507,561 | 3,025,001 | $39,046,505 | |
| Shares reinvested | 674,614 | 10,361,404 | 3,317,070 | 46,974,063 | |
| Shares redeemed | + | (12,099,793) | (177,875,463) | (15,016,968) | (193,138,459) |
| Net transactions in fund shares | (7,885,339) | ($111,006,498) | (8,674,897) | ($107,117,891) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 47,518,830 | $576,701,388 | 56,193,727 | $846,954,705 | |
| Total increase (decrease) | + | (7,885,339) | 94,063,167 | (8,674,897) | (270,253,317) |
| End of period | 39,633,491 | $670,764,555 | 47,518,830 | $576,701,388 | |
39
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $20.85 | $18.07 | $18.04 | $18.65 | $15.20 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | (0.06) | 0.00 2 | 0.06 | 0.06 | 0.08 | |
| Net realized and unrealized gains (losses) | 8.42 | 3.76 | 1.79 | 0.75 | 4.04 | |
| Total from investment operations | 8.36 | 3.76 | 1.85 | 0.81 | 4.12 | |
| Less distributions: | ||||||
| Distributions from net investment income | — | (0.03) | (0.07) | (0.07) | (0.17) | |
| Distributions from net realized gains | (0.25) | (0.95) | (1.75) | (1.35) | (0.50) | |
| Total distributions | (0.25) | (0.98) | (1.82) | (1.42) | (0.67) | |
| Net asset value at end of period | $28.96 | $20.85 | $18.07 | $18.04 | $18.65 | |
| Total return | 40.41% | 21.60% | 12.18% | 4.46% | 28.10% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.99% | 0.99% | 0.99% | 0.99% | 0.99% | |
| Gross operating expenses | 1.02% | 1.02% | 1.03% | 1.02% | 1.04% | |
| Net investment income (loss) | (0.23%) | 0.01% | 0.34% | 0.30% | 0.48% | |
| Portfolio turnover rate | 42% | 65% | 67% | 88% | 81% | |
| Net assets, end of period (x 1,000,000) | $292 | $210 | $181 | $243 | $257 | |
| 1 | Calculated based on the average shares outstanding during the period. |
| 2 | Per-share amount was less than $0.005. |
40
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
41
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2021 (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 Stocks1 | $282,377,700 | $— | $— | $282,377,700 |
| Short-Term Investments1 | — | 10,079,614 | — | 10,079,614 |
| Futures Contracts2 | 28,100 | — | — | 28,100 |
| Total | $282,405,800 | $10,079,614 | $— | $292,485,414 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
42
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $140,061,349) | $292,457,314 | |
| Deposit with broker for futures contracts | 69,000 | |
| Receivables: | ||
| Fund shares sold | 180,601 | |
| Dividends | 73,732 | |
| Foreign tax reclaims | 6,110 | |
| Variation margin on future contracts | 2,850 | |
| Prepaid expenses | + | 18,485 |
| Total assets | 292,808,092 | |
| Liabilities | ||
| Payables: | ||
| Investment adviser and administrator fees | 159,623 | |
| Fund shares redeemed | 64,233 | |
| Shareholder service fees | 56,297 | |
| Accrued expenses | + | 81,270 |
| Total liabilities | 361,423 | |
| Net assets | $292,446,669 | |
| Net Assets by Source | ||
| Capital received from investors | $117,887,951 | |
| Total distributable earnings | + | 174,558,718 |
| Net assets | $292,446,669 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $292,446,669 | 10,096,648 | $28.96 | ||
43
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Large-Cap Growth
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $19,295) | $1,922,277 | |
| Interest received from securities - unaffiliated | + | 191 |
| Total investment income | 1,922,468 | |
| Expenses | ||
| Investment adviser and administrator fees | 1,818,148 | |
| Shareholder service fees | 602,380 | |
| Portfolio accounting fees | 59,339 | |
| Professional fees | 33,380 | |
| Registration fees | 27,489 | |
| Shareholder reports | 19,551 | |
| Independent trustees’ fees | 7,818 | |
| Custodian fees | 7,710 | |
| Transfer agent fees | 1,798 | |
| Other expenses | + | 5,174 |
| Total expenses | 2,582,787 | |
| Expense reduction by investment adviser and its affiliates | – | 82,834 |
| Net expenses | – | 2,499,953 |
| Net investment loss | (577,485) | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 22,455,120 | |
| Net realized gains on futures contracts | + | 354,577 |
| Net realized gains | 22,809,697 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 61,424,566 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 103,179 |
| Net change in unrealized appreciation (depreciation) | + | 61,527,745 |
| Net realized and unrealized gains | 84,337,442 | |
| Increase in net assets resulting from operations | $83,759,957 | |
44
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income (loss) | ($577,485) | $9,938 | |
| Net realized gains | 22,809,697 | 2,658,271 | |
| Net change in unrealized appreciation (depreciation) | + | 61,527,745 | 34,053,845 |
| Increase in net assets from operations | $83,759,957 | $36,722,054 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($2,530,978) | ($9,705,767) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 2,017,391 | $50,557,323 | 2,205,536 | $41,760,250 | |
| Shares reinvested | 94,152 | 2,163,612 | 459,787 | 8,322,151 | |
| Shares redeemed | + | (2,086,140) | (51,536,257) | (2,598,754) | (47,874,418) |
| Net transactions in fund shares | 25,403 | $1,184,678 | 66,569 | $2,207,983 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 10,071,245 | $210,033,012 | 10,004,676 | $180,808,742 | |
| Total increase | + | 25,403 | 82,413,657 | 66,569 | 29,224,270 |
| End of period | 10,096,648 | $292,446,669 | 10,071,245 | $210,033,012 | |
45
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.02 | $16.68 | $20.87 | $23.58 | $18.81 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.02 | 0.03 | 0.02 | 0.01 | (0.00) 2 | |
| Net realized and unrealized gains (losses) | 8.76 | (1.67) | (0.35) 3 | 0.32 | 4.86 | |
| Total from investment operations | 8.78 | (1.64) | (0.33) | 0.33 | 4.86 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.03) | (0.02) | (0.01) | — | (0.09) | |
| Distributions from net realized gains | — | — | (3.85) | (3.04) | — | |
| Total distributions | (0.03) | (0.02) | (3.86) | (3.04) | (0.09) | |
| Net asset value at end of period | $23.77 | $15.02 | $16.68 | $20.87 | $23.58 | |
| Total return | 58.55% | (9.86%) | 0.08% | 1.37% | 25.87% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 1.08% | 1.09% | 1.09% | 1.09% | 1.10% | |
| Gross operating expenses | 1.08% | 1.10% | 1.09% | 1.09% | 1.10% | |
| Net investment income (loss) | 0.11% | 0.17% | 0.09% | 0.06% | (0.01%) | |
| Portfolio turnover rate | 84% | 113% | 117% | 111% | 99% | |
| Net assets, end of period (x 1,000,000) | $669 | $491 | $579 | $573 | $645 | |
| 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. |
46
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
47
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
48
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
49
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
50
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $609,388,517 | $— | $— | $609,388,517 |
| Software & Services | 55,079,925 | — | 117,438 | 55,197,363 |
| Short-Term Investments1 | 2,088,991 | — | — | 2,088,991 |
| Time Deposits | — | 5,977,707 | — | 5,977,707 |
| Futures Contracts2 | 87,707 | — | — | 87,707 |
| Total | $666,645,140 | $5,977,707 | $117,438 | $672,740,285 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
51
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $538,578,911) including securities on loan of $2,030,171 | $672,652,578 | |
| Deposit with broker for futures contracts | 390,000 | |
| Receivables: | ||
| Investments sold | 1,975,025 | |
| Dividends | 156,740 | |
| Fund shares sold | 45,657 | |
| Income from securities on loan | 4,718 | |
| Prepaid expenses | + | 17,691 |
| Total assets | 675,242,409 | |
| Liabilities | ||
| Collateral held for securities on loan | 2,088,991 | |
| Payables: | ||
| Investments bought | 1,518,010 | |
| Fund shares redeemed | 1,448,578 | |
| Investment adviser and administrator fees | 456,298 | |
| Shareholder service fees | 138,437 | |
| Variation margin on futures contracts | 480 | |
| Accrued expenses | + | 102,398 |
| Total liabilities | 5,753,192 | |
| Net assets | $669,489,217 | |
| Net Assets by Source | ||
| Capital received from investors | $462,649,574 | |
| Total distributable earnings | + | 206,839,643 |
| Net assets | $669,489,217 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $669,489,217 | 28,163,463 | $23.77 | ||
52
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Small-Cap Equity
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $11,286) | $7,392,196 | |
| Interest received from securities - unaffiliated | 313 | |
| Securities on loan, net | + | 106,284 |
| Total investment income | 7,498,793 | |
| Expenses | ||
| Investment adviser and administrator fees | 5,098,257 | |
| Shareholder service fees | 1,548,106 | |
| Portfolio accounting fees | 56,004 | |
| Professional fees | 34,614 | |
| Registration fees | 27,719 | |
| Shareholder reports | 24,803 | |
| Custodian fees | 18,096 | |
| Independent trustees’ fees | 9,001 | |
| Transfer agent fees | 3,443 | |
| Other expenses | + | 8,057 |
| Total expenses | 6,828,100 | |
| Expense reduction by investment adviser and its affiliates | – | 3,443 |
| Net expenses | – | 6,824,657 |
| Net investment income | 674,136 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 163,487,432 | |
| Net realized losses on futures contracts | + | (76,685) |
| Net realized gains | 163,410,747 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 107,470,827 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 87,707 |
| Net change in unrealized appreciation (depreciation) | + | 107,558,534 |
| Net realized and unrealized gains | 270,969,281 | |
| Increase in net assets resulting from operations | $271,643,417 | |
53
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $674,136 | $844,059 | |
| Net realized gains (losses) | 163,410,747 | (48,940,704) | |
| Net change in unrealized appreciation (depreciation) | + | 107,558,534 | (5,706,272) |
| Increase (decrease) in net assets from operations | $271,643,417 | ($53,802,917) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($1,114,839) | ($635,564) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 2,049,026 | $42,785,760 | 5,747,653 | $80,000,238 | |
| Shares reinvested | 44,417 | 820,369 | 28,552 | 496,524 | |
| Shares redeemed | + | (6,658,460) | (136,123,410) | (7,764,392) | (113,723,120) |
| Net transactions in fund shares | (4,565,017) | ($92,517,281) | (1,988,187) | ($33,226,358) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 32,728,480 | $491,477,920 | 34,716,667 | $579,142,759 | |
| Total increase (decrease) | + | (4,565,017) | 178,011,297 | (1,988,187) | (87,664,839) |
| End of period | 28,163,463 | $669,489,217 | 32,728,480 | $491,477,920 | |
54
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $26.27 | $25.08 | $25.85 | $25.44 | $21.56 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.21 | 0.26 | 0.26 | 0.23 | 0.21 | |
| Net realized and unrealized gains (losses) | 7.09 | 2.11 | 1.27 | 1.96 | 4.24 | |
| Total from investment operations | 7.30 | 2.37 | 1.53 | 2.19 | 4.45 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.23) | (0.29) | (0.24) | (0.24) | (0.20) | |
| Distributions from net realized gains | (2.76) | (0.89) | (2.06) | (1.54) | (0.37) | |
| Total distributions | (2.99) | (1.18) | (2.30) | (1.78) | (0.57) | |
| Net asset value at end of period | $30.58 | $26.27 | $25.08 | $25.85 | $25.44 | |
| Total return | 30.02% | 9.57% | 6.51% | 9.13% | 21.10% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.80% | 0.80% | 0.80% | 0.80% | 0.81% | |
| Gross operating expenses | 0.80% | 0.80% | 0.80% | 0.80% | 0.81% | |
| Net investment income (loss) | 0.76% | 1.01% | 1.05% | 0.91% | 0.89% | |
| Portfolio turnover rate | 70% | 73% | 45% | 45% | 42% | |
| Net assets, end of period (x 1,000,000) | $902 | $746 | $779 | $826 | $853 | |
| 1 | Calculated based on the average shares outstanding during the period. |
55
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
56
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2021 (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 Stocks1 | $754,802,394 | $— | $— | $754,802,394 |
| Australia | — | 4,446,794 | — | 4,446,794 |
| Denmark | — | 12,554,238 | — | 12,554,238 |
| France | — | 10,230,312 | — | 10,230,312 |
| Germany | — | 8,499,892 | — | 8,499,892 |
| Italy | — | 679,765 | — | 679,765 |
| Japan | — | 26,402,241 | — | 26,402,241 |
| Luxembourg | — | 1,479,435 | — | 1,479,435 |
| Republic of Korea | — | 2,026,322 | — | 2,026,322 |
| Sweden | — | 21,814,109 | — | 21,814,109 |
| Switzerland | — | 42,153,132 | — | 42,153,132 |
| Taiwan | — | 2,139,968 | — | 2,139,968 |
| United Kingdom | 884,331 | 10,358,638 | — | 11,242,969 |
| Short-Term Investments1 | — | 1,737,521 | — | 1,737,521 |
| Total | $755,686,725 | $144,522,367 | $— | $900,209,092 |
| 1 | As categorized in the Portfolio Holdings. |
57
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $565,949,295) | $900,209,092 | |
| Foreign currency, at value (cost $62,734) | 64,185 | |
| Deposit with broker for futures contracts | 242,000 | |
| Receivables: | ||
| Investments sold | 3,870,261 | |
| Foreign tax reclaims | 1,058,324 | |
| Dividends | 917,348 | |
| Fund shares sold | 256,179 | |
| Prepaid expenses | + | 16,302 |
| Total assets | 906,633,691 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 2,680,267 | |
| Due to custodian | 1,514,151 | |
| Investment adviser and administrator fees | 392,824 | |
| Shareholder service fees | 173,326 | |
| Fund shares redeemed | 86,351 | |
| Accrued expenses | + | 149,611 |
| Total liabilities | 4,996,530 | |
| Net assets | $901,637,161 | |
| Net Assets by Source | ||
| Capital received from investors | $463,737,551 | |
| Total distributable earnings | + | 437,899,610 |
| Net assets | $901,637,161 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $901,637,161 | 29,483,860 | $30.58 | ||
58
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab Health Care Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $317,014) | $13,079,949 | |
| Securities on loan, net | + | 3,892 |
| Total investment income | 13,083,841 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,432,806 | |
| Shareholder service fees | 1,971,649 | |
| Portfolio accounting fees | 109,856 | |
| Custodian fees | 45,395 | |
| Shareholder reports | 39,432 | |
| Registration fees | 36,601 | |
| Professional fees | 32,388 | |
| Independent trustees’ fees | 9,701 | |
| Transfer agent fees | 7,794 | |
| Other expenses | + | 20,252 |
| Total expenses | 6,705,874 | |
| Expense reduction by investment adviser and its affiliates | – | 7,794 |
| Net expenses | – | 6,698,080 |
| Net investment income | 6,385,761 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 98,293,645 | |
| Net realized gains on futures contracts | 544,779 | |
| Net realized losses on foreign currency transactions | + | (11,068) |
| Net realized gains | 98,827,356 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 109,560,673 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (29,098) |
| Net change in unrealized appreciation (depreciation) | + | 109,531,575 |
| Net realized and unrealized gains | 208,358,931 | |
| Increase in net assets resulting from operations | $214,744,692 | |
59
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $6,385,761 | $7,768,310 | |
| Net realized gains | 98,827,356 | 77,524,618 | |
| Net change in unrealized appreciation (depreciation) | + | 109,531,575 | (16,756,841) |
| Increase in net assets from operations | $214,744,692 | $68,536,087 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($84,424,068) | ($35,647,551) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 2,830,876 | $80,007,562 | 2,950,067 | $75,727,246 | |
| Shares reinvested | 2,869,075 | 73,390,942 | 1,220,267 | 31,165,636 | |
| Shares redeemed | + | (4,601,633) | (127,787,260) | (6,832,001) | (172,829,403) |
| Net transactions in fund shares | 1,098,318 | $25,611,244 | (2,661,667) | ($65,936,521) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 28,385,542 | $745,705,293 | 31,047,209 | $778,753,278 | |
| Total increase (decrease) | + | 1,098,318 | 155,931,868 | (2,661,667) | (33,047,985) |
| End of period | 29,483,860 | $901,637,161 | 28,385,542 | $745,705,293 | |
60
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $9.11 | $10.04 | $9.64 | $11.27 | $9.20 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.21 | 0.14 | 0.24 | 0.24 | 0.22 | |
| Net realized and unrealized gains (losses) | 2.34 | (0.71) | 0.41 | (1.58) | 2.08 | |
| Total from investment operations | 2.55 | (0.57) | 0.65 | (1.34) | 2.30 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.11) | (0.36) | (0.25) | (0.26) | (0.23) | |
| Distributions from net realized gains | — | — | — | (0.03) | — | |
| Total distributions | (0.11) | (0.36) | (0.25) | (0.29) | (0.23) | |
| Net asset value at end of period | $11.55 | $9.11 | $10.04 | $9.64 | $11.27 | |
| Total return | 28.12% | (6.01%) | 7.08% | (12.18%) | 25.58% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses | 0.86% | 0.86% | 0.86% | 0.86% | 0.86% | |
| Gross operating expenses | 0.86% | 0.88% | 0.87% | 0.89% | 0.90% | |
| Net investment income (loss) | 1.93% | 1.51% | 2.44% | 2.22% | 2.15% | |
| Portfolio turnover rate | 103% | 97% | 91% | 98% | 85% | |
| Net assets, end of period (x 1,000,000) | $693 | $664 | $976 | $1,166 | $1,227 | |
| 1 | Calculated based on the average shares outstanding during the period. |
61
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2021
This section shows all
the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with
the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at
www.sec.gov. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after
calendar quarters on the fund’s website.
62
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2021 (continued)
63
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Portfolio Holdings as of
October 31, 2021 (continued)
| SECURITY | NUMBEROF SHARES | VALUE ($) |
| SHORT-TERM INVESTMENTS 0.4% OF NET ASSETS | ||
| Money Market Funds 0.4% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (a) | 2,602,275 | 2,602,274 |
| Total
Short-Term Investments (Cost $2,602,274) |
2,602,274 | |
| Total
Investments in Securities (Cost $567,608,203) |
689,358,562 | |
| * | Non-income producing security. |
| (a) | 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, 2021 (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 Stocks1 | $— | $564,717,675 | $— | $564,717,675 |
| Brazil | 3,809,655 | — | — | 3,809,655 |
| Canada | 13,725,882 | — | — | 13,725,882 |
| Spain | 1,387,503 | 6,685,157 | — | 8,072,660 |
| United Kingdom | 14,636,989 | 81,793,427 | — | 96,430,416 |
| Short-Term Investments1 | 2,602,274 | — | — | 2,602,274 |
| Total | $36,162,303 | $653,196,259 | $— | $689,358,562 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
64
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $567,608,203) | $689,358,562 | |
| Foreign currency, at value (cost $2,686,167) | 2,684,944 | |
| Deposit with broker for futures contracts | 427,680 | |
| Receivables: | ||
| Foreign tax reclaims | 1,359,415 | |
| Dividends | 1,228,656 | |
| Fund shares sold | 38,637 | |
| Prepaid expenses | + | 12,722 |
| Total assets | 695,110,616 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 1,589,962 | |
| Investment adviser and administrator fees | 343,419 | |
| Fund shares redeemed | 178,221 | |
| Shareholder service fees | 135,617 | |
| Accrued expenses | + | 244,279 |
| Total liabilities | 2,491,498 | |
| Net assets | $692,619,118 | |
| Net Assets by Source | ||
| Capital received from investors | $630,843,260 | |
| Total distributable earnings | + | 61,775,858 |
| Net assets | $692,619,118 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $692,619,118 | 59,946,240 | $11.55 | ||
65
Schwab Active Equity Funds | Annual Report
See financial notes
Schwab International Core
Equity Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $2,262,155) | $19,799,257 | |
| Securities on loan, net | + | 153,807 |
| Total investment income | 19,953,064 | |
| Expenses | ||
| Investment adviser and administrator fees | 4,140,272 | |
| Shareholder service fees | 1,746,431 | |
| Portfolio accounting fees | 109,850 | |
| Professional fees | 58,111* | |
| Custodian fees | 31,010 | |
| Registration fees | 29,806 | |
| Shareholder reports | 28,623 | |
| Transfer agent fees | 10,667 | |
| Independent trustees’ fees | 9,335 | |
| Other expenses | + | 22,781 |
| Total expenses | 6,186,886 | |
| Expense reduction by investment adviser and its affiliates | – | 45,679* |
| Net expenses | – | 6,141,207 |
| Net investment income | 13,811,857 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 108,568,600 | |
| Net realized losses on futures contracts | (89,058) | |
| Net realized gains on foreign currency transactions | + | 114,071 |
| Net realized gains | 108,593,613 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 55,510,525 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (82,549) |
| Net change in unrealized appreciation (depreciation) | + | 55,427,976 |
| Net realized and unrealized gains | 164,021,589 | |
| Increase in net assets resulting from operations | $177,833,446 | |
| * | Includes professional fees of $18,586 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 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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $13,811,857 | $11,945,149 | |
| Net realized gains (losses) | 108,593,613 | (49,478,718) | |
| Net change in unrealized appreciation (depreciation) | + | 55,427,976 | (22,678,303) |
| Increase (decrease) in net assets from operations | $177,833,446 | ($60,211,872) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($7,674,015) | ($34,016,026) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 4,866,510 | $53,723,390 | 10,774,447 | $93,817,527 | |
| Shares reinvested | 602,440 | 6,235,261 | 2,656,064 | 26,826,251 | |
| Shares redeemed | + | (18,494,429) | (201,985,524) | (37,617,681) | (337,440,372) |
| Net transactions in fund shares | (13,025,479) | ($142,026,873) | (24,187,170) | ($216,796,594) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 72,971,719 | $664,486,560 | 97,158,889 | $975,511,052 | |
| Total increase (decrease) | + | (13,025,479) | 28,132,558 | (24,187,170) | (311,024,492) |
| End of period | 59,946,240 | $692,619,118 | 72,971,719 | $664,486,560 | |
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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 2045 Fund |
| Schwab Dividend Equity Fund | Schwab Target 2050 Fund |
| Schwab Large-Cap Growth Fund | Schwab Target 2055 Fund |
| Schwab Small-Cap Equity Fund | Schwab Target 2060 Fund |
| Schwab Health Care Fund | Schwab Target 2065 Fund |
| Schwab International Core Equity Fund | Schwab Fundamental US Large Company Index Fund |
| Schwab S&P 500 Index Fund | Schwab Fundamental US Small Company Index Fund |
| Schwab Small-Cap Index Fund® | Schwab Fundamental International Large Company Index Fund |
| Schwab Total Stock Market Index Fund® | Schwab Fundamental International Small Company Index Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Fundamental Emerging Markets Large Company Index Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Fundamental Global Real Estate Index Fund |
| Schwab U.S. Mid-Cap 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 Target 2010 Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2020 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2025 Fund | Schwab Target 2065 Index Fund |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2035 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2040 Fund | Schwab Monthly Income Fund - Maximum Payout |
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 mutual funds and
exchange-traded funds (ETFs), which are referred to as "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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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
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.
•
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.
• Mutual 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.
•
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.
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, mutual funds 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 underlying securities 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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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
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, 2021 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 value may change daily.
Passive Foreign Investment Companies: Certain funds may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a Passive Foreign Investment Company (PFIC). The funds may elect for tax purposes to mark-to-market annually
the shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked to-market gains (as well as any gains realized on sale).
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 pursuant to 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 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 the investment adviser or any of its affiliates.
As of October 31, 2021, Schwab Small-Cap Equity Fund had
securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of October 31, 2021, are disclosed in the fund’s Portfolio Holdings and Statement of Assets and
Liabilities.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
2. Significant Accounting Policies (continued):
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.
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, 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 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.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
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
respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2021, 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.
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.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
3. Risk
Factors (continued):
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, counterparty 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. Counterparty risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations either because the financial condition of the counterparty declines, or because the counterparty is
otherwise unable or unwilling to perform under the contract. 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.
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
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
3. Risk
Factors (continued):
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, auditing, financial
reporting and recordkeeping 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
Charles Schwab Investment Management Inc., dba Schwab Asset
Management, 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 the investment adviser and the
trust.
For its advisory and administrative services to
the funds, the investment adviser 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
INTERNATIONAL CORE EQUITY FUND |
| Flat rate | 0.47% | 0.62% | 0.72% | 0.81% | 0.58% |
| % 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,
2021, the aggregate advisory fee paid to the investment adviser 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 the investment adviser (together, service
providers), of certain shareholder services to the current shareholders of the funds.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
Pursuant to the Plan, each fund’s shares are subject
to an annual shareholder servicing fee up to 0.25%. 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, the investment adviser and its affiliates have made an additional agreement with the funds, for so long as the investment adviser 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
HEALTH CARE FUND |
SCHWAB
INTERNATIONAL CORE EQUITY FUND |
| 0.75% | 0.89% | 0.99% | 1.12% | 0.82% | 0.86% |
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, 2021, 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 | 15.1% | —% | 12.0% | —% |
| Schwab Monthly Income Fund - Enhanced Payout | —% | 3.0% | —% | —% |
| Schwab Monthly Income Fund - Maximum Payout | —% | 1.9% | —% | —% |
| Schwab Monthly Income Fund - Moderate Payout | —% | 2.3% | —% | —% |
| Schwab Target 2010 Fund | 0.1% | —% | 0.1% | 0.3% |
| Schwab Target 2015 Fund | 0.1% | —% | 0.2% | 0.3% |
| Schwab Target 2020 Fund | 0.8% | —% | 1.2% | 2.6% |
| Schwab Target 2025 Fund | 1.7% | —% | 2.3% | 4.5% |
| Schwab Target 2030 Fund | 3.8% | —% | 5.4% | 10.5% |
| Schwab Target 2035 Fund | 2.3% | —% | 3.4% | 6.0% |
| Schwab Target 2040 Fund | 4.9% | —% | 8.1% | 13.7% |
| Schwab Target 2045 Fund | 1.1% | —% | 1.8% | 3.3% |
| Schwab Target 2050 Fund | 1.1% | —% | 1.9% | 3.3% |
| Schwab Target 2055 Fund | 0.7% | —% | 1.3% | 2.1% |
| Schwab Target 2060 Fund | 0.2% | —% | 0.3% | 0.6% |
| Schwab Target 2065 Fund | 0.0%* | —% | 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 on behalf of the Schwab International Core Equity Fund, subject to reimbursement to the extent the fund is
able to successfully recover taxes withheld in the future.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
During
the year ended October 31, 2021, the professional fees incurred by the Schwab International Core Equity Fund were $18,586.
During the year ended October 31, 2021, the Schwab
International Core Equity Fund recovered previously withheld foreign taxes from Finland. The payment received by the Schwab International Core Equity Fund amounted to $198,467 and is recorded in the fund’s Statement of Operations. The
investment adviser had paid upfront professional fees associated with recovering these foreign taxes in the amount of $37,884. This amount has been reimbursed to the investment adviser by the Schwab International Core Equity Fund.
As of October 31, 2021, the balance of professional fees
related to foreign withholding tax subject to future reimbursement by the Schwab International Core Equity Fund was $177.
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.
5. Board of Trustees:
The Board may include people who are officers and/or directors
of the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report
period. The funds 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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.
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
| 7. Purchases and Sales of Investment Securities: |
For the period
ended October 31, 2021, purchases and sales of securities (excluding short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES | |
| Schwab Core Equity Fund | $1,635,558,690 | $2,335,032,980 |
| Schwab Dividend Equity Fund | 522,824,275 | 639,159,083 |
| Schwab Large-Cap Growth Fund | 103,965,771 | 113,311,215 |
| Schwab Small-Cap Equity Fund | 514,760,536 | 610,459,536 |
| Schwab Health Care Fund | 579,711,687 | 630,686,086 |
| Schwab International Core Equity Fund | 720,989,588 | 858,881,699 |
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 value and variation margin for futures contracts held at October 31, 2021, if any, are presented in the Portfolio Holdings and Statement of Assets and
Liabilities, respectively. The net realized gains (losses) and net change in unrealized appreciation (depreciation) on futures contracts are presented in the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting
policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2021, 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 | $41,596,350* | 215* |
| Schwab Dividend Equity Fund | 219,475 | 1 |
| Schwab Large-Cap Growth Fund | 1,031,660 | 5 |
| Schwab Small-Cap Equity Fund | 2,750,479 | 25 |
| Schwab Health Care Fund | 906,631 | 5 |
| Schwab International Core Equity Fund | 889,723 | 8 |
| * | During the period, the fund did not hold futures contracts at any month-end. The average value and number of contracts were calculated by aggregating the highest daily values held each month during the period. |
9. Federal Income Taxes:
As of October 31, 2021, the tax basis cost of the funds’
investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) | |
| Schwab Core Equity Fund | $1,223,972,373 | $663,175,195 | ($18,149,318) | $645,025,877 |
| Schwab Dividend Equity Fund | 547,980,245 | 131,074,731 | (8,826,690) | 122,248,041 |
| Schwab Large-Cap Growth Fund | 140,089,818 | 153,387,827 | (992,231) | 152,395,596 |
| Schwab Small-Cap Equity Fund | 538,802,415 | 155,040,993 | (21,103,123) | 133,937,870 |
| Schwab Health Care Fund | 566,612,039 | 338,123,822 | (4,526,769) | 333,597,053 |
| Schwab International Core Equity Fund | 569,177,386 | 131,472,535 | (11,291,359) | 120,181,176 |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
9. Federal
Income Taxes (continued):
As of October 31,
2021, the components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
NET
OTHER UNREALIZED APPRECIATION (DEPRECIATION) |
CAPITAL
LOSS CARRYFORWARDS |
TOTAL | |
| Schwab Core Equity Fund | $190,201,235 | $244,994,301 | $645,025,877 | $— | $— | $1,080,221,413 |
| Schwab Dividend Equity Fund | 19,055,730 | 67,753,718 | 122,248,041 | 8,150 | — | 209,065,639 |
| Schwab Large-Cap Growth Fund | 5,704,425 | 16,458,697 | 152,395,596 | — | — | 174,558,718 |
| Schwab Small-Cap Equity Fund | 288,396 | 72,613,377 | 133,937,870 | — | — | 206,839,643 |
| Schwab Health Care Fund | 28,402,175 | 75,856,974 | 333,597,053 | 43,408 | — | 437,899,610 |
| Schwab International Core Equity Fund | 16,360,499 | — | 120,181,176 | 21,986 | (74,787,803) | 61,775,858 |
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, 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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the funds had capital loss carryforwards available as follows:
| NO EXPIRATION | |
| Schwab Core Equity Fund | $— |
| Schwab Dividend Equity Fund | — |
| Schwab Large-Cap Growth Fund | — |
| Schwab Small-Cap Equity Fund | — |
| Schwab Health Care Fund | — |
| Schwab International Core Equity Fund | 74,787,803 |
For the fiscal year ended October
31, 2021, the funds had capital loss carryforwards utilized as follows:
| CAPITAL
LOSS CARRYFORWARDS UTILIZED | |
| Schwab Core Equity Fund | $— |
| Schwab Dividend Equity Fund | 28,724,068 |
| Schwab Large-Cap Growth Fund | — |
| Schwab Small-Cap Equity Fund | 90,389,520 |
| Schwab Health Care Fund | — |
| Schwab International Core Equity Fund | 104,623,399 |
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| Schwab Core Equity Fund | $17,230,074 | $80,768,682 | $19,826,971 | $44,092,670 |
| Schwab Dividend Equity Fund | 13,599,106 | — | 13,605,187 | 44,139,966 |
| Schwab Large-Cap Growth Fund | — | 2,530,978 | 244,834 | 9,460,933 |
| Schwab Small-Cap Equity Fund | 1,114,839 | — | 635,564 | — |
| Schwab Health Care Fund | 6,419,244 | 78,004,824 | 8,653,407 | 26,994,144 |
| Schwab International Core Equity Fund | 7,674,015 | — | 34,016,026 | — |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Financial Notes
(continued)
9. 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, 2021, 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, 2021, the funds did not incur
any interest or penalties.
10. Subsequent Events:
Management has determined there are no subsequent events or
transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Active Equity Funds | Annual Report
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 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 Health Care Fund, and Schwab International Core Equity Fund (the
“Funds”), six of the funds constituting Schwab Capital Trust, as of October 31, 2021, and the related statements of operations for the year then ended, the related statements of changes in net assets and the financial highlights for the
two years in the period 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, 2021, the results of
their operations for the year then ended, and the changes in their net assets and the financial highlights for the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America. The
financial highlights for each of the three 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
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 $1,497,184 to its shareholders for the fiscal year ended October 31, 2021. The respective foreign source income on the fund is $21,906,972.
For corporate shareholders, the following percentage of the
funds’ dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction:
| PERCENTAGE | |
| Schwab Core Equity Fund | 85.58 |
| Schwab Dividend Equity Fund | 56.05 |
| Schwab Large-Cap Growth Fund | — |
| Schwab Small-Cap Equity Fund | 100.00 |
| Schwab Health Care Fund | 98.27 |
| Schwab International Core Equity Fund | — |
For the fiscal year ended October
31, 2021, 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 2022 via IRS
Form 1099 of the amounts for use in preparing their 2021 income tax return.
| Schwab Core Equity Fund | $14,767,607 |
| Schwab Dividend Equity Fund | 8,325,574 |
| Schwab Large-Cap Growth Fund | — |
| Schwab Small-Cap Equity Fund | 1,114,839 |
| Schwab Health Care Fund | 6,323,944 |
| Schwab International Core Equity Fund | 14,446,271 |
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, 2021:
| Schwab Core Equity Fund | $80,768,682 |
| Schwab Dividend Equity Fund | — |
| Schwab Large-Cap Growth Fund | 2,530,978 |
| Schwab Small-Cap Equity Fund | — |
| Schwab Health Care Fund | 78,004,824 |
| Schwab International Core Equity Fund | — |
For the fiscal year ended October
31, 2021, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099 of the amounts
for use in preparing their 2021 income tax return.
| Schwab Core Equity Fund | $17,083 |
| Schwab Dividend Equity Fund | 357,973 |
| Schwab Large-Cap Growth Fund | — |
| Schwab Small-Cap Equity Fund | — |
| Schwab Health Care Fund | — |
| 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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity risk metrics. No significant liquidity events
impacting any of the Funds were noted in the report. In addition, the investment adviser 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 8, 2021 was held by means of videoconference 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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
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 |
| 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). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | Director (2008 – present), The Charles Schwab Corporation |
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Schwab Active Equity Funds | Annual Report
Schwab Active Equity
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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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. |
89
Schwab Active Equity Funds | Annual Report
Schwab Active Equity
Funds
Schwab Asset Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, 2021
Schwab Balanced Fund
Schwab Balanced Fund
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab
Asset ManagementTM
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.schwabassetmanagement.com/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2021 | |
| Schwab Balanced Fund (Ticker Symbol: SWOBX) | 23.20% |
| Balanced Blended Index | 24.82% |
| Fund Category: Morningstar Allocation—50% to 70% Equity1 | 25.43% |
| 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 the investment
adviser 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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
3
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
The Investment
Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors, outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. Among U.S.
large-caps, value stocks slightly outperformed growth stocks, with the Russell 1000® Value Index and Russell 1000® Growth Index returning 43.76% and 43.21%, respectively. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance,
returned 34.18% and the MSCI Emerging Markets Index (Net)* returned 16.96%. The Bloomberg US Aggregate Bond Index returned -0.48% and the FTSE non-US Dollar World Government Bond Index returned -4.32%.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program. Emerging markets were mixed. Central banks in China, India, and Indonesia maintained their low rates to help counter the ongoing effects of the COVID-19 pandemic. Mexico, Brazil, Russia,
and Pakistan raised their rates, citing a stronger-than-expected recovery or to counteract the impacts of inflation.
U.S. bond prices drifted lower early in the reporting period,
driving yields higher, in anticipation of a new fiscal aid package and hope for economic improvement in 2021. (Bond yields and bond prices typically move in opposite directions.) After hitting a 12-month low in mid-March 2021, bond prices rose
during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns. The yield on the 10-year U.S. Treasury, which began the reporting period at 0.88%, ended the period at
1.55%. Short-term rates, which have also remained historically low, fell further over the reporting period, with three-month U.S. Treasury yields beginning the period at 0.09% and ending it at 0.05%.
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 Schwab in 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 from 2012 to 2016. Prior to that, he worked as a fund administration manager, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration supporting the Charles Schwab Trust Bank Collective Investment Trusts and multi-asset Schwab Funds. Prior to joining Schwab Asset Management 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). This 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the
reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the fund returned 23.20%. The fund’s internally calculated comparative index, the Balanced Blended Index (the index), returned 24.82%.
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 allocations contributed
to the total return of the fund. The Schwab Core Equity Fund was the largest contributor to the total return of the fund, returning approximately 38% for the reporting period. The Laudus U.S. Large Cap Growth Fund also contributed to the total
return of the fund, returning approximately 37% for the reporting period. Both U.S. large-cap equity funds dragged on relative performance, with the comparative index, the S&P
500® Index, returning approximately 43% for the reporting period.
The U.S. small-cap equity allocation also contributed to the
total return of the fund. The Schwab Small-Cap Equity Fund returned approximately 59% for the reporting period, outperforming its comparative index, the Russell 2000®
Index, which returned approximately 51% for the reporting period.
The fund’s fixed-income allocation detracted from the
total return of the fund. The Schwab U.S. Aggregate Bond Index Fund returned approximately -1% for the reporting period and generally tracked its comparative benchmark, the Bloomberg US Aggregate Bond Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Balanced Fund (11/18/96) | 23.20% | 11.93% | 10.02% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Balanced Blended Index | 24.82% | 12.36% | 10.64% |
| Fund Category: Morningstar Allocation—50% to 70% Equity2 | 25.43% | 10.66% | 9.15% |
| Fund Expense Ratios3: Net 0.50%; Gross 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 the investment adviser 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 0.50% 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 Schwab Asset Management 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, 2021 (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. |
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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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212,5 |
EFFECTIVE
EXPENSES PAID DURING PERIOD 5/1/21-10/31/214,5 | |
| Schwab Balanced Fund | ||||||
| Actual Return | 0.00% | 0.49% | $1,000.00 | $1,058.40 | $0.00 | $2.54 |
| Hypothetical 5% Return | 0.00% | 0.49% | $1,000.00 | $1,025.21 | $0.00 | $2.50 |
| 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 expenses and the expense ratio; may differ from the acquired fund fees and expenses and the 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 365 days of the fiscal year. |
10
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.50 | $15.99 | $15.41 | $15.60 | $14.51 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.19 | 0.20 | 0.24 | 0.23 | 0.21 | |
| Net realized and unrealized gains (losses) | 3.58 | 1.13 | 1.32 | 0.08 2 | 1.96 | |
| Total from investment operations | 3.77 | 1.33 | 1.56 | 0.31 | 2.17 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.19) | (0.22) | (0.37) | (0.48) | (0.22) | |
| Distributions from net realized gains | (0.34) | (0.60) | (0.61) | (0.02) | (0.86) | |
| Total distributions | (0.53) | (0.82) | (0.98) | (0.50) | (1.08) | |
| Net asset value at end of period | $19.74 | $16.50 | $15.99 | $15.41 | $15.60 | |
| Total return | 23.20% | 8.58% | 11.19% | 1.94% | 15.90% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses3 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| Gross operating expenses3 | 0.02% | 0.03% | 0.04% | 0.04% | 0.06% | |
| Net investment income (loss) | 1.01% | 1.26% | 1.55% | 1.44% | 1.39% | |
| Portfolio turnover rate | 6% | 18% | 32% | 6% | 28% 4 | |
| Net assets, end of period (x 1,000,000) | $804 | $577 | $526 | $447 | $386 | |
| 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 | 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, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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 transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 98.7% OF NET ASSETS | ||||||||
| U.S. Stocks 60.8% | ||||||||
| Large-Cap 50.8% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $89,442,175 | $21,319,223 | ($12,543,877) | $309,753 | $28,722,707 | $127,249,981 | 3,604,815 | $4,989,675 |
| Schwab Core Equity Fund | 196,093,026 | 32,787,454 | (13,395,793) | 427,728 | 65,268,794 | 281,181,209 | 9,622,902 | 10,120,075 |
| 408,431,190 | ||||||||
| Small-Cap 10.0% | ||||||||
| Schwab Small-Cap Equity Fund | 59,916,522 | 3,848,454 | (15,827,861) | 2,067,122 | 30,217,611 | 80,221,848 | 3,374,920 | 133,454 |
| 488,653,038 | ||||||||
| Fixed Income 36.2% | ||||||||
| Intermediate-Term Bond 36.2% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 214,337,213 | 83,701,449 | — | — | (7,125,046) | 290,913,616 | 27,865,289 | 5,557,383 |
| Money Market Funds 1.7% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 10,216,799 | 3,503,895 | — | — | (1,171) | 13,719,523 | 13,715,408 | 3,933 |
| Total Affiliated Underlying Funds | $570,005,735 | $145,160,475 | ($41,767,531) | $2,804,603 | $117,082,895 | $793,286,177 | $20,804,520 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
12
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Portfolio
Holdings as of October 31, 2021 (continued)
At October 31, 2021, all of the fund’s investment
securities were classified as Level 1. Fund investments in mutual funds are classified as Level 1, without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
(See financial note 2(a) for additional information).
13
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $606,354,894) | $793,286,177 | |
| Investments in securities, at value - unaffiliated (cost $10,525,408) | 10,525,408 | |
| Receivables: | ||
| Investments sold | 2,317,531 | |
| Fund shares sold | 727,419 | |
| Dividends | 485,323 | |
| Due from investment adviser | 8,494 | |
| Prepaid expenses | + | 21,883 |
| Total assets | 807,372,235 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 3,025,094 | |
| Fund shares redeemed | 469,078 | |
| Accrued expenses | + | 66,523 |
| Total liabilities | 3,560,695 | |
| Net assets | $803,811,540 | |
| Net Assets by Source | ||
| Capital received from investors | $605,608,905 | |
| Total distributable earnings | + | 198,202,635 |
| Net assets | $803,811,540 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $803,811,540 | 40,714,102 | $19.74 | ||
14
Schwab Balanced Fund | Annual Report
See financial notes
Schwab Balanced Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $7,226,344 | |
| Dividends received from securities - unaffiliated | + | 4,473 |
| Total investment income | 7,230,817 | |
| Expenses | ||
| Registration fees | 55,726 | |
| Shareholder reports | 26,949 | |
| Portfolio accounting fees | 26,787 | |
| Professional fees | 23,325 | |
| Independent trustees’ fees | 9,265 | |
| Transfer agent fees | 7,991 | |
| Custodian fees | 1,307 | |
| Other expenses | + | 8,851 |
| Total expenses | 160,201 | |
| Expense reduction by investment adviser | – | 160,201 |
| Net expenses | – | — |
| Net investment income | 7,230,817 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 13,578,176 | |
| Net realized gains on sales of securities - affiliated | + | 2,804,603 |
| Net realized gains | 16,382,779 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | + | 117,082,895 |
| Net realized and unrealized gains | 133,465,674 | |
| Increase in net assets resulting from operations | $140,696,491 | |
15
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $7,230,817 | $6,859,312 | |
| Net realized gains | 16,382,779 | 8,022,226 | |
| Net change in unrealized appreciation (depreciation) | + | 117,082,895 | 22,746,515 |
| Increase in net assets from operations | $140,696,491 | $37,628,053 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($18,699,512) | ($27,287,501) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 10,659,191 | $196,407,644 | 11,812,461 | $187,887,955 | |
| Shares reinvested | 946,955 | 16,600,121 | 1,536,645 | 24,202,165 | |
| Shares redeemed | + | (5,882,203) | (108,620,302) | (11,266,936) | (171,177,405) |
| Net transactions in fund shares | 5,723,943 | $104,387,463 | 2,082,170 | $40,912,715 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 34,990,159 | $577,427,098 | 32,907,989 | $526,173,831 | |
| Total increase | + | 5,723,943 | 226,384,442 | 2,082,170 | 51,253,267 |
| End of period | 40,714,102 | $803,811,540 | 34,990,159 | $577,427,098 | |
16
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 2045 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2050 Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2055 Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2060 Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2065 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 Health Care Fund | Schwab Target 2040 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2045 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2020 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2025 Fund | Schwab Target 2065 Index Fund |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund – Moderate Payout |
| Schwab Target 2035 Fund | Schwab Monthly Income Fund – Enhanced Payout |
| Schwab Target 2040 Fund | Schwab Monthly Income Fund – Maximum Payout |
The Schwab Balanced Fund is a single class "fund of funds"
which seeks to achieve its investment objective by investing in a diversified group of other 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.
17
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:
• Mutual 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 underlying securities 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.
18
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
2. Significant Accounting Policies (continued):
As disclosed in the Portfolio Holdings, as of October 31,
2021, all of the fund’s investments were classified as Level 1.
(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 described
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
19
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
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.
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 an underlying 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 $1.00 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 $1.00 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
20
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
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.
•
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, auditing, financial reporting and recordkeeping 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, but not the obligation, to buy or sell an instrument at a specific price on or 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 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 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.
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
3. Risk
Factors (continued):
•
Mortgage-Backed and Mortgage Pass-Through Securities Risk. 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. Certain of the mortgage-backed securities in which an underlying fund may invest are issued or guaranteed by agencies or instrumentalities of the U.S. government but
are not backed by the full faith and credit of the U.S. government. 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 which can cause an
underlying fund to lose money or underperform. The risks of investing in mortgage-backed securities include, among others, interest rate risk, credit risk, prepayment risk and extension risk. Transactions in mortgage pass-through securities often
occur through to-be-announced (TBA) transactions. An underlying fund could lose money or underperform if a TBA counterparty defaults or goes bankrupt.
•
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., dba Schwab Asset
Management, 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 the investment adviser 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 the investment adviser (together, service providers), of
certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. The fund is not subject to any fee under the Plan.
Expense Limitation
The investment adviser and its affiliates have agreed with the
fund, for so long as the investment adviser 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, 2021, the fund’s ownership percentages of other related funds’ shares are:
| Laudus U.S. Large Cap Growth Fund | 3.6% |
| Schwab Core Equity Fund | 15.1% |
| Schwab Small-Cap Equity Fund | 12.0% |
| Schwab U.S. Aggregate Bond Index Fund | 5.4% |
| Schwab Variable Share Price Money Fund, Ultra Shares | 0.5% |
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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 the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report
period. The fund 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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, 2021, purchases and sales of
securities (excluding short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES |
| $145,160,475 | $41,767,531 |
8. Federal Income Taxes:
As of October 31, 2021, the tax basis cost of the fund’s
investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) |
| $626,582,198 | $186,932,073 | ($9,702,686) | $177,229,387 |
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Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Financial Notes
(continued)
8. Federal
Income Taxes (continued):
As of October 31,
2021, the components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
TOTAL |
| $5,263,771 | $15,709,477 | $177,229,387 | $198,202,635 |
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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the fund had no capital loss carryforwards.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| $7,375,819 | $11,323,693 | $7,431,786 | $19,855,715 | |
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, 2021, 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, 2021, the fund did not incur
any interest or penalties.
9. 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.
24
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, 2021, and the related statement
of operations for the year then ended, the related statement of changes in net assets and the financial highlights for the two years in the period 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, 2021, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the two years in the
period then ended in conformity with accounting principles generally accepted in the United States of America. The financial highlights for each of the three 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 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 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
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 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
25
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Other Federal
Tax Information (unaudited)
For corporate shareholders, 24.02% of the fund’s
dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction.
For the fiscal year ended October 31, 2021, the fund designates
$1,771,832 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 2022 via IRS Form 1099 of the amounts for use in
preparing their 2021 income tax return.
Under section
852(b)(3)(C) of the Internal Revenue Code, the fund hereby designates $11,323,693 as long-term capital gain dividends for the fiscal year ended October 31, 2021.
26
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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity metrics. No significant liquidity events
impacting the Fund were noted in the report. In addition, the investment adviser 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 8, 2021 was held by means of videoconference 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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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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 |
| 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). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | 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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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. |
34
Schwab Balanced Fund | Annual Report
Schwab Balanced Fund
Schwab Asset
Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, 2021
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®
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., dba Schwab
Asset ManagementTM
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 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.schwabassetmanagement.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.
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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
3
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
The Investment
Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors, outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. The U.S. dollar, as
measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance, returned 34.18% for the reporting period.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program.
5
Schwab Equity Index Funds | Annual Report
Schwab Equity Index Funds
Fund
Management
 |
Christopher Bliss, CFA, Managing Director and Head of Passive Equity Strategies for Schwab Asset Management, leads the portfolio management team for passive equity Schwab Funds and Schwab ETFs. He also has overall responsibility for all aspects of the management of the funds. Before joining Schwab 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. In this role, Mr. Bliss was responsible for overseeing a team of portfolio managers managing domestic, developed international and emerging markets index strategies. 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 Schwab 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 Schwab 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 Schwab 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 Schwab 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 equity index strategies team for four years. His first role with Schwab Asset Management was as a trade operations specialist. Prior to joining Schwab 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 Schwab 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. Mr. Sinha also spent time as a software consultant at DPM Mellon, LLC and an equity trader at Jane Street Capital. |
6
Schwab Equity Index Funds | Annual Report
Schwab S&P 500
Index Fund as of October 31, 2021
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). The index 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. Within the index, the energy and financials sectors
were the top performers, while the utilities and consumer staples sectors underperformed by comparison, although both still returned double digits.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 42.89% for the 12-month reporting period ended October 31, 2021, compared with the index, which returned 42.91%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of approximately 3% of the fund’s investments and returned approximately 11% for the reporting period. One example from this sector is WEC Energy Group, Inc., an energy and natural gas company, which detracted
from the total return of the fund. The fund’s holdings of WEC Energy Group, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -8% for the reporting period.
The materials sector was another small contributor to the
total return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 37% for the reporting period.
The information technology sector contributed the most to the
total return of the fund. Information technology stocks represented an average weight of approximately 27% of the fund’s investments and returned approximately 47% for the reporting period. One example from this sector is Microsoft Corp.,
which develops, manufactures, licenses, sells, and supports software products. The fund’s holdings of Microsoft Corp. represented an average weight of approximately 6% of the fund’s investments and returned approximately 65% for the
reporting period.
The financials sector also contributed
to the total return of the fund, representing an average weight of approximately 11% of the fund’s investments and returning approximately 72% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 42.89% | 18.89% | 16.14% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Fund Category: Morningstar Large Blend2 | 41.27% | 17.14% | 14.63% |
| 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 Charles Schwab Investment Management, Inc. 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 Charles Schwab Investment Management, Inc. 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, 2021 (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, 2021
The Schwab 1000 Index Fund’s (the fund) goal is to match the total return of the Schwab 1000 Index® (the index). The index includes the 1,000 largest stocks of publicly
traded companies in the United States, 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. Within the index, the energy and financials sectors
were the top performers, while the utilities and consumer staples sectors underperformed by comparison, although both still returned double digits.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 43.16% for the 12-month reporting period ended October 31, 2021, compared with the index, which returned 43.23%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of approximately 3% of the fund’s investments and returned approximately 11% for the reporting period. One example from this sector is WEC Energy Group, Inc., an energy and natural gas company, which detracted
from the total return of the fund. The fund’s holdings of WEC Energy Group, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -8% for the reporting period.
The materials sector was another small contributor to the
total return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 38% for the reporting period.
The information technology sector contributed the most to the
total return of the fund. Information technology stocks represented an average weight of approximately 28% of the fund’s investments and returned approximately 46% for the reporting period. One example from this sector is Microsoft Corp.,
which develops, manufactures, licenses, sells, and supports software products. The fund’s holdings of Microsoft Corp. represented an average weight of approximately 5% of the fund’s investments and returned approximately 65% for the
reporting period.
The financials sector also contributed
to the total return of the fund, representing an average weight of approximately 11% of the fund’s investments and returning approximately 73% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab 1000 Index Fund (4/2/91) | 43.16% | 19.00% | 16.01% |
| Schwab 1000 Index® | 43.23% | 19.05% | 16.19% |
| Russell 1000® Index | 43.51% | 19.16% | 16.30% |
| Fund Category: Morningstar Large Blend2 | 41.27% | 17.14% | 14.63% |
| 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, 2021 (continued)
Top Equity Holdings % of Net Assets5
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 | Portfolio turnover rate excludes in-kind transactions. |
| 4 | The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets. |
| 5 | This list is not a recommendation of any security by the investment adviser. |
12
Schwab Equity Index Funds | Annual Report
Schwab Small-Cap Index Fund as of October 31, 2021
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 goal, the fund generally invests in stocks that are included in the
Russell 2000® 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Within the index, the energy and communication services sectors were the top performers, while the health care and utilities sectors underperformed by comparison, although both still returned double digits.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 50.82% for the 12-month reporting period ended October 31, 2021, compared with the index, which returned 50.80%.
Contributors and Detractors.
The industrials sector contributed the most to the total return of the fund. Stocks in the industrials sector represented an average weight of approximately 15% of the fund’s investments and returned approximately 61% for the reporting period.
One example from this sector is Plug Power, Inc., which designs and manufactures fuel cell systems. The fund’s holdings of Plug Power, Inc. represented an average weight of less than 1% of the fund’s investments and returned
approximately 128% for the reporting period.
The
financials sector also contributed to the total return of the fund, representing an average weight of approximately 15% of the fund’s investments and returning approximately 58% for the reporting period.
Over the reporting period, no sectors detracted from the
returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector represented an average weight of approximately 3% of the fund’s investments and
returned approximately 20% for the reporting period. One example from this sector is Cadiz, Inc., a water resource company, which detracted from the total return of the fund. The fund’s holdings of Cadiz, Inc. represented an average weight of
less than 1% of the fund’s investments and returned approximately -36% for the reporting period.
The consumer staples sector was another small contributor to
the total return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 38% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Small-Cap Index Fund (5/19/97) | 50.82% | 15.58% | 13.51% |
| Russell 2000® Index | 50.80% | 15.52% | 13.50% |
| Small-Cap Spliced Index | 50.80% | 15.52% | 13.45% |
| Fund Category: Morningstar Small Blend2 | 54.25% | 13.77% | 12.64% |
| 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, 2021 (continued)
Top Equity Holdings % of Net Assets4
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 | Portfolio turnover rate excludes in-kind transactions. |
| 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. |
15
Schwab Equity Index Funds | Annual Report
Schwab Total Stock Market
Index Fund as of October 31, 2021
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). The index includes all publicly traded stocks of companies headquartered in the United States for which pricing information is readily available. To pursue its goal, 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. Within the index, the energy and financials sectors
were the top performers, while the utilities and consumer staples sectors underperformed by comparison, although both still returned double digits.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 44.01% for the 12-month reporting period ended October 31, 2021, compared with the index, which returned 44.07%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of approximately 3% of the fund’s investments and returned approximately 12% for the reporting period. One example from this sector is WEC Energy Group, Inc., an energy and natural gas company, which detracted
from the total return of the fund. The fund’s holdings of WEC Energy Group, Inc. represented an average weight of less than 1% of the fund’s holdings and returned approximately -8% for the reporting period.
The materials sector was another small contributor to the
total return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 40% for the reporting period.
The information technology sector contributed the most to the
total return of the fund. Information technology stocks represented an average weight of approximately 27% of the fund’s investments and returned approximately 47% for the reporting period. One example from this sector is Microsoft Corp.,
which develops, manufactures, licenses, sells, and supports software products. The fund’s holdings of Microsoft Corp. represented an average weight of approximately 5% of the fund’s investments and returned approximately 65% for the
reporting period.
The financials sector also contributed
to the total return of the fund, representing an average weight of approximately 12% of the fund’s investments and returning approximately 72% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 44.01% | 18.82% | 16.00% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Fund Category: Morningstar Large Blend2 | 41.27% | 17.14% | 14.63% |
| 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 Charles Schwab Investment Management, Inc. 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 Charles Schwab Investment Management, Inc. 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, 2021 (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, 2021
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 goal, 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 generally 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. Within the index, the energy and financials sectors were the top performers, while the materials and consumer staples sectors underperformed by comparison, although
both still returned double digits.
Performance. The fund generally tracked the index for the reporting period. The fund returned 43.14% during the 12-month reporting period ended October 31, 2021, compared with the index, which returned 43.21%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of less than 1% of the fund’s investments and returned approximately 30% for the reporting period. One example from this sector is Brookfield Renewable Corp., a renewable power company. The fund’s Class A
holdings of Brookfield Renewable Corp. represented an average weight of less than 1% of the fund’s investments and returned approximately 3% for the reporting period.
The energy sector was another small contributor to the total
return of the fund, representing an average weight of less than 1% of the fund’s investments and returning approximately 98% for the reporting period.
The information technology sector contributed the most to the
total return of the fund. Information technology stocks represented an average weight of approximately 45% of the fund’s investments and returned approximately 49% for the reporting period. One example from this sector is Microsoft Corp.,
which develops, manufactures, licenses, sells, and supports software products. The fund’s holdings of Microsoft Corp. represented an average weight of approximately 10% of the fund’s investments and returned approximately 65% for the
reporting period.
The consumer discretionary sector also
contributed to the total return of the fund, representing an average weight of approximately 17% of the fund’s investments and returning approximately 40% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2021)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | 3 Years | Since Inception |
| Fund: Schwab U.S. Large-Cap Growth Index Fund (12/20/17) | 43.14% | 29.34% | 23.93% |
| Russell 1000® Growth Index | 43.21% | 29.41% | 23.99% |
| Fund Category: Morningstar Large Growth2 | 39.55% | 26.53% | 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, 2021 (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 | 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 | Less than 0.05%. |
| 4 | 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, 2021
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 goal, 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 generally 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. Within the index, the energy and financials sectors were the top performers, while the utilities and consumer staples sectors underperformed by comparison, although
both still returned double digits.
Performance. The fund generally tracked the index for the reporting period. The fund returned 43.70% during the 12-month reporting period ended October 31, 2021, compared with the index, which returned 43.76%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of approximately 5% of the fund’s investments and returned approximately 11% for the reporting period. One example from this sector is WEC Energy Group, Inc., an energy and natural gas company, which detracted
from the total return of the fund. The fund’s holdings of WEC Energy Group, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -8% for the reporting period.
The consumer staples sector was another small contributor to
the total return of the fund, representing an average weight of approximately 7% of the fund’s investments and returning approximately 19% for the reporting period.
The financials sector contributed the most to the total return
of the fund. Financials stocks represented an average weight of approximately 21% of the fund’s investments and returned approximately 74% for the reporting period. One example from this sector is JPMorgan Chase & Co., which provides
global financial services and retail banking. The fund’s holdings of JPMorgan Chase & Co. represented an average weight of approximately 2% of the fund’s investments and returned approximately 78% for the reporting period.
The industrials sector also contributed to the total return of
the fund, representing an average weight of approximately 13% of the fund’s investments and returning approximately 43% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2021)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | 3 Years | Since Inception |
| Fund: Schwab U.S. Large-Cap Value Index Fund (12/20/17) | 43.70% | 13.79% | 10.19% |
| Russell 1000® Value Index | 43.76% | 13.90% | 10.29% |
| Fund Category: Morningstar Large Value2 | 43.70% | 13.67% | 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, 2021 (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, 2021
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 goal, 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 generally 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Within the index, the energy and financials sectors were the top performers, while the utilities and consumer staples sectors underperformed by comparison, although both still returned double digits.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 45.35% during the 12-month reporting period ended October 31, 2021, compared with the index, which returned 45.40%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the consumer staples sector was the smallest contributor to the total return of the fund. Consumer staples stocks represented an average weight of
approximately 4% of the fund’s investments and returned approximately 11% for the reporting period. One example from this sector is The Clorox Co., a global manufacturer of household consumer products, which detracted from the total return of
the fund. The fund’s holdings of The Clorox Co. represented an average weight of less than 1% of the fund’s investments and returned approximately -19% for the reporting period.
The utilities sector was another small contributor to the
total return of the fund, representing an average weight of approximately 5% of the fund’s investments and returning approximately 10% for the reporting period.
The information technology sector contributed the most 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 51% for the reporting period. One example from this sector is Palo Alto Networks,
Inc., a cybersecurity company. The fund’s holdings of Palo Alto Networks, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately 130% for the reporting period.
The financials sector also contributed to the total return of
the fund, representing an average weight of approximately 12% of the fund’s investments and returning approximately 71% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (December 20, 2017 – October 31, 2021)1
Average Annual Returns1
| Fund and Inception Date | 1 Year | 3 Years | Since Inception |
| Fund: Schwab U.S. Mid-Cap Index Fund (12/20/17) | 45.35% | 19.77% | 14.69% |
| Russell Midcap® Index | 45.40% | 19.85% | 14.76% |
| Fund Category: Morningstar Mid-Cap Blend2 | 44.79% | 16.37% | 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, 2021 (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, 2021
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 United States. To
purse its goal, the fund generally invests in stocks that are included in the MSCI EAFE® Index (the index). The index 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. The U.S. dollar, as measured against a basket of
foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 34.24% for the 12-month reporting period ended October 31, 2021, compared with the index, which returned
34.18%1.
Contributors and Detractors.
From a country perspective, stocks from the United Kingdom contributed the most to 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 43% in U.S. dollar terms for the reporting period. One example from this market is BP plc, an oil and gas company. The fund’s holdings of BP plc represented an average weight of less than 1% of the
fund’s investments and returned approximately 100% 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 24% of the fund’s investments and returning approximately 20% in U.S. dollar terms for the reporting period.
The stock from the United States, Jackson Financial, Inc.,
detracted from the total return of the fund. The fund’s Class A holdings of Jackson Financial, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -16% for the reporting period. Jackson
Financial, Inc. was held by the fund for a limited time in September 2021 after it was separated from Prudential plc, an insurance company headquartered in the United Kingdom.
While there were no additional markets that detracted from the
total return of the fund, the stock from South Africa, Thungela Resources Ltd., was the smallest contributor to the total return of the fund. The fund’s holdings of Thungela Resources Ltd. represented an average weight of less than 1% of the
fund’s investments and returned approximately 17% in U.S. dollar terms for the reporting period. Thungela Resources Ltd. was held by the fund for a limited time in June 2021 after the South African coal business was spun off from Anglo
American plc, a global mining company headquartered in the United Kingdom.
Management views and portfolio holdings may have changed
since the report date.
| 1 | The total return cited for the index is calculated net of foreign withholding taxes. |
28
Schwab Equity Index Funds | Annual Report
Schwab International
Index Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)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) | 34.24% | 9.92% | 7.52% |
| MSCI EAFE® Index (Net)3 | 34.18% | 9.79% | 7.37% |
| International Spliced Index | 34.18% | 9.79% | 7.42% |
| Fund Category: Morningstar Foreign Large Blend4 | 31.56% | 9.42% | 7.35% |
| 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, 2021 (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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212 | |
| Schwab S&P 500 Index Fund | ||||
| Actual Return | 0.02% | $1,000.00 | $1,109.00 | $0.11 |
| Hypothetical 5% Return | 0.02% | $1,000.00 | $1,025.10 | $0.10 |
| Schwab 1000 Index Fund | ||||
| Actual Return | 0.05% | $1,000.00 | $1,104.10 | $0.27 |
| Hypothetical 5% Return | 0.05% | $1,000.00 | $1,024.95 | $0.26 |
| Schwab Small-Cap Index Fund | ||||
| Actual Return | 0.04% | $1,000.00 | $1,018.60 | $0.20 |
| Hypothetical 5% Return | 0.04% | $1,000.00 | $1,025.00 | $0.20 |
| Schwab Total Stock Market Index Fund | ||||
| Actual Return | 0.03% | $1,000.00 | $1,097.80 | $0.16 |
| Hypothetical 5% Return | 0.03% | $1,000.00 | $1,025.05 | $0.15 |
| Schwab U.S. Large-Cap Growth Index Fund | ||||
| Actual Return | 0.035% | $1,000.00 | $1,151.80 | $0.19 |
| Hypothetical 5% Return | 0.035% | $1,000.00 | $1,025.03 | $0.18 |
| Schwab U.S. Large-Cap Value Index Fund | ||||
| Actual Return | 0.035% | $1,000.00 | $1,054.40 | $0.18 |
| Hypothetical 5% Return | 0.035% | $1,000.00 | $1,025.03 | $0.18 |
| Schwab U.S. Mid-Cap Index Fund | ||||
| Actual Return | 0.04% | $1,000.00 | $1,073.10 | $0.21 |
| Hypothetical 5% Return | 0.04% | $1,000.00 | $1,025.00 | $0.20 |
| Schwab International Index Fund | ||||
| Actual Return | 0.06% | $1,000.00 | $1,044.40 | $0.31 |
| Hypothetical 5% Return | 0.06% | $1,000.00 | $1,024.90 | $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 the 365 days of the fiscal year. |
31
Schwab Equity Index Funds | Annual Report
Schwab S&P 500 Index
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $50.75 | $47.17 | $42.41 | $40.23 | $33.38 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.90 | 1.02 | 0.92 | 0.80 | 0.74 | |
| Net realized and unrealized gains (losses) | 20.60 | 3.52 | 4.86 | 2.12 | 6.99 | |
| Total from investment operations | 21.50 | 4.54 | 5.78 | 2.92 | 7.73 | |
| Less distributions: | ||||||
| Distributions from net investment income | (1.04) | (0.87) | (0.84) | (0.72) | (0.69) | |
| Distributions from net realized gains | — | (0.09) | (0.18) | (0.02) | (0.19) | |
| Total distributions | (1.04) | (0.96) | (1.02) | (0.74) | (0.88) | |
| Net asset value at end of period | $71.21 | $50.75 | $47.17 | $42.41 | $40.23 | |
| Total return | 42.89% | 9.69% | 14.30% | 7.29% | 23.57% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.02% | 0.02% | 0.02% 2 | 0.03% | 0.05% 3 | |
| Net operating expenses | N/A | N/A | N/A | N/A 4 | 0.05% 3 | |
| Net investment income (loss) | 1.42% | 2.11% | 2.11% | 1.88% | 2.01% | |
| Portfolio turnover rate | 3% | 4% | 3% | 2% | 2% | |
| Net assets, end of period (x 1,000,000) | $67,401 | $44,184 | $40,232 | $34,410 | $29,999 | |
| 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
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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
Portfolio Holdings as of
October 31, 2021 (continued)
34
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
35
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
36
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
37
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
| NUMBER
OF CONTRACTS |
NOTIONAL
AMOUNT ($) |
CURRENT
VALUE/ UNREALIZED APPRECIATION ($) | |
| FUTURES CONTRACTS | |||
| Long | |||
| S&P 500 Index, e-mini, expires 12/17/21 | 1,605 | 368,909,250 | 14,829,552 |
| * | 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 $5,481,280. |
| (c) | The rate shown is the 7-day yield. |
| (d) | Security purchased with cash collateral received for securities on loan. |
| (e) | The rate shown is the current daily overnight rate. |
Below is a summary of the fund’s transactions with
affiliated issuers during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DIVIDENDS
RECEIVED | |
| COMMON STOCKS 0.3% OF NET ASSETS | ||||||||
| Diversified Financials 0.3% | ||||||||
| The Charles Schwab Corp. | $98,294,462 | $12,372,647 | ($571,780) | ($35,845) | $100,478,386 | $210,537,870 | 2,566,596 | $1,768,662 |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 Stocks1 | $67,026,706,625 | $— | $— | $67,026,706,625 |
| Short-Term Investments1 | 5,827,929 | — | — | 5,827,929 |
| Time Deposits | — | 326,072,194 | — | 326,072,194 |
| Futures Contracts2 | 14,829,552 | — | — | 14,829,552 |
| Total | $67,047,364,106 | $326,072,194 | $— | $67,373,436,300 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
38
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $70,735,946) | $210,537,870 | |
| Investments in securities, at value - unaffiliated (cost $25,474,589,346) including securities on loan of $5,481,280 | 67,148,068,878 | |
| Deposit with broker for futures contracts | 24,161,500 | |
| Receivables: | ||
| Dividends | 50,383,581 | |
| Fund shares sold | 36,912,795 | |
| Variation margin on future contracts | 797,405 | |
| Income from securities on loan | 2,787 | |
| Interest | + | 136 |
| Total assets | 67,470,864,952 | |
| Liabilities | ||
| Collateral held for securities on loan | 5,827,929 | |
| Payables: | ||
| Fund shares redeemed | 42,983,732 | |
| Investments bought | 19,723,894 | |
| Investment adviser fees | + | 1,103,951 |
| Total liabilities | 69,639,506 | |
| Net assets | $67,401,225,446 | |
| Net Assets by Source | ||
| Capital received from investors | $25,209,663,115 | |
| Total distributable earnings | + | 42,191,562,331 |
| Net assets | $67,401,225,446 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $67,401,225,446 | 946,517,470 | $71.21 | ||
39
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab S&P 500 Index
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $1,768,662 | |
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $78,868) | 829,289,109 | |
| Interest received from securities - unaffiliated | 14,651 | |
| Securities on loan, net | + | 208,192 |
| Total investment income | 831,280,614 | |
| Expenses | ||
| Investment adviser fees | + | 11,509,654 |
| Total expenses | – | 11,509,654 |
| Net investment income | 819,770,960 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on sales of securities - affiliated | (35,845) | |
| Net realized gains on sales of securities - unaffiliated | 92,243,595 | |
| Net realized gains on futures contracts | + | 79,354,858 |
| Net realized gains | 171,562,608 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 100,478,386 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 18,344,544,012 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 18,793,661 |
| Net change in unrealized appreciation (depreciation) | + | 18,463,816,059 |
| Net realized and unrealized gains | 18,635,378,667 | |
| Increase in net assets resulting from operations | $19,455,149,627 | |
40
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $819,770,960 | $893,349,734 | |
| Net realized gains (losses) | 171,562,608 | (291,792,502) | |
| Net change in unrealized appreciation (depreciation) | + | 18,463,816,059 | 3,166,046,098 |
| Increase in net assets from operations | $19,455,149,627 | $3,767,603,330 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($913,293,066) | ($829,255,576) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 196,724,074 | $12,273,054,924 | 236,073,289 | $11,084,108,165 | |
| Shares reinvested | 13,207,873 | 748,622,260 | 13,928,557 | 685,702,860 | |
| Shares redeemed | + | (133,977,878) | (8,346,566,792) | (232,288,137) | (10,755,681,037) |
| Net transactions in fund shares | 75,954,069 | $4,675,110,392 | 17,713,709 | $1,014,129,988 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 870,563,401 | $44,184,258,493 | 852,849,692 | $40,231,780,751 | |
| Total increase | + | 75,954,069 | 23,216,966,953 | 17,713,709 | 3,952,477,742 |
| End of period | 946,517,470 | $67,401,225,446 | 870,563,401 | $44,184,258,493 | |
41
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $73.73 | $68.68 | $64.19 | $62.61 | $52.40 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 1.24 | 1.38 | 1.38 | 1.18 | 1.08 | |
| Net realized and unrealized gains (losses) | 30.02 | 5.81 | 6.73 | 3.05 | 10.96 | |
| Total from investment operations | 31.26 | 7.19 | 8.11 | 4.23 | 12.04 | |
| Less distributions: | ||||||
| Distributions from net investment income | (1.42) | (1.29) | (1.28) | (1.10) | (0.97) | |
| Distributions from net realized gains | (0.88) | (0.85) | (2.34) | (1.55) | (0.86) | |
| Total distributions | (2.30) | (2.14) | (3.62) | (2.65) | (1.83) | |
| Net asset value at end of period | $102.69 | $73.73 | $68.68 | $64.19 | $62.61 | |
| Total return | 43.16% | 10.60% | 14.20% | 6.84% | 23.52% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.05% | 0.05% | 0.05% | 0.05% | 0.14% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.12% 2 | |
| Net investment income (loss) | 1.36% | 1.97% | 2.15% | 1.82% | 1.87% | |
| Portfolio turnover rate | 5% 4 | 4% | 5% | 4% | 5% | |
| Net assets, end of period (x 1,000,000) | $14,222 | $9,774 | $9,346 | $7,909 | $7,681 | |
| 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. |
| 4 | Portfolio turnover rate excludes in-kind transactions. |
42
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
43
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
44
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
45
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
46
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
47
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
48
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
49
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
50
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions
with affiliated issuers during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DIVIDENDS
RECEIVED | |
| COMMON STOCKS 0.3% OF NET ASSETS | ||||||||
| Diversified Financials 0.3% | ||||||||
| The Charles Schwab Corp. | $19,174,156 | $1,215,400 | ($675,035) | $6,770 | $19,300,134 | $39,021,425 | 475,697 | $341,029 |
51
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 Stocks1 | $14,153,404,120 | $— | $— | $14,153,404,120 |
| Short-Term Investments1 | 58,343,237 | — | — | 58,343,237 |
| Futures Contracts2 | 2,092,641 | — | — | 2,092,641 |
| Total | $14,213,839,998 | $— | $— | $14,213,839,998 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
52
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $3,841,180) | $39,021,425 | |
| Investments in securities, at value - unaffiliated (cost $3,078,572,704) including securities on loan of $10,928,190 | 14,172,725,932 | |
| Cash | 1,264,902 | |
| Deposit with broker for futures contracts | 7,256,500 | |
| Receivables: | ||
| Dividends | 9,826,333 | |
| Fund shares sold | 6,102,520 | |
| Variation margin on future contracts | 127,789 | |
| Income from securities on loan | + | 20,208 |
| Total assets | 14,236,345,609 | |
| Liabilities | ||
| Collateral held for securities on loan | 11,178,669 | |
| Payables: | ||
| Fund shares redeemed | 2,367,788 | |
| Investment adviser fees | + | 584,296 |
| Total liabilities | 14,130,753 | |
| Net assets | $14,222,214,856 | |
| Net Assets by Source | ||
| Capital received from investors | $2,864,705,120 | |
| Total distributable earnings | + | 11,357,509,736 |
| Net assets | $14,222,214,856 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $14,222,214,856 | 138,499,688 | $102.69 | ||
53
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab 1000 Index Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $341,029 | |
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $26,950) | 176,905,959 | |
| Securities on loan, net | + | 122,456 |
| Total investment income | 177,369,444 | |
| Expenses | ||
| Investment adviser fees | + | 6,273,096 |
| Total expenses | – | 6,273,096 |
| Net investment income | 171,096,348 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - affiliated | 6,770 | |
| Net realized gains on sales of securities - unaffiliated | 141,317,673 | |
| Net realized gains on futures contracts | + | 17,125,245 |
| Net realized gains | 158,449,688 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 19,300,134 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 3,909,553,724 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 3,416,294 |
| Net change in unrealized appreciation (depreciation) | + | 3,932,270,152 |
| Net realized and unrealized gains | 4,090,719,840 | |
| Increase in net assets resulting from operations | $4,261,816,188 | |
54
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $171,096,348 | $187,130,898 | |
| Net realized gains | 158,449,688 | 117,738,056 | |
| Net change in unrealized appreciation (depreciation) | + | 3,932,270,152 | 641,934,662 |
| Increase in net assets from operations | $4,261,816,188 | $946,803,616 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($306,286,999) | ($290,754,043) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 15,568,422 | $1,394,601,301 | 13,800,508 | $925,426,862 | |
| Shares reinvested | 3,026,807 | 250,256,414 | 3,367,064 | 238,859,473 | |
| Shares redeemed | + | (12,663,564) | (1,152,112,463) | (20,677,471) | (1,392,525,764) |
| Net transactions in fund shares | 5,931,665 | $492,745,252 | (3,509,899) | ($228,239,429) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 132,568,023 | $9,773,940,415 | 136,077,922 | $9,346,130,271 | |
| Total increase (decrease) | + | 5,931,665 | 4,448,274,441 | (3,509,899) | 427,810,144 |
| End of period | 138,499,688 | $14,222,214,856 | 132,568,023 | $9,773,940,415 | |
55
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $27.18 | $28.84 | $30.48 | $31.45 | $25.60 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.37 | 0.35 | 0.40 | 0.43 | 0.38 | |
| Net realized and unrealized gains (losses) | 13.29 | (0.23) | 0.54 | 0.20 | 6.62 | |
| Total from investment operations | 13.66 | 0.12 | 0.94 | 0.63 | 7.00 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.38) | (0.42) | (0.40) | (0.39) | (0.39) | |
| Distributions from net realized gains | (0.49) | (1.36) | (2.18) | (1.21) | (0.76) | |
| Total distributions | (0.87) | (1.78) | (2.58) | (1.60) | (1.15) | |
| Net asset value at end of period | $39.97 | $27.18 | $28.84 | $30.48 | $31.45 | |
| Total return | 50.82% | 0.00% | 4.95% | 1.93% | 27.84% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.04% | 0.04% | 0.04% 2 | 0.05% | 0.10% 3 | |
| Net operating expenses | N/A | N/A | N/A | N/A 4 | 0.09% 3 | |
| Net investment income (loss) | 0.98% | 1.31% | 1.43% | 1.33% | 1.31% | |
| Portfolio turnover rate | 19% 5 | 21% | 14% | 17% | 11% | |
| Net assets, end of period (x 1,000,000) | $6,587 | $3,988 | $4,187 | $3,874 | $3,531 | |
| 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. |
| 5 | Portfolio turnover rate excludes in-kind transactions. |
56
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
57
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
58
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
59
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
60
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
61
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
62
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
63
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
64
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
65
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
66
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
67
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
68
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
69
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
70
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
71
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
72
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
73
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $5,280,349,459 | $— | $— | $5,280,349,459 |
| Health Care Equipment & Services | 505,916,196 | — | 702,365 | 506,618,561 |
| Materials | 249,301,023 | — | 0* | 249,301,023 |
| Software & Services | 517,210,749 | — | 79,816 | 517,290,565 |
| Corporate Bonds1 | — | 23,937 | — | 23,937 |
| Rights 1 | ||||
| Media & Entertainment | — | — | 14,883 | 14,883 |
| Pharmaceuticals, Biotechnology & Life Sciences | — | — | 228,472* | 228,472 |
| Short-Term Investments1 | 100,904,650 | — | — | 100,904,650 |
| Time Deposits | — | 28,701,235 | — | 28,701,235 |
| Futures Contracts2 | 456,167 | — | — | 456,167 |
| Total | $6,654,138,244 | $28,725,172 | $1,025,536 | $6,683,888,952 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
74
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $4,323,290,849) including securities on loan of $99,129,002 | $6,683,432,785 | |
| Deposit with broker for futures contracts | 3,737,500 | |
| Receivables: | ||
| Fund shares sold | 3,811,615 | |
| Dividends | 1,437,981 | |
| Income from securities on loan | 218,682 | |
| Variation margin on future contracts | 3,226 | |
| Interest | + | 376 |
| Total assets | 6,692,642,165 | |
| Liabilities | ||
| Collateral held for securities on loan | 100,904,650 | |
| Payables: | ||
| Fund shares redeemed | 2,014,189 | |
| Deferred dividend income | 1,498,927 | |
| Investments bought | 1,008,946 | |
| Investment adviser fees | + | 219,474 |
| Total liabilities | 105,646,186 | |
| Net assets | $6,586,995,979 | |
| Net Assets by Source | ||
| Capital received from investors | $3,880,062,044 | |
| Total distributable earnings | + | 2,706,933,935 |
| Net assets | $6,586,995,979 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $6,586,995,979 | 164,800,880 | $39.97 | ||
75
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Small-Cap Index
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $115,316) | $58,365,340 | |
| Interest received from securities - unaffiliated | 2,136 | |
| Securities on loan, net | + | 2,774,762 |
| Total investment income | 61,142,238 | |
| Expenses | ||
| Investment adviser fees | + | 2,388,536 |
| Total expenses | – | 2,388,536 |
| Net investment income | 58,753,702 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 418,343,367 | |
| Net realized gains on futures contracts | + | 9,813,387 |
| Net realized gains | 428,156,754 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 1,574,155,445 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 970,576 |
| Net change in unrealized appreciation (depreciation) | + | 1,575,126,021 |
| Net realized and unrealized gains | 2,003,282,775 | |
| Increase in net assets resulting from operations | $2,062,036,477 | |
76
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $58,753,702 | $52,110,703 | |
| Net realized gains | 428,156,754 | 16,309,735 | |
| Net change in unrealized appreciation (depreciation) | + | 1,575,126,021 | (66,209,739) |
| Increase in net assets from operations | $2,062,036,477 | $2,210,699 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($129,889,789) | ($258,984,423) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 42,300,482 | $1,579,406,837 | 42,497,497 | $1,056,026,388 | |
| Shares reinvested | 3,127,037 | 106,319,237 | 7,453,061 | 217,331,235 | |
| Shares redeemed | + | (27,339,753) | (1,019,048,338) | (48,388,038) | (1,215,269,449) |
| Net transactions in fund shares | 18,087,766 | $666,677,736 | 1,562,520 | $58,088,174 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 146,713,114 | $3,988,171,555 | 145,150,594 | $4,186,857,105 | |
| Total increase (decrease) | + | 18,087,766 | 2,598,824,424 | 1,562,520 | (198,685,550) |
| End of period | 164,800,880 | $6,586,995,979 | 146,713,114 | $3,988,171,555 | |
77
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $57.62 | $53.42 | $48.38 | $46.25 | $38.19 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 1.00 | 1.07 | 0.99 | 0.88 | 0.80 | |
| Net realized and unrealized gains (losses) | 24.10 | 4.21 | 5.18 | 2.12 | 8.19 | |
| Total from investment operations | 25.10 | 5.28 | 6.17 | 3.00 | 8.99 | |
| Less distributions: | ||||||
| Distributions from net investment income | (1.08) | (0.94) | (0.90) | (0.76) | (0.74) | |
| Distributions from net realized gains | — | (0.14) | (0.23) | (0.11) | (0.19) | |
| Total distributions | (1.08) | (1.08) | (1.13) | (0.87) | (0.93) | |
| Net asset value at end of period | $81.64 | $57.62 | $53.42 | $48.38 | $46.25 | |
| Total return | 44.01% | 9.94% | 13.37% | 6.51% | 23.89% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.03% | 0.03% | 0.03% | 0.03% | 0.05% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.05% 2 | |
| Net investment income (loss) | 1.37% | 1.96% | 1.99% | 1.80% | 1.89% | |
| Portfolio turnover rate | 3% | 4% | 3% | 4% | 2% | |
| Net assets, end of period (x 1,000,000) | $18,232 | $11,487 | $10,220 | $8,410 | $6,720 | |
| 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. |
78
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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 Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
80
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
81
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
82
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
83
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
84
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
85
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
86
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
87
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
88
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
89
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
90
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
91
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
92
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
93
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
94
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
95
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
96
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
97
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
98
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
99
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
100
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
101
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
102
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
103
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
104
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
105
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
Below is a summary of the fund’s transactions
with affiliated issuers during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DIVIDENDS
RECEIVED | |
| COMMON STOCKS 0.3% OF NET ASSETS | ||||||||
| Diversified Financials 0.3% | ||||||||
| The Charles Schwab Corp. | $21,138,598 | $3,891,224 | ($422,548) | ($22,588) | $22,049,615 | $46,634,301 | 568,503 | $389,161 |
106
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $13,165,464,852 | $— | $— | $13,165,464,852 |
| Automobiles & Components | 467,784,571 | — | 14,063 | 467,798,634 |
| Health Care Equipment & Services | 1,119,495,910 | — | 124,279 | 1,119,620,189 |
| Real Estate | 614,903,320 | — | 0* | 614,903,320 |
| Software & Services | 2,754,569,809 | — | 13,982 | 2,754,583,791 |
| Preferred Stocks1 | — | — | 62,723 | 62,723 |
| Rights 1 | ||||
| Consumer Durables & Apparel | — | — | 720 | 720 |
| Food & Staples Retailing | — | — | 4,664 | 4,664 |
| Media & Entertainment | — | — | 1,566 | 1,566 |
| Pharmaceuticals, Biotechnology & Life Sciences | — | — | 12,809* | 12,809 |
| Short-Term Investments1 | 51,473,181 | — | — | 51,473,181 |
| Time Deposits | — | 85,369,598 | — | 85,369,598 |
| Futures Contracts2 | 3,245,079 | — | — | 3,245,079 |
| Total | $18,176,936,722 | $85,369,598 | $234,806 | $18,262,541,126 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are not included in Investments and are valued at the unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
107
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $19,058,434) | $46,634,301 | |
| Investments in securities, at value - unaffiliated (cost $8,281,785,586) including securities on loan of $49,923,975 | 18,212,661,746 | |
| Deposit with broker for futures contracts | 7,522,000 | |
| Receivables: | ||
| Dividends | 12,051,210 | |
| Fund shares sold | 7,745,504 | |
| Income from securities on loan | 229,279 | |
| Variation margin on future contracts | + | 176,604 |
| Total assets | 18,287,020,644 | |
| Liabilities | ||
| Collateral held for securities on loan | 51,473,181 | |
| Payables: | ||
| Fund shares redeemed | 2,947,372 | |
| Investment adviser fees | 448,634 | |
| Deferred dividend income | 271,259 | |
| Investments bought | + | 202,273 |
| Total liabilities | 55,342,719 | |
| Net assets | $18,231,677,925 | |
| Net Assets by Source | ||
| Capital received from investors | $8,159,853,528 | |
| Total distributable earnings | + | 10,071,824,397 |
| Net assets | $18,231,677,925 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $18,231,677,925 | 223,321,346 | $81.64 | ||
108
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab Total Stock Market Index
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $389,161 | |
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $43,469) | 215,891,044 | |
| Interest received from securities - unaffiliated | 6,340 | |
| Securities on loan, net | + | 1,484,306 |
| Total investment income | 217,770,851 | |
| Expenses | ||
| Investment adviser fees | + | 4,674,020 |
| Total expenses | – | 4,674,020 |
| Net investment income | 213,096,831 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on sales of securities - affiliated | (22,588) | |
| Net realized gains on sales of securities - unaffiliated | 10,430,171 | |
| Net realized gains on futures contracts | + | 24,325,338 |
| Net realized gains | 34,732,921 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 22,049,615 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 4,982,683,800 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 4,764,584 |
| Net change in unrealized appreciation (depreciation) | + | 5,009,497,999 |
| Net realized and unrealized gains | 5,044,230,920 | |
| Increase in net assets resulting from operations | $5,257,327,751 | |
109
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $213,096,831 | $212,497,929 | |
| Net realized gains (losses) | 34,732,921 | (25,404,301) | |
| Net change in unrealized appreciation (depreciation) | + | 5,009,497,999 | 847,687,149 |
| Increase in net assets from operations | $5,257,327,751 | $1,034,780,777 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($218,157,695) | ($207,148,798) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 45,495,323 | $3,270,028,626 | 47,954,413 | $2,507,068,155 | |
| Shares reinvested | 2,374,705 | 156,303,072 | 2,723,498 | 151,971,124 | |
| Shares redeemed | + | (23,925,141) | (1,721,261,599) | (42,603,146) | (2,219,143,615) |
| Net transactions in fund shares | 23,944,887 | $1,705,070,099 | 8,074,765 | $439,895,664 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 199,376,459 | $11,487,437,770 | 191,301,694 | $10,219,910,127 | |
| Total increase | + | 23,944,887 | 6,744,240,155 | 8,074,765 | 1,267,527,643 |
| End of period | 223,321,346 | $18,231,677,925 | 199,376,459 | $11,487,437,770 | |
110
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
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 | $62.76 | $49.06 | $42.37 | $40.00 | ||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.56 | 0.55 | 0.57 | 0.46 | ||
| Net realized and unrealized gains (losses) | 26.39 | 13.65 | 6.52 | 1.91 3 | ||
| Total from investment operations | 26.95 | 14.20 | 7.09 | 2.37 | ||
| Less distributions: | ||||||
| Distributions from net investment income | (0.48) | (0.50) | (0.40) | — | ||
| Net asset value at end of period | $89.23 | $62.76 | $49.06 | $42.37 | ||
| Total return | 43.14% | 29.16% | 17.04% | 5.93% 4 | ||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.035% | 0.035% | 0.035% 5 | 0.040% 6,7 | ||
| Net operating expenses | N/A | N/A | N/A | 0.02% 6,7 | ||
| Net investment income (loss) | 0.73% | 0.97% | 1.27% | 1.23% 6 | ||
| Portfolio turnover rate | 18% | 41% | 46% | 23% 4 | ||
| Net assets, end of period (x 1,000,000) | $881 | $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. |
111
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
112
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
113
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
114
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
115
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
116
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Growth
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $876,654,579 | $— | $— | $876,654,579 |
| Investment Companies1 | 894,000 | — | — | 894,000 |
| Short-Term Investments1 | 6,668,493 | — | — | 6,668,493 |
| Futures Contracts2 | 27,229 | — | — | 27,229 |
| Total | $884,244,301 | $— | $— | $884,244,301 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
117
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, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $545,690,482) including securities on loan of $531,933 | $884,217,072 | |
| Cash | 74,596 | |
| Deposit with broker for futures contracts | 299,500 | |
| Receivables: | ||
| Fund shares sold | 1,443,868 | |
| Dividends | 304,548 | |
| Variation margin on future contracts | 32,289 | |
| Income from securities on loan | + | 1,212 |
| Total assets | 886,373,085 | |
| Liabilities | ||
| Collateral held for securities on loan | 550,140 | |
| Payables: | ||
| Investments bought | 2,962,222 | |
| Fund shares redeemed | 1,676,722 | |
| Investment adviser fees | + | 24,792 |
| Total liabilities | 5,213,876 | |
| Net assets | $881,159,209 | |
| Net Assets by Source | ||
| Capital received from investors | $537,206,569 | |
| Total distributable earnings | + | 343,952,640 |
| Net assets | $881,159,209 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $881,159,209 | 9,875,471 | $89.23 | ||
118
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, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $318) | $5,260,336 | |
| Securities on loan, net | + | 10,703 |
| Total investment income | 5,271,039 | |
| Expenses | ||
| Investment adviser fees | + | 241,082 |
| Total expenses | – | 241,082 |
| Net investment income | 5,029,957 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 15,153,174 | |
| Net realized gains on futures contracts | + | 1,139,724 |
| Net realized gains | 16,292,898 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 214,436,537 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 90,764 |
| Net change in unrealized appreciation (depreciation) | + | 214,527,301 |
| Net realized and unrealized gains | 230,820,199 | |
| Increase in net assets resulting from operations | $235,850,156 | |
119
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $5,029,957 | $3,272,535 | |
| Net realized gains (losses) | 16,292,898 | (10,491,785) | |
| Net change in unrealized appreciation (depreciation) | + | 214,527,301 | 98,464,618 |
| Increase in net assets from operations | $235,850,156 | $91,245,368 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($3,820,481) | ($1,890,344) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 4,598,477 | $352,197,876 | 8,242,661 | $434,758,920 | |
| Shares reinvested | 45,814 | 3,263,376 | 30,207 | 1,571,983 | |
| Shares redeemed | + | (2,532,061) | (193,536,712) | (3,889,701) | (204,300,295) |
| Net transactions in fund shares | 2,112,230 | $161,924,540 | 4,383,167 | $232,030,608 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 7,763,241 | $487,204,994 | 3,380,074 | $165,819,362 | |
| Total increase | + | 2,112,230 | 393,954,215 | 4,383,167 | 321,385,632 |
| End of period | 9,875,471 | $881,159,209 | 7,763,241 | $487,204,994 | |
120
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
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 | $38.09 | $43.06 | $39.51 | $40.00 | ||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.97 | 1.00 | 1.13 | 0.82 | ||
| Net realized and unrealized gains (losses) | 15.47 | (4.07) | 3.10 | (1.31) | ||
| Total from investment operations | 16.44 | (3.07) | 4.23 | (0.49) | ||
| Less distributions: | ||||||
| Distributions from net investment income | (0.88) | (1.06) | (0.62) | — | ||
| Distributions from net realized gains | — | (0.84) | (0.06) | — | ||
| Total distributions | (0.88) | (1.90) | (0.68) | — | ||
| Net asset value at end of period | $53.65 | $38.09 | $43.06 | $39.51 | ||
| Total return | 43.70% | (7.69%) | 11.08% | (1.23%) 3 | ||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.035% | 0.035% | 0.035% 4 | 0.040% 5,6 | ||
| Net operating expenses | N/A | N/A | N/A | 0.02% 5,6 | ||
| Net investment income (loss) | 1.97% | 2.57% | 2.79% | 2.36% 5 | ||
| Portfolio turnover rate | 20% | 50% | 22% | 22% 3 | ||
| Net assets, end of period (x 1,000,000) | $576 | $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. |
121
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
122
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
123
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
124
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
125
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
126
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
127
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
128
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
Below is a summary of the fund’s transactions
with affiliated issuers during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DIVIDENDS
RECEIVED | |
| COMMON STOCKS 0.6% OF NET ASSETS | ||||||||
| Diversified Financials 0.6% | ||||||||
| The Charles Schwab Corp. | $1,329,909 | $904,113 | ($251,103) | $3,895 | $1,410,705 | $3,397,519 | 41,418 | $25,665 |
129
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Large-Cap Value
Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $572,236,534 | $— | $— | $572,236,534 |
| Investment Companies1 | 493,620 | — | — | 493,620 |
| Short-Term Investments1 | 3,402,045 | — | — | 3,402,045 |
| Futures Contracts2 | 16,118 | — | — | 16,118 |
| Total | $576,148,317 | $— | $— | $576,148,317 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
130
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, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $1,761,440) | $3,397,519 | |
| Investments in securities, at value - unaffiliated (cost $426,920,342) including securities on loan of $232,187 | 572,734,680 | |
| Cash | 45,118 | |
| Deposit with broker for futures contracts | 243,500 | |
| Receivables: | ||
| Dividends | 625,917 | |
| Fund shares sold | 462,360 | |
| Income from securities on loan | + | 727 |
| Total assets | 577,509,821 | |
| Liabilities | ||
| Collateral held for securities on loan | 241,115 | |
| Payables: | ||
| Fund shares redeemed | 1,277,410 | |
| Investment adviser fees | 16,728 | |
| Variation margin on futures contracts | + | 2,435 |
| Total liabilities | 1,537,688 | |
| Net assets | $575,972,133 | |
| Net Assets by Source | ||
| Capital received from investors | $428,518,841 | |
| Total distributable earnings | + | 147,453,292 |
| Net assets | $575,972,133 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $575,972,133 | 10,734,901 | $53.65 | ||
131
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, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $25,665 | |
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $1,049) | 9,690,901 | |
| Securities on loan, net | + | 7,609 |
| Total investment income | 9,724,175 | |
| Expenses | ||
| Investment adviser fees | + | 169,611 |
| Total expenses | – | 169,611 |
| Net investment income | 9,554,564 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - affiliated | 3,895 | |
| Net realized gains on sales of securities - unaffiliated | 17,892,497 | |
| Net realized gains on futures contracts | + | 800,021 |
| Net realized gains | 18,696,413 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 1,410,705 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 124,113,290 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 74,542 |
| Net change in unrealized appreciation (depreciation) | + | 125,598,537 |
| Net realized and unrealized gains | 144,294,950 | |
| Increase in net assets resulting from operations | $153,849,514 | |
132
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $9,554,564 | $6,981,568 | |
| Net realized gains (losses) | 18,696,413 | (24,790,374) | |
| Net change in unrealized appreciation (depreciation) | + | 125,598,537 | 7,157,519 |
| Increase (decrease) in net assets from operations | $153,849,514 | ($10,651,287) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($7,759,956) | ($9,633,049) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,972,069 | $193,635,977 | 7,976,599 | $290,627,433 | |
| Shares reinvested | 129,214 | 5,614,330 | 182,880 | 7,979,022 | |
| Shares redeemed | + | (2,064,619) | (100,690,119) | (4,389,206) | (159,213,048) |
| Net transactions in fund shares | 2,036,664 | $98,560,188 | 3,770,273 | $139,393,407 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 8,698,237 | $331,322,387 | 4,927,964 | $212,213,316 | |
| Total increase | + | 2,036,664 | 244,649,746 | 3,770,273 | 119,109,071 |
| End of period | 10,734,901 | $575,972,133 | 8,698,237 | $331,322,387 | |
133
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
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 | $44.98 | $44.29 | $39.55 | $40.00 | ||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.69 | 0.72 | 0.70 | 0.59 | ||
| Net realized and unrealized gains (losses) | 19.54 | 1.09 | 4.54 | (1.04) | ||
| Total from investment operations | 20.23 | 1.81 | 5.24 | (0.45) | ||
| Less distributions: | ||||||
| Distributions from net investment income | (0.77) | (0.64) | (0.42) | — | ||
| Distributions from net realized gains | — | (0.48) | (0.08) | — | ||
| Total distributions | (0.77) | (1.12) | (0.50) | — | ||
| Net asset value at end of period | $64.44 | $44.98 | $44.29 | $39.55 | ||
| Total return | 45.35% | 4.04% | 13.61% | (1.13%) 3 | ||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.04% | 0.04% | 0.04% 4 | 0.05% 5,6 | ||
| Net operating expenses | N/A | N/A | N/A | 0.03% 5,6 | ||
| Net investment income (loss) | 1.19% | 1.69% | 1.67% | 1.65% 5 | ||
| Portfolio turnover rate | 14% | 29% | 21% | 15% 3 | ||
| Net assets, end of period (x 1,000,000) | $891 | $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. |
134
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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.
135
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
136
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
137
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
138
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
139
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
140
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
141
Schwab Equity Index Funds | Annual Report
See financial notes
Schwab U.S. Mid-Cap Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The following is a summary of the inputs used to
value the fund’s investments as of October 31, 2021 (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 Stocks1 | $884,662,715 | $— | $— | $884,662,715 |
| Investment Companies1 | 779,730 | — | — | 779,730 |
| Short-Term Investments1 | 9,170,584 | — | — | 9,170,584 |
| Futures Contracts2 | 1 | — | — | 1 |
| Total | $894,613,030 | $— | $— | $894,613,030 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds and ETFs are
classified as Level 1, without consideration to the classification level of the underlying securities held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
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See financial notes
Schwab U.S. Mid-Cap Index
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $639,601,918) including securities on loan of $2,094,861 | $894,613,029 | |
| Cash | 271,320 | |
| Deposit with broker for futures contracts | 324,000 | |
| Receivables: | ||
| Fund shares sold | 1,706,981 | |
| Dividends | 293,107 | |
| Income from securities on loan | 1,615 | |
| Variation margin on future contracts | + | 1,580 |
| Total assets | 897,211,632 | |
| Liabilities | ||
| Collateral held for securities on loan | 2,165,900 | |
| Payables: | ||
| Investments bought | 4,051,836 | |
| Fund shares redeemed | 267,773 | |
| Investment adviser fees | + | 29,174 |
| Total liabilities | 6,514,683 | |
| Net assets | $890,696,949 | |
| Net Assets by Source | ||
| Capital received from investors | $626,651,339 | |
| Total distributable earnings | + | 264,045,610 |
| Net assets | $890,696,949 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $890,696,949 | 13,821,666 | $64.44 | ||
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Schwab U.S. Mid-Cap Index
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $1,749) | $8,721,367 | |
| Securities on loan, net | + | 30,207 |
| Total investment income | 8,751,574 | |
| Expenses | ||
| Investment adviser fees | + | 284,565 |
| Total expenses | – | 284,565 |
| Net investment income | 8,467,009 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 16,681,193 | |
| Net realized gains on futures contracts | + | 1,191,756 |
| Net realized gains | 17,872,949 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 208,363,004 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 107,775 |
| Net change in unrealized appreciation (depreciation) | + | 208,470,779 |
| Net realized and unrealized gains | 226,343,728 | |
| Increase in net assets resulting from operations | $234,810,737 | |
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Schwab U.S. Mid-Cap Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| OPERATIONS | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $8,467,009 | $7,639,807 | |
| Net realized gains (losses) | 17,872,949 | (9,791,653) | |
| Net change in unrealized appreciation (depreciation) | + | 208,470,779 | 20,394,860 |
| Increase in net assets from operations | $234,810,737 | $18,243,014 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($8,319,433) | ($9,582,557) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 5,533,289 | $322,845,672 | 7,486,752 | $310,557,071 | |
| Shares reinvested | 134,151 | 7,065,741 | 166,927 | 7,635,275 | |
| Shares redeemed | + | (2,583,256) | (148,682,619) | (4,967,958) | (200,471,749) |
| Net transactions in fund shares | 3,084,184 | $181,228,794 | 2,685,721 | $117,720,597 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 10,737,482 | $482,976,851 | 8,051,761 | $356,595,797 | |
| Total increase | + | 3,084,184 | 407,720,098 | 2,685,721 | 126,381,054 |
| End of period | 13,821,666 | $890,696,949 | 10,737,482 | $482,976,851 | |
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Schwab International Index
Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $18.56 | $20.48 | $19.00 | $21.01 | $17.52 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.64 | 0.47 | 0.64 | 0.62 | 0.55 | |
| Net realized and unrealized gains (losses) | 5.66 | (1.75) | 1.39 | (2.06) | 3.49 | |
| Total from investment operations | 6.30 | (1.28) | 2.03 | (1.44) | 4.04 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.41) | (0.64) | (0.55) | (0.57) | (0.55) | |
| Net asset value at end of period | $24.45 | $18.56 | $20.48 | $19.00 | $21.01 | |
| Total return | 34.24% | (6.56%) | 11.27% | (7.11%) | 23.76% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.06% | 0.06% | 0.06% | 0.06% | 0.11% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.10% 2 | |
| Net investment income (loss) | 2.76% | 2.47% | 3.32% | 2.99% | 2.88% | |
| Portfolio turnover rate | 3% | 7% | 5% | 5% | 3% | |
| Net assets, end of period (x 1,000,000) | $8,781 | $5,937 | $5,443 | $4,314 | $4,128 | |
| 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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See financial notes
Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
148
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
149
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
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Schwab International Index
Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $— | $423,559,997 | $— | $423,559,997 |
| Australia | — | 592,101,945 | 25,400,863 | 617,502,808 |
| Denmark | 4,291,093 | 233,629,150 | — | 237,920,243 |
| France | 4,033,157 | 993,458,197 | — | 997,491,354 |
| Germany | 6,393,511 | 724,245,931 | — | 730,639,442 |
| Hong Kong | 4,099,118 | 249,840,622 | — | 253,939,740 |
| Ireland | 10,781,083 | 50,218,106 | — | 60,999,189 |
| Israel | 20,219,044 | 34,949,314 | — | 55,168,358 |
| Japan | 3,443,166 | 1,994,373,515 | — | 1,997,816,681 |
| Netherlands | 16,035,746 | 422,144,476 | — | 438,180,222 |
| Norway | 2,140,389 | 55,707,530 | — | 57,847,919 |
| Portugal | 6,829,211 | 10,619,585 | 0* | 17,448,796 |
| Singapore | 15,312,843 | 87,183,111 | — | 102,495,954 |
| Spain | 41,227,536 | 165,992,291 | — | 207,219,827 |
| Sweden | 5,255,851 | 323,216,635 | — | 328,472,486 |
| Switzerland | 12,798,209 | 846,994,945 | — | 859,793,154 |
| United Kingdom | — | 1,263,455,153 | 11,429 | 1,263,466,582 |
| Preferred Stocks1 | — | 1,113,934 | — | 1,113,934 |
| Germany | 1,671,057 | 48,453,392 | — | 50,124,449 |
| Short-Term Investments1 | — | 29,897,162 | — | 29,897,162 |
| Money Market Funds | 12,521,971 | — | — | 12,521,971 |
| Futures Contracts2 | 545,990 | — | — | 545,990 |
| Total | $167,598,975 | $8,551,154,991 | $25,412,292 | $8,744,166,258 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are not included in Investments and are valued at the unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
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Schwab International Index
Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $6,197,172,424) including securities on loan of $11,191,681 | $8,743,620,268 | |
| Deposit with broker for futures contracts | 4,775,760 | |
| Receivables: | ||
| Dividends | 17,847,604 | |
| Foreign tax reclaims | 16,484,380 | |
| Investments sold | 14,691,213 | |
| Fund shares sold | 8,123,626 | |
| Income from securities on loan | + | 14,504 |
| Total assets | 8,805,557,355 | |
| Liabilities | ||
| Collateral held for securities on loan | 12,521,971 | |
| Payables: | ||
| Due to custodian | 4,570,058 | |
| Investments bought | 3,314,730 | |
| Fund shares redeemed | 2,824,796 | |
| Investment adviser fees | 650,396 | |
| Variation margin on futures contracts | + | 453,332 |
| Total liabilities | 24,335,283 | |
| Net assets | $8,781,222,072 | |
| Net Assets by Source | ||
| Capital received from investors | $6,476,697,686 | |
| Total distributable earnings | + | 2,304,524,386 |
| Net assets | $8,781,222,072 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $8,781,222,072 | 359,215,458 | $24.45 | ||
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Schwab International Index
Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $22,310,697) | $224,523,724 | |
| Interest received from securities - unaffiliated | 1,044 | |
| Securities on loan, net | + | 559,727 |
| Total investment income | 225,084,495 | |
| Expenses | ||
| Investment adviser fees | 4,776,024 | |
| Professional fees | + | 54,079* |
| Total expenses | 4,830,103 | |
| Expense reduction by investment adviser | – | 54,079* |
| Net expenses | – | 4,776,024 |
| Net investment income | 220,308,471 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized losses on sales of securities - unaffiliated | (22,681,512) | |
| Net realized gains on futures contracts | 10,352,281 | |
| Net realized losses on foreign currency transactions | + | (150,814) |
| Net realized losses | (12,480,045) | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 1,868,529,412 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 2,251,228 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (596,471) |
| Net change in unrealized appreciation (depreciation) | + | 1,870,184,169 |
| Net realized and unrealized gains | 1,857,704,124 | |
| Increase in net assets resulting from operations | $2,078,012,595 | |
| * | 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 International Index
Fund
Statement of Changes in Net Assets
For the current and prior report periods
| OPERATIONS | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $220,308,471 | $140,255,519 | |
| Net realized losses | (12,480,045) | (171,714,124) | |
| Net change in unrealized appreciation (depreciation) | + | 1,870,184,169 | (261,951,352) |
| Increase (decrease) in net assets from operations | $2,078,012,595 | ($293,409,957) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($134,266,147) | ($172,919,468) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 84,577,903 | $1,955,546,476 | 137,962,023 | $2,458,528,501 | |
| Shares reinvested | 4,139,456 | 90,364,312 | 6,184,493 | 127,647,953 | |
| Shares redeemed | + | (49,400,102) | (1,145,927,182) | (90,042,895) | (1,625,600,717) |
| Net transactions in fund shares | 39,317,257 | $899,983,606 | 54,103,621 | $960,575,737 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 319,898,201 | $5,937,492,018 | 265,794,580 | $5,443,245,706 | |
| Total increase | + | 39,317,257 | 2,843,730,054 | 54,103,621 | 494,246,312 |
| End of period | 359,215,458 | $8,781,222,072 | 319,898,201 | $5,937,492,018 | |
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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 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 Target 2065 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 Health Care Fund | Schwab Target 2040 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2045 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2020 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2025 Fund | Schwab Target 2065 Index Fund |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund – Moderate Payout |
| Schwab Target 2035 Fund | Schwab Monthly Income Fund – Enhanced Payout |
| Schwab Target 2040 Fund | Schwab Monthly Income Fund – Maximum Payout |
| 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 Opportunistic 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).
The funds may invest in certain mutual funds and
exchange-traded funds (ETFs) referred to as "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.
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Schwab Equity Index 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:
•
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.
•
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.
• Mutual 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.
•
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.
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.
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Schwab Equity Index Funds
Financial Notes
(continued)
2. Significant Accounting Policies (continued):
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, mutual funds, 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 underlying securities 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, 2021 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 value may change daily.
Passive Foreign Investment Companies: Certain funds may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a Passive Foreign Investment Company (PFIC). The funds may elect for tax purposes to mark-to-market annually
the shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked-to-market gains (as well as any gains realized on sale).
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 pursuant to Rule 2a-7 under 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
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Financial Notes
(continued)
2. Significant Accounting Policies (continued):
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 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 the investment adviser or any of its affiliates.
As of October 31, 2021, 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 and Schwab International Index Fund had
securities on loan, all of which were classified as common stocks, investment companies and rights. The value of the securities on loan and the related collateral as of October 31, 2021, if any, are disclosed in each fund’s 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, 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. In the Schwab Small-Cap Index
Fund and Schwab Total Stock Market Index Fund a non-recurring dividend with a payable date of October 29, 2021 and an ex-date of November 1, 2021 is presented in the Statement of Assets and Liabilities as Deferred dividend income payable.
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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 the investment adviser and each trust, the investment adviser 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
respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2021, 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. Errors relating to the index may occur from time to time and may not be identified by the index provider for a period
of time. In addition, market disruptions could cause delays in an index’s rebalancing schedule. Such errors and/or market disruptions may result in losses for a fund.
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
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Financial Notes
(continued)
3. Risk
Factors (continued):
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.
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’ 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., dba Schwab Asset
Management, a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Advisory Agreement between the investment adviser and each trust.
For its advisory and administrative services to the funds, the
investment adviser 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, 2021, 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% | 1.3% | 5.0% | —% | 1.3% |
| Schwab MarketTrack Balanced Portfolio | 0.2% | 0.6% | 2.3% | —% | 0.5% |
| Schwab MarketTrack Conservative Portfolio | 0.1% | 0.2% | 0.8% | —% | 0.2% |
| Schwab MarketTrack Growth Portfolio | 0.4% | 1.3% | 3.8% | —% | 1.0% |
| Schwab Target 2010 Fund | 0.0%* | —% | —% | 0.1% | —% |
| Schwab Target 2015 Fund | 0.0%* | —% | —% | 0.1% | —% |
| Schwab Target 2020 Fund | 0.1% | —% | —% | 0.5% | —% |
| Schwab Target 2025 Fund | 0.2% | —% | —% | 0.8% | —% |
| Schwab Target 2030 Fund | 0.3% | —% | —% | 1.7% | —% |
| Schwab Target 2035 Fund | 0.2% | —% | —% | 1.0% | —% |
| Schwab Target 2040 Fund | 0.4% | —% | —% | 2.1% | —% |
| Schwab Target 2045 Fund | 0.1% | —% | —% | 0.5% | —% |
| Schwab Target 2050 Fund | 0.1% | —% | —% | 0.4% | —% |
| Schwab Target 2055 Fund | 0.0%* | —% | —% | 0.3% | —% |
| Schwab Target 2060 Fund | 0.0%* | —% | —% | 0.1% | —% |
| Schwab Target 2065 Fund | 0.0%* | —% | —% | 0.0%* | —% |
| * | 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 on behalf of the Schwab International Index Fund, subject to reimbursement to the extent the fund is able to
successfully recover taxes withheld in the future.
During
the year ended October 31, 2021, the professional fees incurred by the Schwab International Index Fund and paid by the investment adviser were $54,079.
During the year ended October 31, 2021, the Schwab
International Index Fund received a positive judgment of previously withheld foreign taxes from Finland. The Schwab International Index Fund has recorded $435,984 (including $5,289 in interest) in income and receivable while awaiting payment from
Finland. In addition, the Schwab International Index Fund recorded a payable of $212,425 due to the investment adviser for professional fees that were subject to reimbursement. The above amounts are reflected in the Schwab International Index
Fund’s Statement of Assets and Liabilities and Statement of Operations. Amounts recorded as receivable and payable will be extinguished upon receipt of payment from Finland.
As of October 31, 2021, there are no additional professional
fees related to foreign withholding tax subject to future reimbursement to the investment adviser 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.
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Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
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 in accordance with procedures adopted by the Board pursuant to Rule 17a-7 under the 1940 Act. 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, 2021, 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 | $458,054,898 | ($68,942,655) |
| Schwab 1000 Index Fund | 299,299,178 | 8,402,967 |
| Schwab Small-Cap Index Fund | 133,638,791 | 840,279 |
| Schwab Total Stock Market Index Fund | 223,479,599 | (17,409,015) |
| Schwab U.S. Large-Cap Growth Index Fund | 136,098,894 | 12,449,829 |
| Schwab U.S. Large-Cap Value Index Fund | 127,791,256 | 15,504,820 |
| Schwab U.S. Mid-Cap Index Fund | 54,449,291 | (883,145) |
| Schwab International Index Fund | 3,309,144 | (1,460,192) |
5. Board of Trustees:
The Board may include people who are officers and/or directors
of the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the 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 the investment adviser. 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with a line of credit amount unchanged, maturing on September 29, 2022. Under the terms of the Syndicated Credit Facility, in addition to the investment adviser paying the interest charged on any borrowings by a fund, the investment adviser
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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. Under the terms of the Uncommitted Credit Facility, the investment adviser 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 the investment adviser. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.
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Financial Notes
(continued)
| 7. Derivatives: |
The funds entered into equity index
futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The value and variation margin for futures contracts held at October 31, 2021 are presented in the Portfolio Holdings and Statement of
Assets and Liabilities, respectively. The net realized gains (losses) and net change in unrealized appreciation (depreciation) on futures contracts are presented in 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, 2021, 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 | $324,756,509 | 1,599 |
| Schwab 1000 Index Fund | 62,136,132 | 308 |
| Schwab Small-Cap Index Fund | 36,813,319 | 345 |
| Schwab Total Stock Market Index Fund | 88,610,666 | 500 |
| Schwab U.S. Large-Cap Growth Index Fund | 3,605,722 | 27 |
| Schwab U.S. Large-Cap Value Index Fund | 2,618,843 | 33 |
| Schwab U.S. Mid-Cap Index Fund | 3,934,010 | 15 |
| Schwab International Index Fund | 48,288,097 | 437 |
8. Purchases and Sales of Investment Securities:
For the period ended October 31, 2021, purchases and sales of securities
(excluding in-kind transactions and short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES | |
| Schwab S&P 500 Index Fund | $6,042,732,900 | $1,447,739,853 |
| Schwab 1000 Index Fund | 1,067,208,625 | 594,519,135 |
| Schwab Small-Cap Index Fund | 1,936,612,633 | 1,132,682,238 |
| Schwab Total Stock Market Index Fund | 2,301,383,977 | 522,850,444 |
| Schwab U.S. Large-Cap Growth Index Fund | 289,982,450 | 125,724,696 |
| Schwab U.S. Large-Cap Value Index Fund | 196,005,703 | 95,479,094 |
| Schwab U.S. Mid-Cap Index Fund | 288,137,462 | 101,284,254 |
| Schwab International Index Fund | 1,212,482,620 | 270,896,999 |
During the period ended October 31,
2021, the Schwab 1000 Index Fund and the Schwab Small-Cap Index Fund sold securities in connection with in-kind redemptions in the amounts of $91,849,845 and $1,099,026, respectively, resulting in realized gains of $88,311,953 and $966,519,
respectively. The realized gains on sales of securities — unaffiliated are included in the Statement of Operations.
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Financial Notes
(continued)
| 9. Federal Income Taxes: |
As of October 31, 2021, the tax basis
cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) | |
| Schwab S&P 500 Index Fund | $25,892,017,233 | $42,338,767,081 | ($857,348,014) | $41,481,419,067 |
| Schwab 1000 Index Fund | 3,071,060,075 | 11,238,309,815 | (95,529,892) | 11,142,779,923 |
| Schwab Small-Cap Index Fund | 4,482,210,996 | 2,742,624,165 | (540,946,209) | 2,201,677,956 |
| Schwab Total Stock Market Index Fund | 8,412,722,738 | 10,213,348,726 | (363,530,338) | 9,849,818,388 |
| Schwab U.S. Large-Cap Growth Index Fund | 555,272,985 | 343,472,548 | (14,501,232) | 328,971,316 |
| Schwab U.S. Large-Cap Value Index Fund | 454,112,613 | 152,120,392 | (30,084,688) | 122,035,704 |
| Schwab U.S. Mid-Cap Index Fund | 654,270,834 | 269,164,856 | (28,822,660) | 240,342,196 |
| Schwab International Index Fund | 6,490,515,608 | 2,839,724,868 | (586,074,218) | 2,253,650,650 |
As of October 31, 2021, the
components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
NET
OTHER UNREALIZED APPRECIATION (DEPRECIATION) |
CAPITAL
LOSS CARRYFORWARDS |
TOTAL | |
| Schwab S&P 500 Index Fund | $644,685,725 | $65,457,539 | $41,481,419,067 | $— | $— | $42,191,562,331 |
| Schwab 1000 Index Fund | 134,827,631 | 79,902,182 | 11,142,779,923 | — | — | 11,357,509,736 |
| Schwab Small-Cap Index Fund | 105,554,077 | 399,701,902 | 2,201,677,956 | — | — | 2,706,933,935 |
| Schwab Total Stock Market Index Fund | 176,420,096 | 45,585,913 | 9,849,818,388 | — | — | 10,071,824,397 |
| Schwab U.S. Large-Cap Growth Index Fund | 5,075,378 | 9,905,946 | 328,971,316 | — | — | 343,952,640 |
| Schwab U.S. Large-Cap Value Index Fund | 15,173,515 | 10,244,073 | 122,035,704 | — | — | 147,453,292 |
| Schwab U.S. Mid-Cap Index Fund | 8,975,434 | 14,727,980 | 240,342,196 | — | — | 264,045,610 |
| Schwab International Index Fund | 260,131,523 | — | 2,253,650,650 | (22,817) | (209,234,970) | 2,304,524,386 |
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, 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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the funds had capital loss carryforwards available as follows:
| NO EXPIRATION | |
| 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 | 209,234,970 |
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Schwab Equity Index Funds
Financial Notes
(continued)
9. Federal
Income Taxes (continued):
For the fiscal year
ended October 31, 2021, the funds had capital loss carryforwards utilized as follows:
| CAPITAL
LOSS CARRYFORWARDS UTILIZED | |
| Schwab S&P 500 Index Fund | $177,404,555 |
| Schwab 1000 Index Fund | — |
| Schwab Small-Cap Index Fund | — |
| Schwab Total Stock Market Index Fund | 21,117,724 |
| Schwab U.S. Large-Cap Growth Index Fund | 5,572,385 |
| Schwab U.S. Large-Cap Value Index Fund | 1,090,145 |
| Schwab U.S. Mid-Cap Index Fund | 3,129,145 |
| Schwab International Index Fund | — |
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| Schwab S&P 500 Index Fund | $913,293,066 | $— | $752,543,848 | $76,711,728 |
| Schwab 1000 Index Fund | 189,179,998 | 117,107,001 | 175,073,765 | 115,680,278 |
| Schwab Small-Cap Index Fund | 57,108,519 | 72,781,270 | 71,467,544 | 187,516,879 |
| Schwab Total Stock Market Index Fund | 218,157,695 | — | 180,871,651 | 26,277,147 |
| Schwab U.S. Large-Cap Growth Index Fund | 3,820,481 | — | 1,890,344 | — |
| Schwab U.S. Large-Cap Value Index Fund | 7,759,956 | — | 7,613,944 | 2,019,105 |
| Schwab U.S. Mid-Cap Index Fund | 8,319,433 | — | 7,422,021 | 2,160,536 |
| Schwab International Index Fund | 134,266,147 | — | 172,919,468 | — |
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, 2021, 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, 2021, the funds did not incur
any interest or penalties.
10. Subsequent Events:
Management has determined there are no subsequent events or
transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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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 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, 2021, and the related statements of operations for the year then ended, the related statements of changes in net assets and the financial highlights for the two years in the period
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, 2021, the results of their operations for
the year then ended, and the changes in their net assets and the financial highlights for the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America. The financial highlights
for each of the three 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
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 $16,287,923 to its shareholders for the fiscal year ended October 31, 2021. The respective foreign source income on the fund is $246,640,588.
For corporate shareholders, the following percentage of the
funds’ dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction:
| PERCENTAGE | |
| Schwab S&P 500 Index Fund | 85.17 |
| Schwab 1000 Index Fund | 85.79 |
| Schwab Small-Cap Index Fund | 58.34 |
| Schwab Total Stock Market Index Fund | 83.67 |
| Schwab U.S. Large-Cap Growth Index Fund | 90.71 |
| Schwab U.S. Large-Cap Value Index Fund | 81.07 |
| Schwab U.S. Mid-Cap Index Fund | 78.96 |
| Schwab International Index Fund | — |
For the fiscal year ended October
31, 2021, the funds designate the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099
of the amounts for use in preparing their 2021 income tax return.
| Schwab S&P 500 Index Fund | $913,293,066 |
| Schwab 1000 Index Fund | 183,962,574 |
| Schwab Small-Cap Index Fund | 33,684,436 |
| Schwab Total Stock Market Index Fund | 205,791,857 |
| Schwab U.S. Large-Cap Growth Index Fund | 3,527,530 |
| Schwab U.S. Large-Cap Value Index Fund | 6,455,964 |
| Schwab U.S. Mid-Cap Index Fund | 7,640,090 |
| Schwab International Index Fund | 138,381,927 |
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, 2021:
| Schwab S&P 500 Index Fund | $— |
| Schwab 1000 Index Fund | 117,107,001 |
| Schwab Small-Cap Index Fund | 72,781,270 |
| 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 | — |
For the fiscal year ended October
31, 2021, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099 of the amounts
for use in preparing their 2021 income tax return.
| Schwab S&P 500 Index Fund | $— |
| Schwab 1000 Index Fund | 1,745,086 |
| Schwab Small-Cap Index Fund | 1,207,370 |
| Schwab Total Stock Market Index Fund | 2,075,457 |
| Schwab U.S. Large-Cap Growth Index Fund | 28,211 |
| Schwab U.S. Large-Cap Value Index Fund | 44,960 |
| Schwab U.S. Mid-Cap Index Fund | 218,899 |
| Schwab International Index Fund | — |
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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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity risk metrics. No significant liquidity events
impacting any of the Funds were noted in the report. In addition, the investment adviser 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
| 1 | The meeting on June 8, 2021 was held by means of videoconference 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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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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 |
| 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). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | Director (2008 – present), The Charles Schwab Corporation |
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Schwab Equity Index 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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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
Schwab Asset
Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, 2021
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
| * | 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., dba Schwab
Asset ManagementTM
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 Portfolio Holdings are sub-categories of Sector classifications.
1
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.schwabassetmanagement.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. Charles Schwab Investment Management, Inc. 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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
3
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
The
Investment Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors, outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. Among U.S.
large-caps, value stocks slightly outperformed growth stocks, with the Russell 1000® Value Index and Russell 1000® Growth Index returning 43.76% and 43.21%, respectively. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance,
returned 34.18% and the MSCI Emerging Markets Index (Net)* returned 16.96%.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program. Emerging markets were mixed. Central banks in China, India, and Indonesia maintained their low rates to help counter the ongoing effects of the COVID-19 pandemic. Mexico, Brazil, Russia,
and Pakistan raised their rates, citing a stronger-than-expected recovery or to counteract the impacts of inflation.
5
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Index
Funds
Fund Management
 |
Christopher Bliss, CFA, Managing Director and Head of Passive Equity Strategies for Schwab Asset Management, leads the portfolio management team for passive equity Schwab Funds and Schwab ETFs. He also has overall responsibility for all aspects of the management of the funds. Before joining Schwab 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. In this role, Mr. Bliss was responsible for overseeing a team of portfolio managers managing domestic, developed international and emerging markets index strategies. 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 Schwab 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 Schwab 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 Schwab 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 Schwab 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 equity index strategies team for four years. His first role with Schwab Asset Management was as a trade operations specialist. Prior to joining Schwab 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 Schwab 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. Mr. Sinha also spent time as a software consultant at DPM Mellon, LLC and an equity trader at Jane Street Capital. |
6
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund as of October 31, 2021
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). The index 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 51.33% for the 12-month reporting period ended October 31, 2021, while the index returned 51.71%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector represented an average weight of
approximately 3% of the fund’s investments and returned approximately 13% for the reporting period. One example from this sector is American Electric Power Co., Inc., which generates, transmits, and distributes electric energy, which detracted
from the total return of the fund. The fund’s holdings of American Electric Power Co., Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -3% for the reporting period.
The real estate sector was another small contributor to the
total return of the fund, representing an average weight of approximately 2% of the fund’s investments and returning approximately 57% for the reporting period.
The financials sector contributed the most to the total return
of the fund. Financials stocks represented an average weight of approximately 16% of the fund’s investments and returned approximately 79% for the reporting period. One example from this sector is Wells Fargo & Co., a diversified financial
services company. The fund’s holdings of Wells Fargo & Co. represented an average weight of approximately 1% of the fund’s holdings and returned approximately 142% for the reporting period.
The information technology sector also contributed to the
total return of the fund, representing an average weight of approximately 17% of the fund’s investments and returning approximately 43% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
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) | 51.33% | 15.88% | 14.50% |
| Russell RAFITM US Large Company Index | 51.71% | 16.14% | 14.89% |
| Fundamental U.S. Large Company Spliced Index | 51.71% | 16.14% | 14.85% |
| Russell 1000® Index | 43.51% | 19.16% | 16.30% |
| Fund Category: Morningstar Large Value2 | 43.70% | 12.59% | 12.14% |
| Fund Expense Ratio3: 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. Charles Schwab Investment Management, Inc. 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 | 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 Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund
Performance and Fund Facts as
of October 31, 2021 (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 | Portfolio turnover rate excludes in-kind transactions. |
| 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. |
9
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental US Small
Company Index Fund as of October 31, 2021
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). The index 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 63.73% for the 12-month reporting period ended October 31, 2021, while the index returned 64.10%. 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.
Over the reporting period, no sectors detracted from the returns of the index or the fund. However, the utilities sector was the smallest contributor to the total return of the fund. Stocks in the utilities sector
represented an average weight of approximately 3% of the fund’s investments and returned approximately 22% for the reporting period. One example from this sector is PNM Resources, Inc., an energy holding company focused on providing
electricity and electric services. The fund’s holdings of PNM Resources, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately 2% for the reporting period.
The consumer staples sector was another small contributor to
the total return of the fund, representing an average weight of approximately 4% of the fund’s investments and returning approximately 28% for the reporting period.
The consumer discretionary sector contributed the most to the
total return of the fund. Consumer discretionary stocks represented an average weight of approximately 17% of the fund’s investments and returned approximately 79% for the reporting period. One example from this sector is Dillard’s, Inc.
The fund’s Class A holdings of Dillard’s, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately 420% for the reporting period.
The industrials sector also contributed to the total return of
the fund, representing an average weight of approximately 19% of the fund’s investments and returning approximately 56% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
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) | 63.73% | 14.29% | 13.44% |
| Russell RAFITM US Small Company Index | 64.10% | 14.48% | 13.80% |
| Fundamental U.S. Small Company Spliced Index | 64.10% | 14.48% | 13.69% |
| Russell 2000® Index | 50.80% | 15.52% | 13.50% |
| Fund Category: Morningstar Small Blend2 | 54.25% | 13.77% | 12.64% |
| Fund Expense Ratio3: 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. Charles Schwab Investment Management, Inc. 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 | 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 Fundamental Index Funds | Annual
Report
Schwab Fundamental US Small
Company Index Fund
Performance and Fund Facts as
of October 31, 2021 (continued)
Top Equity Holdings % of Net Assets4
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 | Portfolio turnover rate excludes in-kind transactions. |
| 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 Fundamental Index Funds | Annual Report
Schwab Fundamental
International Large Company Index Fund as of October 31, 2021
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). The index 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the
emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September,
global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs.
U.S. small-cap stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 44.03% for the 12-month reporting period ended October 31, 2021, while the index returned 44.65%1. Timing
differences in foreign exchange calculations and fair valuation of the fund’s holdings detracted from the fund’s relative performance.2 Differences between the
return of the fund and the return of the index may also be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
The stock from the United States, Jackson Financial, Inc., detracted from the total return of the fund. The fund’s Class A holdings of Jackson Financial, Inc. represented an average weight of less than 1% of
the fund’s investments and returned approximately -16% for the reporting period. Jackson Financial, Inc. was held by the fund for a limited time in September 2021 after it was separated from Prudential plc, an insurance company headquartered
in the United Kingdom.
While there were no
additional markets that detracted from the total return of the fund, the stock from South Africa, Thungela Resources Ltd., was the smallest contributor to the total return of the fund, representing an average weight of less than 1% of the
fund’s investments and returning approximately 13% in U.S. dollar terms for the reporting period. Thungela Resources Ltd. was held by the fund for a limited time in June 2021 after the South African coal business was spun off from Anglo
American plc, a global mining company headquartered in the United Kingdom.
Stocks from the United Kingdom contributed the most to the
total return of the fund. Stocks from the United Kingdom represented an average weight of approximately 16% of the fund’s investments and returned approximately 61% in U.S. dollar terms for the reporting period. One example from this market is
Royal Dutch Shell plc, an oil and gas company. The fund’s Class A holdings of Royal Dutch Shell plc represented an average weight of approximately 1% of the fund’s investments and returned approximately 92% 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 24% of the fund’s investments and returning approximately 28% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed since
the report date.
| 1 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 2 | 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. |
13
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental
International Large Company Index Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1,2,3
Average Annual Total Returns1,3
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental International Large Company Index Fund (4/2/07) | 44.03% | 9.12% | 7.09% |
| Russell RAFITM Developed ex US Large Company Index (Net)2 | 44.65% | 9.17% | 7.11% |
| Fundamental Developed ex-U.S. Large Company Spliced Index | 44.65% | 9.17% | 7.14% |
| MSCI EAFE® Index (Net)2 | 34.18% | 9.79% | 7.37% |
| Fund Category: Morningstar Foreign Large Value4 | 36.44% | 7.12% | 5.76% |
| Fund Expense Ratio5: 0.25% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
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. Charles Schwab Investment Management, Inc. 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 net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 3 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 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. |
14
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental
International Large Company Index Fund
Performance and Fund Facts as
of October 31, 2021 (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, 2021
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). The index 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the
emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September,
global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs.
U.S. small-cap stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way.
Performance. The fund
generally tracked the index for the reporting period. The fund returned 37.25% for the 12-month reporting period ended October 31, 2021, while the index returned 37.75%1. Timing
differences in foreign exchange calculations slightly contributed to, and fair valuation of the fund’s holdings detracted from, the fund’s relative performance.2
Differences between the return of the fund and the return of the index may also be attributable to, among other things, the operational and transactional costs incurred by the fund and not the index.
Contributors and Detractors.
Over the reporting period, no markets detracted from the returns of the index or the fund. However, stocks from Portugal were the smallest contributor to the total return of the fund. Stocks from Portugal
represented an average weight of less than 1% of the fund’s investments and returned approximately 66% in U.S. dollar terms for the reporting period. One example from this market is Mota-Engil SGPS, S.A., a construction company. The
fund’s holdings of Mota-Engil SGPS, S.A. represented an average weight of less than 1% of the fund’s investments and returned approximately 22% in U.S. dollar terms for the reporting period.
Stocks from Ireland were another small contributor to the
total return of the fund, representing an average weight of less than 1% of the fund’s investments and returning approximately 51% in U.S. dollar terms for the reporting period.
Stocks from the United Kingdom contributed to the total return
of the fund. Stocks from the United Kingdom represented an average weight of approximately 11% of the fund’s investments and returned approximately 55% in U.S. dollar terms for the reporting period. One example from this market is Grafton
Group plc, a building supply company. The fund’s holdings of Grafton Group plc represented an average weight of less than 1% of the fund’s investments and returned approximately 119% in U.S. dollar terms for the reporting period.
Stocks from Canada also contributed to the total return of the
fund, representing an average weight of approximately 8% of the fund’s investments and returning approximately 81% in U.S. dollar terms for the reporting period.
Management views and portfolio holdings may have changed since
the report date.
| 1 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 2 | 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. |
16
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental
International Small Company Index Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1,2,3
Average Annual Total Returns1,3
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental International Small Company Index Fund (1/31/08) | 37.25% | 8.85% | 8.59% |
| Russell RAFITM Developed ex US Small Company Index (Net)2 | 37.75% | 9.08% | 9.16% |
| Fundamental Developed ex-U.S. Small Company Spliced Index | 37.75% | 9.08% | 8.86% |
| S&P Developed ex-U.S. Small Cap Index (Net)2 | 36.39% | 11.01% | 9.30% |
| Fund Category: Morningstar Foreign Small/Mid Value4 | 43.61% | 8.67% | 8.12% |
| Fund Expense Ratio5: 0.39% | |||
All total returns on this page assume dividends and
distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
The first index listed for the fund is the fund’s primary
benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
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. Charles Schwab Investment Management, Inc. 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 net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 3 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 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. |
17
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental
International Small Company Index Fund
Performance and Fund Facts as
of October 31, 2021 (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, 2021
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). The index 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the
way.
Performance.
The fund generally tracked the index for the reporting period. The fund returned 40.58%1 for the 12-month reporting period ended October 31,
2021, while the index returned 42.09%2. Timing differences in foreign exchange calculations and fair valuation of the fund’s holdings detracted from, the fund’s
relative performance.3 Differences between the return of the fund and the return of the index may also be attributable to, among other things, the operational and transactional
costs incurred by the fund and not the index.
Contributors and Detractors.
Stocks from the Philippines detracted from the total return of the fund. Stocks from the Philippines represented an average weight of less than 1% of the fund’s investments and returned approximately -7% in
U.S. dollar terms for the reporting period. One example from this market is PLDT, Inc., a telecommunications company. The fund’s holdings of PLDT, Inc. represented an average weight of less than 1% of the fund’s investments and returned
approximately -8% in U.S. dollar terms for the reporting period. The fund’s position in PLDT, Inc. was sold prior to the end of the reporting period.
While there were no additional markets that detracted from the
total return of the fund over the reporting period, Egyptian stocks were the smallest contributor to the total return of the fund, representing an average weight of less than 1% of the fund’s investments and returning approximately 7% in U.S.
dollar terms for the reporting period.
Stocks from
Russia contributed to the total return of the fund. Russian stocks represented an average weight of approximately 12% of the fund’s investments and returned approximately 99% in U.S. dollar terms for the reporting period. One example from this
market is Gazprom PJSC, a natural gas company. The fund’s holdings of Gazprom PJSC represented an average weight of approximately 3% of the fund’s investments and returned approximately 165% in U.S. dollar terms for the reporting
period.
Taiwanese stocks also contributed to the total
return of the fund, representing an average weight of approximately 19% of the fund’s investments and returning approximately 46% 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. |
| 2 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 3 | 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. |
19
Schwab Fundamental Index Funds | Annual
Report
Schwab Fundamental Emerging
Markets Large Company Index Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1,2,3
Average Annual Total Returns1,3
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Fundamental Emerging Markets Large Company Index Fund (1/31/08) | 40.58% 4 | 8.47% | 4.13% |
| Russell RAFITM Emerging Markets Large Company Index (Net)2 | 42.09% | 9.17% | 5.07% |
| Fundamental Emerging Markets Large Company Spliced Index | 42.09% | 9.17% | 4.90% |
| MSCI Emerging Markets Index (Net)2 | 16.96% | 9.39% | 4.88% |
| Fund Category: Morningstar Diversified Emerging Markets5 | 21.15% | 9.37% | 5.27% |
| 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 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. Charles Schwab Investment Management, Inc. 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 net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
| 3 | The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information. |
| 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. |
| 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. |
20
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental Emerging
Markets Large Company Index Fund
Performance and Fund Facts as
of October 31, 2021 (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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212 | |
| Schwab Fundamental US Large Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,067.70 | $1.30 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.95 | $1.28 |
| Schwab Fundamental US Small Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,058.60 | $1.30 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.95 | $1.28 |
| Schwab Fundamental International Large Company Index Fund | ||||
| Actual Return | 0.25% | $1,000.00 | $1,033.30 | $1.28 |
| Hypothetical 5% Return | 0.25% | $1,000.00 | $1,023.95 | $1.28 |
| Schwab Fundamental International Small Company Index Fund | ||||
| Actual Return | 0.39% | $1,000.00 | $1,019.80 | $1.99 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.24 | $1.99 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | ||||
| Actual Return | 0.39% | $1,000.00 | $1,037.50 | $2.00 |
| Hypothetical 5% Return | 0.39% | $1,000.00 | $1,023.24 | $1.99 |
| 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 the 365 days of the fiscal year. |
22
Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental US Large
Company Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.28 | $17.56 | $17.47 | $16.89 | $15.12 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.39 | 0.42 | 0.42 | 0.38 | 0.35 | |
| Net realized and unrealized gains (losses) | 7.64 | (0.75) | 1.08 | 0.76 | 2.52 | |
| Total from investment operations | 8.03 | (0.33) | 1.50 | 1.14 | 2.87 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.44) | (0.43) | (0.42) | (0.36) | (0.34) | |
| Distributions from net realized gains | (0.68) | (0.52) | (0.99) | (0.20) | (0.76) | |
| Total distributions | (1.12) | (0.95) | (1.41) | (0.56) | (1.10) | |
| Net asset value at end of period | $23.19 | $16.28 | $17.56 | $17.47 | $16.89 | |
| Total return | 51.33% | (2.33%) | 10.56% | 6.83% | 19.69% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.25% | 0.31% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.30% 2 | |
| Net investment income (loss) | 1.87% | 2.57% | 2.53% | 2.17% | 2.19% | |
| Portfolio turnover rate | 16% 4 | 13% | 20% | 10% | 15% | |
| Net assets, end of period (x 1,000,000) | $6,821 | $4,547 | $5,237 | $4,887 | $5,367 | |
| 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. |
| 4 | Portfolio turnover rate excludes in-kind transactions. |
23
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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
Portfolio Holdings as of
October 31, 2021 (continued)
25
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
26
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
27
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
28
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
29
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
Below is a summary of the fund’s transactions
with affiliated issuers during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DIVIDENDS
RECEIVED | |
| COMMON STOCKS 0.1% OF NET ASSETS | ||||||||
| Diversified Financials 0.1% | ||||||||
| The Charles Schwab Corp. | $5,308,534 | $699,785 | ($3,623,019) | $1,395,752 | $3,357,199 | $7,138,251 | 87,020 | $88,292 |
30
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $6,793,716,231 | $— | $— | $6,793,716,231 |
| Short-Term Investments1 | 19,349,674 | — | — | 19,349,674 |
| Futures Contracts2 | 405,904 | — | — | 405,904 |
| Total | $6,813,471,809 | $— | $— | $6,813,471,809 |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
31
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, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $1,899,530) | $7,138,251 | |
| Investments in securities, at value - unaffiliated (cost $3,507,470,572) including securities on loan of $1,196,660 | 6,805,927,654 | |
| Deposit with broker for futures contracts | 2,564,500 | |
| Receivables: | ||
| Dividends | 8,382,634 | |
| Fund shares sold | 5,149,151 | |
| Variation margin on future contracts | 59,197 | |
| Income from securities on loan | + | 1,193 |
| Total assets | 6,829,222,580 | |
| Liabilities | ||
| Collateral held for securities on loan | 1,262,655 | |
| Payables: | ||
| Fund shares redeemed | 5,999,868 | |
| Investment adviser fees | 1,431,605 | |
| Due to custodian | + | 675 |
| Total liabilities | 8,694,803 | |
| Net assets | $6,820,527,777 | |
| Net Assets by Source | ||
| Capital received from investors | $3,353,925,532 | |
| Total distributable earnings | + | 3,466,602,245 |
| Net assets | $6,820,527,777 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $6,820,527,777 | 294,062,329 | $23.19 | ||
32
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Large
Company Index Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $88,292 | |
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $15,454) | 128,891,294 | |
| Securities on loan, net | + | 768,854 |
| Total investment income | 129,748,440 | |
| Expenses | ||
| Investment adviser fees | + | 15,292,884 |
| Total expenses | – | 15,292,884 |
| Net investment income | 114,455,556 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - affiliated | 1,395,752 | |
| Net realized gains on sales of securities - unaffiliated | 307,145,078 | |
| Net realized gains on futures contracts | + | 9,733,998 |
| Net realized gains | 318,274,828 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 3,357,199 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 1,861,069,669 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 947,227 |
| Net change in unrealized appreciation (depreciation) | + | 1,865,374,095 |
| Net realized and unrealized gains | 2,183,648,923 | |
| Increase in net assets resulting from operations | $2,298,104,479 | |
33
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $114,455,556 | $123,535,000 | |
| Net realized gains | 318,274,828 | 121,884,194 | |
| Net change in unrealized appreciation (depreciation) | + | 1,865,374,095 | (397,289,802) |
| Increase (decrease) in net assets from operations | $2,298,104,479 | ($151,870,608) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($308,556,282) | ($280,720,286) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 81,564,828 | $1,719,788,331 | 65,360,142 | $1,034,311,318 | |
| Shares reinvested | 10,503,858 | 189,909,742 | 9,908,434 | 175,775,620 | |
| Shares redeemed | + | (77,335,254) | (1,626,034,240) | (94,170,173) | (1,467,566,455) |
| Net transactions in fund shares | 14,733,432 | $283,663,833 | (18,901,597) | ($257,479,517) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 279,328,897 | $4,547,315,747 | 298,230,494 | $5,237,386,158 | |
| Total increase (decrease) | + | 14,733,432 | 2,273,212,030 | (18,901,597) | (690,070,411) |
| End of period | 294,062,329 | $6,820,527,777 | 279,328,897 | $4,547,315,747 | |
34
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $11.97 | $13.85 | $14.68 | $15.32 | $12.69 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.18 | 0.17 | 0.20 | 0.22 | 0.21 | |
| Net realized and unrealized gains (losses) | 7.38 | (1.53) | 0.32 | 0.17 | 2.68 | |
| Total from investment operations | 7.56 | (1.36) | 0.52 | 0.39 | 2.89 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.21) | (0.20) | (0.22) | (0.21) | (0.17) | |
| Distributions from net realized gains | — | (0.32) | (1.13) | (0.82) | (0.09) | |
| Total distributions | (0.21) | (0.52) | (1.35) | (1.03) | (0.26) | |
| Net asset value at end of period | $19.32 | $11.97 | $13.85 | $14.68 | $15.32 | |
| Total return | 63.73% | (10.42%) | 5.61% | 2.40% | 22.94% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.25% | 0.33% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.30% 2 | |
| Net investment income (loss) | 1.02% | 1.43% | 1.50% | 1.42% | 1.43% | |
| Portfolio turnover rate | 36% 4 | 28% | 34% | 30% | 27% | |
| Net assets, end of period (x 1,000,000) | $1,945 | $1,394 | $1,908 | $1,782 | $1,727 | |
| 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. |
| 4 | Portfolio turnover rate excludes in-kind transactions. |
35
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
36
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
37
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
38
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
39
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
40
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
41
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
42
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
43
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
| SECURITY | NUMBEROF SHARES | VALUE ($) |
| SHORT-TERM INVESTMENTS 1.0% OF NET ASSETS | ||
| Money Market Funds 1.0% | ||
| State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% (c) | 5,601,660 | 5,601,660 |
| Wells Fargo Government Money Market Fund, Select Class 0.03% (c)(d) | 14,270,925 | 14,270,925 |
| 19,872,585 | ||
| Total
Short-Term Investments (Cost $19,872,585) |
19,872,585 | |
| Total
Investments in Securities (Cost $1,173,357,977) |
1,958,157,975 | |
| NUMBER
OF CONTRACTS |
NOTIONAL
AMOUNT ($) |
CURRENT
VALUE/ UNREALIZED APPRECIATION ($) | |
| FUTURES CONTRACTS | |||
| Long | |||
| Russell 2000 Index, e-mini, expires 12/17/21 | 58 | 6,656,370 | 105,847 |
| * | Non-income producing security. |
| (a) | All or a portion of this security is on loan. Securities on loan were valued at $13,932,735. |
| (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) | Security purchased with cash collateral received for securities on loan. |
| REIT — | Real Estate Investment Trust |
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 Stocks1 | $1,744,303,330 | $— | $— | $1,744,303,330 |
| Real Estate | 193,982,060 | — | 0* | 193,982,060 |
| Short-Term Investments1 | 19,872,585 | — | — | 19,872,585 |
| Futures Contracts2 | 105,847 | — | — | 105,847 |
| Total | $1,958,263,822 | $— | $0* | $1,958,263,822 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
44
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, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $1,173,357,977) including securities on loan of $13,932,735 | $1,958,157,975 | |
| Cash | 1,090,492 | |
| Foreign currency, at value (cost $34) | 26 | |
| Deposit with broker for futures contracts | 851,510 | |
| Receivables: | ||
| Fund shares sold | 2,427,399 | |
| Dividends | 489,277 | |
| Income from securities on loan | 26,635 | |
| Variation margin on future contracts | + | 618 |
| Total assets | 1,963,043,932 | |
| Liabilities | ||
| Collateral held for securities on loan | 14,270,925 | |
| Payables: | ||
| Fund shares redeemed | 1,795,825 | |
| Deferred dividend income | 1,092,845 | |
| Investment adviser fees | + | 409,434 |
| Total liabilities | 17,569,029 | |
| Net assets | $1,945,474,903 | |
| Net Assets by Source | ||
| Capital received from investors | $1,039,591,819 | |
| Total distributable earnings | + | 905,883,084 |
| Net assets | $1,945,474,903 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,945,474,903 | 100,687,402 | $19.32 | ||
45
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental US Small
Company Index Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $17,727) | $23,580,766 | |
| Securities on loan, net | + | 856,439 |
| Total investment income | 24,437,205 | |
| Expenses | ||
| Investment adviser fees | + | 4,793,960 |
| Total expenses | – | 4,793,960 |
| Net investment income | 19,643,245 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 310,215,395 | |
| Net realized gains on futures contracts | + | 2,412,008 |
| Net realized gains | 312,627,403 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 540,230,229 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | + | 434,903 |
| Net change in unrealized appreciation (depreciation) | + | 540,665,132 |
| Net realized and unrealized gains | 853,292,535 | |
| Increase in net assets resulting from operations | $872,935,780 | |
46
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $19,643,245 | $22,776,781 | |
| Net realized gains (losses) | 312,627,403 | (97,028,386) | |
| Net change in unrealized appreciation (depreciation) | + | 540,665,132 | (123,034,280) |
| Increase (decrease) in net assets from operations | $872,935,780 | ($197,285,885) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($24,462,415) | ($70,795,483) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 33,185,229 | $573,288,196 | 37,437,204 | $412,136,335 | |
| Shares reinvested | 1,157,934 | 17,218,482 | 3,614,741 | 50,967,840 | |
| Shares redeemed | + | (50,160,481) | (887,504,519) | (62,280,936) | (708,695,318) |
| Net transactions in fund shares | (15,817,318) | ($296,997,841) | (21,228,991) | ($245,591,143) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 116,504,720 | $1,393,999,379 | 137,733,711 | $1,907,671,890 | |
| Total increase (decrease) | + | (15,817,318) | 551,475,524 | (21,228,991) | (513,672,511) |
| End of period | 100,687,402 | $1,945,474,903 | 116,504,720 | $1,393,999,379 | |
47
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $7.51 | $8.98 | $8.69 | $9.55 | $7.96 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.31 | 0.21 | 0.30 | 0.29 | 0.25 | |
| Net realized and unrealized gains (losses) | 2.96 | (1.35) | 0.27 | (0.89) | 1.59 | |
| Total from investment operations | 3.27 | (1.14) | 0.57 | (0.60) | 1.84 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.22) | (0.33) | (0.28) | (0.26) | (0.25) | |
| Net asset value at end of period | $10.56 | $7.51 | $8.98 | $8.69 | $9.55 | |
| Total return | 44.03% | (13.29%) | 7.04% | (6.53%) | 23.83% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.25% | 0.25% | 0.25% | 0.25% | 0.34% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.29% 2 | |
| Net investment income (loss) | 3.10% | 2.60% | 3.51% | 3.10% | 2.92% | |
| Portfolio turnover rate | 21% | 14% | 28% | 13% | 11% | |
| Net assets, end of period (x 1,000,000) | $1,406 | $966 | $1,327 | $1,349 | $1,372 | |
| 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. |
48
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
49
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
50
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
51
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
52
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
53
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
54
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
55
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
56
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
57
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $— | $448,698,769 | $— | $448,698,769 |
| Australia | — | 71,357,861 | 2,055,387 | 73,413,248 |
| Canada | 109,379,174 | — | — | 109,379,174 |
| France | 783,780 | 120,975,436 | — | 121,759,216 |
| Germany | 210,142 | 103,214,976 | — | 103,425,118 |
| Hong Kong | — | 22,896,890 | 207,093 | 23,103,983 |
| Ireland | 633,344 | 936,125 | — | 1,569,469 |
| Netherlands | 1,122,355 | 35,764,538 | 0* | 36,886,893 |
| Portugal | 464,685 | 2,350,692 | — | 2,815,377 |
| Republic of Korea | — | 73,619,569 | 845,464 | 74,465,033 |
| Singapore | 715,515 | 9,810,927 | — | 10,526,442 |
| Spain | 5,819,482 | 38,952,125 | — | 44,771,607 |
| Sweden | 814,071 | 26,262,063 | — | 27,076,134 |
| Switzerland | 678,277 | 67,195,669 | — | 67,873,946 |
| United Kingdom | 1,709,354 | 233,748,218 | — | 235,457,572 |
| Preferred Stocks1 | — | 5,298,048 | — | 5,298,048 |
| Germany | 316,027 | 8,475,278 | — | 8,791,305 |
| Short-Term Investments1 | — | 1,429,980 | — | 1,429,980 |
| Money Market Funds | 12,169,078 | — | — | 12,169,078 |
| Futures Contracts2 | 102,020 | — | — | 102,020 |
| Total | $134,917,304 | $1,270,987,164 | $3,107,944 | $1,409,012,412 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
58
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, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $1,086,613,244) including securities on loan of $11,277,902 | $1,408,910,392 | |
| Deposit with broker for futures contracts | 660,431 | |
| Receivables: | ||
| Dividends | 4,325,028 | |
| Foreign tax reclaims | 2,673,042 | |
| Fund shares sold | 2,604,062 | |
| Investments sold | 2,238,725 | |
| Income from securities on loan | + | 17,403 |
| Total assets | 1,421,429,083 | |
| Liabilities | ||
| Collateral held for securities on loan | 12,169,078 | |
| Payables: | ||
| Due to custodian | 2,115,158 | |
| Investment adviser fees | 295,282 | |
| Fund shares redeemed | 279,538 | |
| Investments bought | 258,719 | |
| Variation margin on futures contracts | + | 47,705 |
| Total liabilities | 15,165,480 | |
| Net assets | $1,406,263,603 | |
| Net Assets by Source | ||
| Capital received from investors | $1,189,619,478 | |
| Total distributable earnings | + | 216,644,125 |
| Net assets | $1,406,263,603 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,406,263,603 | 133,183,347 | $10.56 | ||
59
Schwab Fundamental Index Funds | Annual
Report
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notes
Schwab Fundamental
International Large Company Index Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $4,795,107) | $42,518,659 | |
| Securities on loan, net | + | 406,537 |
| Total investment income | 42,925,196 | |
| Expenses | ||
| Investment adviser fees | 3,193,549 | |
| Professional fees | + | 12,454* |
| Total expenses | 3,206,003 | |
| Expense reduction by investment adviser | – | 12,454* |
| Net expenses | – | 3,193,549 |
| Net investment income | 39,731,647 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 13,787,561 | |
| Net realized gains on futures contracts | 2,327,465 | |
| Net realized losses on foreign currency transactions | + | (57,122) |
| Net realized gains | 16,057,904 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 360,979,367 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 189,771 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (110,331) |
| Net change in unrealized appreciation (depreciation) | + | 361,058,807 |
| Net realized and unrealized gains | 377,116,711 | |
| Increase in net assets resulting from operations | $416,848,358 | |
| * | 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. |
60
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $39,731,647 | $29,339,381 | |
| Net realized gains (losses) | 16,057,904 | (57,340,321) | |
| Net change in unrealized appreciation (depreciation) | + | 361,058,807 | (138,729,812) |
| Increase (decrease) in net assets from operations | $416,848,358 | ($166,730,752) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($28,299,152) | ($48,541,581) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 38,348,007 | $385,853,692 | 46,294,520 | $338,877,413 | |
| Shares reinvested | 1,660,561 | 15,210,744 | 2,997,596 | 27,038,314 | |
| Shares redeemed | + | (35,535,906) | (349,380,700) | (68,317,340) | (511,865,550) |
| Net transactions in fund shares | 4,472,662 | $51,683,736 | (19,025,224) | ($145,949,823) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 128,710,685 | $966,030,661 | 147,735,909 | $1,327,252,817 | |
| Total increase (decrease) | + | 4,472,662 | 440,232,942 | (19,025,224) | (361,222,156) |
| End of period | 133,183,347 | $1,406,263,603 | 128,710,685 | $966,030,661 | |
61
Schwab Fundamental Index Funds | Annual
Report
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notes
Schwab Fundamental
International Small Company Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $11.46 | $12.57 | $12.67 | $14.58 | $11.93 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.27 | 0.22 | 0.29 | 0.33 | 0.27 | |
| Net realized and unrealized gains (losses) | 3.96 | (0.97) | 0.25 | (1.70) | 2.67 | |
| Total from investment operations | 4.23 | (0.75) | 0.54 | (1.37) | 2.94 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.36) | (0.30) | (0.34) | (0.29) | |
| Distributions from net realized gains | — | — | (0.34) | (0.20) | — | |
| Total distributions | (0.27) | (0.36) | (0.64) | (0.54) | (0.29) | |
| Net asset value at end of period | $15.42 | $11.46 | $12.57 | $12.67 | $14.58 | |
| Total return | 37.25% | (6.28%) | 5.13% | (9.79%) | 25.23% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% | 0.39% | 0.39% | 0.39% | 0.48% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.43% 2 | |
| Net investment income (loss) | 1.84% | 1.89% | 2.44% | 2.30% | 2.04% | |
| Portfolio turnover rate | 35% | 25% | 38% | 26% | 21% | |
| Net assets, end of period (x 1,000,000) | $708 | $577 | $775 | $763 | $749 | |
| 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. |
62
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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 Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
64
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
65
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
66
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
67
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
68
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
69
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
70
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
71
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
72
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
73
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
74
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
75
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
76
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
77
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $— | $62,080,558 | $— | $62,080,558 |
| Australia | — | 36,847,921 | 0* | 36,847,921 |
| Austria | 1,907,051 | 3,868,855 | — | 5,775,906 |
| Belgium | 657,077 | 7,956,104 | — | 8,613,181 |
| Canada | 59,264,350 | — | — | 59,264,350 |
| Denmark | 2,836,977 | 6,649,194 | — | 9,486,171 |
| France | 1,272,706 | 26,139,583 | — | 27,412,289 |
| Germany | 3,586,543 | 25,119,026 | — | 28,705,569 |
| Greece | — | — | 0* | 0 |
| Hong Kong | 1,464,688 | 22,603,387 | 0* | 24,068,075 |
| Ireland | 303,852 | 1,574,141 | — | 1,877,993 |
| Israel | 162,120 | 11,997,955 | — | 12,160,075 |
| Italy | 660,881 | 18,456,795 | 0* | 19,117,676 |
| Japan | 1,505,775 | 220,087,167 | — | 221,592,942 |
| Luxembourg | — | — | 0* | 0 |
| Netherlands | 1,219,748 | 10,671,775 | — | 11,891,523 |
| New Zealand | 2,140,485 | 4,208,099 | — | 6,348,584 |
| Norway | 1,658,384 | 10,598,683 | — | 12,257,067 |
| Poland | 3,896,476 | 3,374,388 | — | 7,270,864 |
| Portugal | 1,189,152 | 1,734,772 | 0* | 2,923,924 |
| Singapore | 280,112 | 9,062,466 | 1,053,679 | 10,396,257 |
| Spain | 3,139,254 | 6,621,181 | 0* | 9,760,435 |
| Sweden | 2,380,133 | 21,609,227 | — | 23,989,360 |
| Switzerland | 4,346,706 | 17,713,171 | — | 22,059,877 |
| United Kingdom | 28,767,844 | 46,800,104 | 0* | 75,567,948 |
| Preferred Stocks1 | — | 30,083 | — | 30,083 |
| Germany | 413,063 | 1,815,020 | — | 2,228,083 |
| Italy | 512,211 | — | — | 512,211 |
| Rights 1 | — | — | 17,423 | 17,423 |
| Warrants 1 | — | — | 23,080 | 23,080 |
| Short-Term Investments1 | — | 853,482 | — | 853,482 |
| Money Market Funds | 9,698,730 | — | — | 9,698,730 |
| Futures Contracts2 | 89,858 | — | — | 89,858 |
| Total | $133,354,176 | $578,473,137 | $1,094,182 | $712,921,495 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
78
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, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $511,177,323) including securities on loan of $8,743,701 | $712,831,637 | |
| Foreign currency, at value (cost $62,464) | 62,818 | |
| Deposit with broker for futures contracts | 199,955 | |
| Receivables: | ||
| Dividends | 1,708,199 | |
| Fund shares sold | 1,639,387 | |
| Foreign tax reclaims | 1,081,490 | |
| Investments sold | 975,441 | |
| Income from securities on loan | + | 16,650 |
| Total assets | 718,515,577 | |
| Liabilities | ||
| Collateral held for securities on loan | 9,698,730 | |
| Payables: | ||
| Investment adviser fees | 236,642 | |
| Fund shares redeemed | 209,956 | |
| Variation margin on futures contracts | + | 21,300 |
| Total liabilities | 10,166,628 | |
| Net assets | $708,348,949 | |
| Net Assets by Source | ||
| Capital received from investors | $522,013,305 | |
| Total distributable earnings | + | 186,335,644 |
| Net assets | $708,348,949 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $708,348,949 | 45,931,717 | $15.42 | ||
79
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental
International Small Company Index Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $2,197,640) | $15,509,760 | |
| Securities on loan, net | + | 577,106 |
| Total investment income | 16,086,866 | |
| Expenses | ||
| Investment adviser fees | 2,803,590 | |
| Professional fees | + | 3,769* |
| Total expenses | 2,807,359 | |
| Expense reduction by investment adviser | – | 3,769* |
| Net expenses | – | 2,803,590 |
| Net investment income | 13,283,276 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated | 50,823,483 | |
| Net realized gains on futures contracts | 964,576 | |
| Net realized gains on foreign currency transactions | + | 79,515 |
| Net realized gains | 51,867,574 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | 149,164,663 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 228,345 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | (59,583) |
| Net change in unrealized appreciation (depreciation) | + | 149,333,425 |
| Net realized and unrealized gains | 201,200,999 | |
| Increase in net assets resulting from operations | $214,484,275 | |
| * | 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. |
80
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $13,283,276 | $12,343,035 | |
| Net realized gains (losses) | 51,867,574 | (48,515,613) | |
| Net change in unrealized appreciation (depreciation) | + | 149,333,425 | (13,051,655) |
| Increase (decrease) in net assets from operations | $214,484,275 | ($49,224,233) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($13,332,524) | ($21,815,081) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 11,598,667 | $168,880,238 | 18,584,362 | $193,918,636 | |
| Shares reinvested | 772,628 | 10,453,657 | 1,327,830 | 17,115,730 | |
| Shares redeemed | + | (16,773,053) | (249,085,119) | (31,234,955) | (338,304,616) |
| Net transactions in fund shares | (4,401,758) | ($69,751,224) | (11,322,763) | ($127,270,250) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 50,333,475 | $576,948,422 | 61,656,238 | $775,257,986 | |
| Total increase (decrease) | + | (4,401,758) | 131,400,527 | (11,322,763) | (198,309,564) |
| End of period | 45,931,717 | $708,348,949 | 50,333,475 | $576,948,422 | |
81
Schwab Fundamental Index Funds | Annual
Report
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notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $7.51 | $9.25 | $8.60 | $9.38 | $7.86 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.36 | 0.27 | 0.35 | 0.27 | 0.22 | |
| Net realized and unrealized gains (losses) | 2.63 | (1.65) | 0.54 | (0.83) | 1.47 | |
| Total from investment operations | 2.99 | (1.38) | 0.89 | (0.56) | 1.69 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.26) | (0.36) | (0.24) | (0.22) | (0.17) | |
| Net asset value at end of period | $10.24 | $7.51 | $9.25 | $8.60 | $9.38 | |
| Total return | 40.39% | (15.68%) | 10.73% | (6.09%) | 21.96% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Total expenses | 0.39% | 0.39% | 0.39% | 0.39% | 0.57% 2 | |
| Net operating expenses | N/A | N/A | N/A | N/A 3 | 0.43% 2 | |
| Net investment income (loss) | 3.75% | 3.32% | 3.93% | 2.92% | 2.62% | |
| Portfolio turnover rate | 32% | 32% | 38% | 19% | 18% | |
| Net assets, end of period (x 1,000,000) | $708 | $550 | $671 | $548 | $554 | |
| 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. |
82
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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.
83
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
84
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
85
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
86
Schwab Fundamental Index Funds | Annual Report
See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
87
Schwab Fundamental Index Funds | Annual
Report
See financial
notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 Stocks1 | $— | $328,045,874 | $— | $328,045,874 |
| Brazil | 36,566,854 | — | — | 36,566,854 |
| Chile | 3,347,884 | 1,457,104 | — | 4,804,988 |
| China | 3,531,319 | 167,757,637 | 732,635 | 172,021,591 |
| Colombia | 1,981,418 | — | — | 1,981,418 |
| Czech Republic | 1,343,411 | — | — | 1,343,411 |
| Egypt | 828,683 | — | — | 828,683 |
| Malaysia | 7,226,095 | 5,056,502 | — | 12,282,597 |
| Mexico | 26,974,425 | — | — | 26,974,425 |
| Philippines | — | — | 751,842 | 751,842 |
| Qatar | 3,520,541 | — | — | 3,520,541 |
| Saudi Arabia | 9,583,554 | 11,140,825 | — | 20,724,379 |
| South Africa | 11,429,532 | 32,624,217 | — | 44,053,749 |
| Turkey | 4,872,086 | 4,688,662 | — | 9,560,748 |
| United Arab Emirates | 2,148,494 | 4,980,630 | — | 7,129,124 |
| Preferred Stocks1 | — | — | — | — |
| Brazil | 23,483,272 | — | — | 23,483,272 |
| Colombia | 1,267,571 | — | — | 1,267,571 |
| Russia | 1,736,116 | 7,245,785 | — | 8,981,901 |
| Rights 1 | — | 230,771 | — | 230,771 |
| Brazil | — | — | 0* | 0 |
| Short-Term Investments1 | — | 3,695,946 | — | 3,695,946 |
| Money Market Funds | 757,337 | — | — | 757,337 |
| Liabilities | ||||
| Futures Contracts2 | (15,698) | — | — | (15,698) |
| Total | $140,582,894 | $566,923,953 | $1,484,477 | $708,991,324 |
| * | Level 3 amount shown includes securities determined to have no value at October 31, 2021. |
| 1 | As categorized in the Portfolio Holdings. |
| 2 | Futures contracts are reported at cumulative unrealized appreciation or depreciation. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
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See financial notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - unaffiliated (cost $530,166,341) including securities on loan of $717,811 | $709,007,022 | |
| Foreign currency, at value (cost $767,832) | 767,064 | |
| Deposit with broker for futures contracts | 390,443 | |
| Receivables: | ||
| Fund shares sold | 1,369,832 | |
| Dividends | 620,718 | |
| Investments sold | 48,059 | |
| Income from securities on loan | + | 5,983 |
| Total assets | 712,209,121 | |
| Liabilities | ||
| Collateral held for securities on loan | 757,337 | |
| Payables: | ||
| Foreign capital gains tax | 3,392,759 | |
| Investment adviser fees | 238,369 | |
| Fund shares redeemed | 142,988 | |
| Variation margin on futures contracts | + | 25,865 |
| Total liabilities | 4,557,318 | |
| Net assets | $707,651,803 | |
| Net Assets by Source | ||
| Capital received from investors | $617,356,908 | |
| Total distributable earnings | + | 90,294,895 |
| Net assets | $707,651,803 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $707,651,803 | 69,096,118 | $10.24 | ||
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notes
Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - unaffiliated (net of foreign withholding tax of $3,608,321) | $29,158,489 | |
| Interest received from securities - unaffiliated | 1,176 | |
| Securities on loan, net | + | 66,535 |
| Total investment income | 29,226,200 | |
| Expenses | ||
| Investment adviser fees | + | 2,744,178 |
| Total expenses | – | 2,744,178 |
| Net investment income | 26,482,022 | |
| Realized and Unrealized Gains (Losses) | ||
| Net realized gains on sales of securities - unaffiliated (net of foreign capital gains tax paid of $806,009) | 11,562,634 | |
| Net realized losses on futures contracts | (390,608) | |
| Net realized losses on foreign currency transactions | + | (178,319) |
| Net realized gains | 10,993,707 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated (net of change in foreign capital gains tax of ($3,081,675)) | 184,427,045 | |
| Net change in unrealized appreciation (depreciation) on futures contracts | 17,283 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 27,016 |
| Net change in unrealized appreciation (depreciation) | + | 184,471,344 |
| Net realized and unrealized gains | 195,465,051 | |
| Increase in net assets resulting from operations | $221,947,073 | |
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Schwab Fundamental Emerging
Markets Large Company Index Fund
Statement of Changes in Net Assets
For the current and prior report periods
| OPERATIONS | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $26,482,022 | $19,610,903 | |
| Net realized gains (losses) | 10,993,707 | (42,020,057) | |
| Net change in unrealized appreciation (depreciation) | + | 184,471,344 | (86,035,304) |
| Increase (decrease) in net assets from operations | $221,947,073 | ($108,444,458) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($18,875,238) | ($26,542,518) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 19,964,352 | $189,960,789 | 36,046,335 | $278,152,407 | |
| Shares reinvested | 1,622,720 | 14,425,984 | 2,049,543 | 19,245,216 | |
| Shares redeemed | + | (25,791,975) | (249,940,985) | (37,357,533) | (283,186,415) |
| Net transactions in fund shares | (4,204,903) | ($45,554,212) | 738,345 | $14,211,208 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 73,301,021 | $550,134,180 | 72,562,676 | $670,909,948 | |
| Total increase (decrease) | + | (4,204,903) | 157,517,623 | 738,345 | (120,775,768) |
| End of period | 69,096,118 | $707,651,803 | 73,301,021 | $550,134,180 | |
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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 2015 Fund |
| Schwab Fundamental US Small Company Index Fund | Schwab Target 2020 Fund |
| Schwab Fundamental International Large Company Index Fund | Schwab Target 2025 Fund |
| Schwab Fundamental International Small Company Index Fund | Schwab Target 2030 Fund |
| Schwab Fundamental Emerging Markets Large Company Index Fund | Schwab Target 2035 Fund |
| Schwab Fundamental Global Real Estate Index 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 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 Target 2065 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 Target 2065 Index Fund |
| Schwab Health Care Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab International Core Equity Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2010 Fund | Schwab Monthly Income Fund - Maximum Payout |
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 mutual funds and
exchange-traded funds (ETFs) referred to as "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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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.
•
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.
• Mutual 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.
•
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.
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, mutual funds, ETFs 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 underlying securities 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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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 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 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, 2021 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 value may change daily.
Passive Foreign Investment Companies: Certain funds may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a Passive Foreign Investment Company (PFIC). The funds may elect for tax purposes to mark-to-market annually
the shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked-to-market gains (as well as any gains realized on sale).
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 pursuant to Rule 2a-7 under 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 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 the investment adviser or any of its affiliates.
As of October 31, 2021, 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 had
securities on loan, all of which were classified as
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Schwab Fundamental Index
Funds
Financial Notes
(continued)
2. Significant Accounting Policies (continued):
common stocks and rights. The value of the securities on
loan and the related collateral as of October 31, 2021, if any, are disclosed in each fund’s Portfolio Holdings. The value of the securities on loan and the investment of cash collateral are disclosed in each fund’s 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 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. A non-recurring dividend with
a payable date of October 29, 2021 and an ex-date of November 1, 2021 is presented in the Statements of Assets and Liabilities as Deferred dividend income payable.
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 and Schwab Fundamental International Small 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.
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Financial Notes
(continued)
2. Significant Accounting Policies (continued):
(e) Expenses:
Pursuant to an Amended and Restated Investment Advisory and
Administration Agreement (Advisory Agreement) between the investment adviser and the trust, the investment adviser 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
respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The funds may be subject to foreign taxes (a portion of
which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in
which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes accrued as of October 31, 2021, 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 the index, positive or negative, is called “tracking
error.” Tracking error can be caused by many factors and it may be significant.
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Financial Notes
(continued)
3. Risk
Factors (continued):
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. Errors relating to the index may occur from time to time and may not be identified
by the index provider for a period of time. In addition, market disruptions could cause delays in an index’s rebalancing schedule. Such errors and/or market disruptions may result in losses for a fund.
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.
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.
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Financial Notes
(continued)
3. Risk
Factors (continued):
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.
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
Charles Schwab Investment Management, Inc., dba Schwab Asset
Management, a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Advisory Agreement between it and the trust.
For its advisory services to the funds, the investment adviser
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% |
The investment adviser 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 the
investment adviser pursuant to which the investment adviser has agreed to sub-license certain Russell indices and trademarks to the funds. The investment adviser pays all applicable licensing fees.
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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, 2021, 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 | 1.7% | 2.0% | 3.6% | 6.0% | 6.0% |
| Schwab MarketTrack Balanced Portfolio | 0.9% | 0.9% | 1.4% | 2.3% | 2.2% |
| Schwab MarketTrack Conservative Portfolio | 0.3% | 0.3% | 0.5% | 0.8% | 0.8% |
| Schwab MarketTrack Growth Portfolio | 1.7% | 1.9% | 2.8% | 4.5% | 4.7% |
| Schwab Target 2010 Fund | 0.0%* | —% | —% | —% | —% |
| Schwab Target 2015 Fund | 0.0%* | —% | —% | —% | —% |
| Schwab Target 2020 Fund | 0.0%* | —% | —% | —% | —% |
| Schwab Target 2025 Fund | 0.0%* | —% | —% | —% | —% |
| Schwab Target 2030 Fund | 0.1% | —% | —% | —% | —% |
| Schwab Target 2035 Fund | 0.1% | —% | —% | —% | —% |
| Schwab Target 2040 Fund | 0.3% | —% | —% | —% | —% |
| Schwab Target 2045 Fund | 0.1% | —% | —% | —% | —% |
| Schwab Target 2050 Fund | 0.1% | —% | —% | —% | —% |
| Schwab Target 2055 Fund | 0.1% | —% | —% | —% | —% |
| Schwab Target 2060 Fund | 0.0%* | —% | —% | —% | —% |
| Schwab Target 2065 Fund | 0.0%* | —% | —% | —% | —% |
| * | 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, on behalf of the funds, subject to reimbursement by the funds to the extent the funds are able to
successfully recover taxes withheld in the future.
During
the year ended October 31, 2021, the professional fees incurred by the Schwab Fundamental International Large Company Index Fund and Schwab Fundamental International Small Company Index Fund and paid by the investment adviser were $12,454 and
$3,769, respectively.
During the year ended October 31,
2021, the Schwab Fundamental International Small Company Index Fund received a positive judgment of previously withheld foreign taxes from Finland. The Schwab Fundamental International Small Company Index Fund has recorded $141,664 (including $1,891
in interest) in income and receivable while awaiting payment from Finland. In addition, the Schwab Fundamental International Small Company Index Fund recorded a payable of $3,769 due to the investment adviser for professional fees that were subject
to reimbursement. The above amounts are reflected in the Schwab Fundamental International Small Company Index Fund’s Statement of Assets and Liabilities and Statement of Operations. Amounts recorded as receivable and payable will be
extinguished upon receipt of payment from Finland.
As of
October 31, 2021, there are no additional professional fees related to foreign withholding tax subject to future reimbursement to the investment adviser for the Schwab Fundamental International Small Company Index Fund. The balance of professional
fees related to foreign withholding tax subject to future reimbursement by the Schwab Fundamental International Large Company Index Fund is $82,994.
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.
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Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
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 in accordance with procedures adopted by the Board pursuant to Rule 17a-7 under the 1940 Act. 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, 2021, 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 | $512,803,821 | $43,176,409 |
| Schwab Fundamental US Small Company Index Fund | 404,569,359 | 68,757,266 |
| Schwab Fundamental International Large Company Index Fund | 68,443,512 | 2,519,920 |
| Schwab Fundamental International Small Company Index Fund | 103,986,072 | 17,585,226 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 25,810,848 | 2,688,602 |
5. Board of Trustees:
The Board may include people who are officers and/or directors
of the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report
period. The funds do not pay any interested or non-interested (independent trustees) trustees. The independent trustees are paid by the investment adviser. 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with the line of credit amount remaining unchanged, maturing on September 29, 2022. Under the terms of the Syndicated Credit Facility, in addition to the investment adviser paying the interest charged on any borrowings by a fund, the
investment adviser 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. Under the terms of the Uncommitted Credit Facility, the investment adviser 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 the investment adviser. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.
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Financial Notes
(continued)
| 7. Derivatives: |
The funds entered into equity index
futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The value and variation margin for futures contracts held at October 31, 2021 are presented in the Portfolio Holdings and Statement of
Assets and Liabilities, respectively. The net realized gains (losses) and net change in unrealized appreciation (depreciation) on futures contracts are presented in 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, 2021, 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 | $33,988,055 | 167 |
| Schwab Fundamental US Small Company Index Fund | 9,383,113 | 88 |
| Schwab Fundamental International Large Company Index Fund | 8,305,481 | 75 |
| Schwab Fundamental International Small Company Index Fund | 4,133,060 | 37 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 3,082,090 | 48 |
8. Purchases and Sales of Investment Securities:
For the period ended October 31, 2021, purchases and sales of
securities (excluding in-kind transactions and short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES | |
| Schwab Fundamental US Large Company Index Fund | $1,191,974,664 | $957,139,479 |
| Schwab Fundamental US Small Company Index Fund | 666,889,330 | 793,998,506 |
| Schwab Fundamental International Large Company Index Fund | 320,911,262 | 262,921,735 |
| Schwab Fundamental International Small Company Index Fund | 245,489,306 | 314,549,393 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 222,334,788 | 267,707,653 |
During the period ended October 31,
2021, the Schwab Fundamental US Large Company Index Fund and the Schwab Fundamental US Small Company Index Fund sold securities in connection with in-kind redemptions in the amounts of $136,957,846 and $111,293,679, respectively, resulting in
realized gains of $122,294,000 and $88,127,743, respectively. The realized gains on sales of securities — unaffiliated are included in the Statement of Operations.
9. Federal Income Taxes:
As of October 31, 2021, the tax basis cost of the funds’
investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) | |
| Schwab Fundamental US Large Company Index Fund | $3,645,594,426 | $3,349,221,565 | ($181,344,182) | $3,167,877,383 |
| Schwab Fundamental US Small Company Index Fund | 1,249,085,572 | 812,250,648 | (103,072,398) | 709,178,250 |
| Schwab Fundamental International Large Company Index Fund | 1,207,890,590 | 368,370,700 | (167,248,878) | 201,121,822 |
| Schwab Fundamental International Small Company Index Fund | 564,268,105 | 235,483,653 | (86,830,263) | 148,653,390 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 582,816,349 | 211,507,088 | (85,332,113) | 126,174,975 |
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Financial Notes
(continued)
9. Federal
Income Taxes (continued):
As of October 31,
2021, the components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
NET
OTHER UNREALIZED APPRECIATION (DEPRECIATION) |
CAPITAL
LOSS CARRYFORWARDS |
TOTAL | |
| Schwab Fundamental US Large Company Index Fund | $110,946,354 | $187,778,508 | $3,167,877,383 | $— | $— | $3,466,602,245 |
| Schwab Fundamental US Small Company Index Fund | 41,271,208 | 155,433,634 | 709,178,250 | (8) | — | 905,883,084 |
| Schwab Fundamental International Large Company Index Fund | 44,691,528 | — | 201,121,822 | 18,631 | (29,187,856) | 216,644,125 |
| Schwab Fundamental International Small Company Index Fund | 18,160,118 | 19,542,009 | 148,653,390 | (19,873) | — | 186,335,644 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 25,185,156 | — | 126,174,975 | (3,396,661) | (57,668,575) | 90,294,895 |
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, 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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the funds had capital loss carryforwards available as follows:
| NO EXPIRATION | |
| Schwab Fundamental US Large Company Index Fund | $— |
| Schwab Fundamental US Small Company Index Fund | — |
| Schwab Fundamental International Large Company Index Fund | 29,187,856 |
| Schwab Fundamental International Small Company Index Fund | — |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 57,668,575 |
For the fiscal year ended October
31, 2021, the funds had capital loss carryforwards utilized as follows:
| CAPITAL
LOSS CARRYFORWARDS UTILIZED | |
| Schwab Fundamental US Large Company Index Fund | $— |
| Schwab Fundamental US Small Company Index Fund | 30,790,317 |
| Schwab Fundamental International Large Company Index Fund | 26,611,717 |
| Schwab Fundamental International Small Company Index Fund | 29,274,468 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 14,166,883 |
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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:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| Schwab Fundamental US Large Company Index Fund | $121,671,839 | $186,884,443 | $135,286,528 | $145,433,758 |
| Schwab Fundamental US Small Company Index Fund | 24,462,415 | — | 27,292,972 | 43,502,511 |
| Schwab Fundamental International Large Company Index Fund | 28,299,152 | — | 48,541,581 | — |
| Schwab Fundamental International Small Company Index Fund | 13,332,524 | — | 21,815,081 | — |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 18,875,238 | — | 26,542,518 | — |
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, 2021, 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, 2021, the funds did not incur
any interest or penalties.
10. Subsequent Events:
Management has determined there are no subsequent events or
transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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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 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, 2021, and the related statements of operations for the year
then ended, the related statements of changes in net assets and the financial highlights for the two years in the period 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, 2021, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for the two years in the period then
ended in conformity with accounting principles generally accepted in the United States of America. The financial highlights for each of the three 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
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 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, 2021, 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 | 3,811,448 | 47,314,015 |
| Schwab Fundamental International Small Company Index Fund | 1,824,604 | 17,566,253 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 4,377,852 | 32,748,108 |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction:
| PERCENTAGE | |
| Schwab Fundamental US Large Company Index Fund | 95.18 |
| Schwab Fundamental US Small Company Index Fund | 66.55 |
| 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, 2021, 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 2022 via IRS
Form 1099 of the amounts for use in preparing their 2021 income tax return.
| Schwab Fundamental US Large Company Index Fund | $120,504,610 |
| Schwab Fundamental US Small Company Index Fund | 16,826,848 |
| Schwab Fundamental International Large Company Index Fund | 30,538,514 |
| Schwab Fundamental International Small Company Index Fund | 11,790,597 |
| Schwab Fundamental Emerging Markets Large Company Index Fund | 15,458,756 |
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, 2021:
| Schwab Fundamental US Large Company Index Fund | $186,884,443 |
| 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 | — |
For the fiscal year ended October
31, 2021, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099 of the amounts
for use in preparing their 2021 income tax return.
| Schwab Fundamental US Large Company Index Fund | $321,633 |
| Schwab Fundamental US Small Company Index Fund | 716,434 |
| 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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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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity risk metrics. No significant liquidity events
impacting any of the Funds were noted in the report. In addition, the investment adviser 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 8, 2021 was held by means of videoconference 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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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Schwab Fundamental 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 |
| 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). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | Director (2008 – present), The Charles Schwab Corporation |
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Report
Schwab Fundamental Index
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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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Schwab Fundamental Index Funds | Annual Report
Schwab Fundamental 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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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
Report
Schwab Fundamental Index
Funds
Schwab Asset Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, 2021
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™
This page is intentionally left blank.
Schwab MarketTrack Portfolios
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab
Asset ManagementTM
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.schwabassetmanagement.com/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2021 | |
| Schwab MarketTrack All Equity Portfolio (Ticker Symbol: SWEGX) | 43.90% |
| All Equity Composite Index | 44.56% |
| Fund Category: Morningstar Allocation—85%+ Equity1 | 38.54% |
| Performance Details | pages 7-9 |
| Schwab MarketTrack Growth Portfolio (Ticker Symbol: SWHGX) | 34.32% |
| Growth Composite Index | 35.01% |
| Fund Category: Morningstar Allocation—70% to 85% Equity1 | 31.63% |
| Performance Details | pages 10-12 |
| Schwab MarketTrack Balanced Portfolio (Ticker Symbol: SWBGX) | 24.66% |
| Balanced Composite Index | 25.26% |
| Fund Category: Morningstar Allocation—50% to 70% Equity1 | 25.43% |
| Performance Details | pages 13-15 |
| Schwab MarketTrack Conservative Portfolio (Ticker Symbol: SWCGX) | 15.50% |
| Conservative Composite Index | 16.15% |
| Fund Category: Morningstar Allocation—30% to 50% Equity1 | 16.46% |
| 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 the investment
adviser 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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
3
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
The Investment Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. Among U.S.
large-caps, value stocks slightly outperformed growth stocks, with the Russell 1000® Value Index and Russell 1000® Growth Index returning 43.76% and 43.21%, respectively. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance,
returned 34.18% and the MSCI Emerging Markets Index (Net)* returned 16.96%. The Bloomberg US Aggregate Bond Index returned -0.48% and the FTSE non-US Dollar World Government Bond Index returned -4.32%.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program. Emerging markets were mixed. Central banks in China, India, and Indonesia maintained their low rates to help counter the ongoing effects of the COVID-19 pandemic. Mexico, Brazil, Russia,
and Pakistan raised their rates, citing a stronger-than-expected recovery or to counteract the impacts of inflation.
U.S. bond prices drifted lower early in the reporting period,
driving yields higher, in anticipation of a new fiscal aid package and hope for economic improvement in 2021. (Bond yields and bond prices typically move in opposite directions.) After hitting a 12-month low in mid-March 2021, bond prices rose
during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns. The yield on the 10-year U.S. Treasury, which began the reporting period at 0.88%, ended the period at
1.55%. Short-term rates, which have also remained historically low, fell further over the reporting period, with three-month U.S. Treasury yields beginning the period at 0.09% and ending it at 0.05%.
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 Schwab in 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 from 2012 to 2016. Prior to that, he worked as a fund administration manager, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration supporting the Charles Schwab Trust Bank Collective Investment Trusts and multi-asset Schwab Funds. Prior to joining Schwab Asset Management 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, 2021
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, 2021, 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the
way.
Performance.
For the 12-month reporting period ended October 31, 2021, the fund returned 43.90%. The fund’s custom blended comparative index, the All Equity Composite Index (the composite index), returned 44.56%.
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 the most
to the total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 43% for the reporting period. The Schwab S&P 500 Index Fund was the largest contributor to the total return
of the fund, largely due to the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab Fundamental US Large Company Index Fund also contributed to the total return of the fund, returning approximately 51% for the reporting
period. The Schwab Small-Cap Index Fund and Schwab Fundamental US Small Company Index Fund also contributed to the total return of the fund, returning approximately 51% and 64%, respectively, for the reporting period. The Schwab U.S. Large-Cap
Growth Index Fund also contributed to the total return of the fund, returning approximately 43% for the reporting period.
The fund’s international equity allocations also
contributed to the total return of the fund, with the Schwab International Index Fund returning approximately 34% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab Fundamental Emerging Markets Large
Company Index Fund also contributed to the total return of the fund, returning approximately 44% and 41%, respectively, for the reporting period, but both detracted from the relative performance of the fund. The Schwab Fundamental International
Small Company Index Fund also contributed to the total return of the fund, returning approximately 37% for the reporting period.
The fund’s real estate allocation, Schwab U.S. REIT ETF,
also contributed to the total return of the fund, returning approximately 46% 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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack All Equity Portfolio (5/19/98) | 43.90% | 14.17% | 12.15% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| All Equity Composite Index | 44.56% | 14.70% | 12.69% |
| Fund Category: Morningstar Allocation—85%+ Equity2 | 38.54% | 13.79% | 11.74% |
| 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 the investment adviser 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, 2021 (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, 2021
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, 2021, 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the fund returned 34.32%. The fund’s custom blended comparative index, the Growth Composite Index (the composite index), returned 35.01%.
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 the most
to the total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 43% for the reporting period. The Schwab S&P 500 Index Fund was the largest contributor to the total return
of the fund, largely due to the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab Fundamental US Large Company Index Fund also contributed to the total return of the fund, returning approximately 51% for the reporting
period. The Schwab Small-Cap Index Fund and Schwab Fundamental US Small Company Index Fund also contributed to the total return of the fund, returning approximately 51% and 64%, respectively, for the reporting period. The Schwab U.S. Large-Cap
Growth Index Fund also contributed to the total return of the fund, returning approximately 43% for the reporting period.
The fund’s international equity allocations also
contributed to the total return of the fund, with the Schwab International Index Fund returning approximately 34% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab Fundamental Emerging Markets Large
Company Index Fund also contributed to the total return of the fund, returning approximately 44% and 41%, respectively, for the reporting period, but both detracted from the relative performance of the fund. The Schwab Fundamental International
Small Company Index Fund also contributed to the total return of the fund, returning approximately 37% for the reporting period.
The fund’s real estate allocation, Schwab U.S. REIT ETF,
also contributed to the total return of the fund, returning approximately 46% for the reporting period.
The fund’s fixed-income allocation, Schwab U.S.
Aggregate Bond Index Fund, detracted from the total return of the fund, returning approximately -1% for the reporting period.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Growth Portfolio (11/20/95) | 34.32% | 12.28% | 10.56% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Growth Composite Index | 35.01% | 12.79% | 11.07% |
| Fund Category: Morningstar Allocation—70% to 85% Equity2 | 31.63% | 11.72% | 9.88% |
| 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 the investment adviser 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, 2021 (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, 2021
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, 2021, 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the fund returned 24.66%. The fund’s custom blended comparative index, the Balanced Composite Index (the composite index), returned 25.26%.
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 the most
to the total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 43% for the reporting period. The Schwab S&P 500 Index Fund was the largest contributor to the total return
of the fund, largely due to the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab Fundamental US Large Company Index Fund also contributed to the total return of the fund, returning approximately 51% for the reporting
period. The Schwab Small-Cap Index Fund and Schwab Fundamental US Small Company Index Fund also contributed to the total return of the fund, returning approximately 51% and 64%, respectively, for the reporting period. The Schwab U.S. Large-Cap
Growth Index Fund also contributed to the total return of the fund, returning approximately 43% for the reporting period.
The fund’s international equity allocations also
contributed to the total return of the fund, with the Schwab International Index Fund returning approximately 34% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab Fundamental Emerging Markets Large
Company Index Fund also contributed to the total return of the fund, returning approximately 44% and 41%, respectively, for the reporting period, but both detracted from the relative performance of the fund. The Schwab Fundamental International
Small Company Index Fund also contributed to the total return of the fund, returning approximately 37% for the reporting period.
The fund’s real estate allocation, Schwab U.S. REIT ETF,
also contributed to the total return of the fund, returning approximately 46% for the reporting period.
The fund’s fixed-income allocation detracted from the
total return of the fund. The Schwab U.S. Aggregate Bond Index Fund returned approximately -1% for the reporting period and was the largest detractor from the total return of the fund. The Schwab Short-Term Bond Index Fund also detracted from the
total return of the fund, returning approximately -1% for the reporting period.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Balanced Portfolio (11/20/95) | 24.66% | 9.93% | 8.57% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Balanced Composite Index | 25.26% | 10.45% | 9.11% |
| Fund Category: Morningstar Allocation—50% to 70% Equity2 | 25.43% | 10.66% | 9.15% |
| Fund Expense Ratio3: 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 the investment adviser 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 0.09% 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, 2021 (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, 2021
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, 2021, 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the fund returned 15.50%. The fund’s custom blended comparative index, the Conservative Composite Index (the composite index), returned 16.15%.
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 the most
to the total return of the fund. The Schwab S&P 500 Index Fund contributed to the total return of the fund, returning approximately 43% for the reporting period. The Schwab S&P 500 Index Fund was the largest contributor to the total return
of the fund, largely due to the Schwab S&P 500 Index Fund’s large position within the fund. The Schwab Fundamental US Large Company Index Fund also contributed to the total return of the fund, returning approximately 51% for the reporting
period. The Schwab Small-Cap Index Fund and Schwab Fundamental US Small Company Index Fund also contributed to the total return of the fund, returning approximately 51% and 64%, respectively, for the reporting period. The Schwab U.S. Large-Cap
Growth Index Fund also contributed to the total return of the fund, returning approximately 43% for the reporting period.
The fund’s international equity allocations also
contributed to the total return of the fund, with the Schwab International Index Fund returning approximately 34% for the reporting period. The Schwab Fundamental International Large Company Index Fund and Schwab Fundamental Emerging Markets Large
Company Index Fund also contributed to the total return of the fund, returning approximately 44% and 41%, respectively, for the reporting period, but both detracted from the relative performance of the fund. The Schwab Fundamental International
Small Company Index Fund also contributed to the total return of the fund, returning approximately 37% for the reporting period.
The fund’s real estate allocation, Schwab U.S. REIT ETF,
also contributed to the total return of the fund, returning approximately 46% for the reporting period.
The fund’s fixed-income allocation detracted from the
total return of the fund. The Schwab U.S. Aggregate Bond Index Fund returned approximately -1% for the reporting period and was the largest detractor from the total return of the fund. The Schwab Short-Term Bond Index Fund also detracted from the
total return of the fund, returning approximately -1% for the reporting period.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab MarketTrack Conservative Portfolio (11/20/95) | 15.50% | 7.45% | 6.47% |
| S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Conservative Composite Index | 16.15% | 8.03% | 7.08% |
| Fund Category: Morningstar Allocation—30% to 50% Equity2 | 16.46% | 7.43% | 6.59% |
| 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 the investment adviser 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, 2021 (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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/21 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212,5 |
EFFECTIVE
EXPENSES PAID DURING PERIOD 5/1/21-10/31/214,5 | |
| Schwab MarketTrack All Equity Portfolio | ||||||
| Actual Return | 0.38% | 0.50% | $1,000.00 | $1,070.30 | $1.98 | $2.61 |
| Hypothetical 5% Return | 0.38% | 0.50% | $1,000.00 | $1,023.29 | $1.94 | $2.55 |
| Schwab MarketTrack Growth Portfolio | ||||||
| Actual Return | 0.38% | 0.48% | $1,000.00 | $1,058.60 | $1.97 | $2.49 |
| Hypothetical 5% Return | 0.38% | 0.48% | $1,000.00 | $1,023.29 | $1.94 | $2.45 |
| Schwab MarketTrack Balanced Portfolio | ||||||
| Actual Return | 0.39% | 0.48% | $1,000.00 | $1,046.70 | $2.01 | $2.48 |
| Hypothetical 5% Return | 0.39% | 0.48% | $1,000.00 | $1,023.24 | $1.99 | $2.45 |
| Schwab MarketTrack Conservative Portfolio | ||||||
| Actual Return | 0.40% | 0.47% | $1,000.00 | $1,033.40 | $2.05 | $2.41 |
| Hypothetical 5% Return | 0.40% | 0.47% | $1,000.00 | $1,023.19 | $2.04 | $2.40 |
| 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 expenses and the expense ratio; may differ from the acquired fund fees and expenses and the 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 365 days of the fiscal year. |
19
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack All Equity
Portfolio
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $17.73 | $19.15 | $18.33 | $18.76 | $15.90 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.29 | 0.37 | 0.31 | 0.28 | 0.27 | |
| Net realized and unrealized gains (losses) | 7.21 | (0.54) | 1.30 | (0.05) | 3.33 | |
| Total from investment operations | 7.50 | (0.17) | 1.61 | 0.23 | 3.60 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.21) | (0.53) | (0.36) | (0.33) | (0.30) | |
| Distributions from net realized gains | (1.13) | (0.72) | (0.43) | (0.33) | (0.44) | |
| Total distributions | (1.34) | (1.25) | (0.79) | (0.66) | (0.74) | |
| Net asset value at end of period | $23.89 | $17.73 | $19.15 | $18.33 | $18.76 | |
| Total return | 43.90% | (1.35%) | 9.58% | 1.10% | 23.33% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.38% | 0.40% | 0.40% | 0.39% | 0.40% | |
| Gross operating expenses2 | 0.38% | 0.40% | 0.40% | 0.39% | 0.40% | |
| Net investment income (loss) | 1.33% | 2.08% | 1.72% | 1.46% | 1.56% | |
| Portfolio turnover rate | 6% | 18% | 6% | 5% | 5% | |
| Net assets, end of period (x 1,000,000) | $861 | $623 | $691 | $660 | $662 | |
| 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, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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, 2021 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 99.6% OF NET ASSETS | ||||||||
| U.S. Stocks 65.0% | ||||||||
| Large-Cap 50.3% | ||||||||
| Schwab Fundamental US Large Company Index Fund | $83,840,241 | $5,809,078 | ($9,023,034) | $1,497,534 | $34,632,568 | $116,756,387 | 5,034,773 | $5,809,078 |
| Schwab S&P 500 Index Fund | 194,769,310 | 11,458,503 | (14,513,290) | 2,795,951 | 77,804,179 | 272,314,653 | 3,824,107 | 4,038,503 |
| Schwab U.S. Large-Cap Growth Index Fund | 31,408,980 | 691,223 | (1,818,224) | 579,278 | 12,815,127 | 43,676,384 | 489,481 | 241,223 |
| 432,747,424 | ||||||||
| Small-Cap 14.7% | ||||||||
| Schwab Fundamental US Small Company Index Fund | 29,146,693 | 483,721 | (7,360,000) | 1,306,868 | 15,033,821 | 38,611,103 | 1,998,504 | 483,721 |
| Schwab Small-Cap Index Fund | 64,874,595 | 6,894,039 | (12,432,294) | 5,444,986 | 23,468,677 | 88,250,003 | 2,207,906 | 1,985,899 |
| 126,861,106 | ||||||||
| 559,608,530 | ||||||||
| International Stocks 29.6% | ||||||||
| Developed Markets 24.6% | ||||||||
| Schwab Fundamental International Large Company Index Fund | 37,247,617 | 3,890,964 | (4,890,810) | 307,658 | 14,582,936 | 51,138,365 | 4,842,648 | 1,066,811 |
| Schwab Fundamental International Small Company Index Fund | 31,385,635 | 1,852,182 | (1,713,277) | 44,891 | 10,688,686 | 42,258,117 | 2,740,475 | 735,350 |
| Schwab International Index Fund | 84,989,194 | 10,570,346 | (4,540,700) | 141,418 | 27,333,432 | 118,493,690 | 4,846,368 | 1,897,604 |
| 211,890,172 | ||||||||
| Emerging Markets 5.0% | ||||||||
| Schwab Fundamental Emerging Markets Large Company Index Fund | 31,985,158 | 2,019,621 | (2,870,000) | (84,839) | 11,458,043 | 42,507,983 | 4,151,170 | 1,095,412 |
| 254,398,155 | ||||||||
| Real Estate 5.0% | ||||||||
| U.S. REITs 5.0% | ||||||||
| Schwab U.S. REIT ETF | 30,585,050 | 2,213,138 | (3,095,984) | 286,380 | 13,323,765 | 43,312,349 | 885,552 | 864,725 |
| Total Affiliated Underlying Funds | $620,232,473 | $45,882,815 | ($62,257,613) | $12,320,125 | $241,141,234 | $857,319,034 | $18,218,326 | |
| * | 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, 2021 (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 | $857,319,034 | $— | $— | $857,319,034 |
| Short-Term Investments1 | — | 2,909,552 | — | 2,909,552 |
| Total | $857,319,034 | $2,909,552 | $— | $860,228,586 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the 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, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $423,956,518) | $857,319,034 | |
| Investments in securities, at value - unaffiliated (cost $2,909,552) | 2,909,552 | |
| Receivables: | ||
| Investments sold | 6,127,869 | |
| Fund shares sold | 287,018 | |
| Prepaid expenses | + | 15,663 |
| Total assets | 866,659,136 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 4,866,075 | |
| Fund shares redeemed | 189,877 | |
| Shareholder service fees | 170,296 | |
| Investment adviser and administrator fees | 93,308 | |
| Accrued expenses | + | 72,367 |
| Total liabilities | 5,391,923 | |
| Net assets | $861,267,213 | |
| Net Assets by Source | ||
| Capital received from investors | $421,662,211 | |
| Total distributable earnings | + | 439,605,002 |
| Net assets | $861,267,213 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $861,267,213 | 36,054,376 | $23.89 | ||
23
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack All Equity
Portfolio
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $13,587,159 | |
| Interest received from securities - unaffiliated | + | 1,249 |
| Total investment income | 13,588,408 | |
| Expenses | ||
| Shareholder service fees | 1,886,223 | |
| Investment adviser and administrator fees | 1,029,414 | |
| Registration fees | 32,012 | |
| Portfolio accounting fees | 27,730 | |
| Shareholder reports | 27,172 | |
| Professional fees | 21,290 | |
| Independent trustees’ fees | 9,514 | |
| Transfer agent fees | 6,599 | |
| Other expenses | + | 9,439 |
| Total expenses | 3,049,393 | |
| Expense reduction by investment adviser and its affiliates | – | 6,599 |
| Net expenses | – | 3,042,794 |
| Net investment income | 10,545,614 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 4,631,167 | |
| Net realized gains on sales of securities - affiliated | + | 12,320,125 |
| Net realized gains | 16,951,292 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | + | 241,141,234 |
| Net realized and unrealized gains | 258,092,526 | |
| Increase in net assets resulting from operations | $268,638,140 | |
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $10,545,614 | $13,459,757 | |
| Net realized gains | 16,951,292 | 40,017,288 | |
| Net change in unrealized appreciation (depreciation) | + | 241,141,234 | (65,160,116) |
| Increase (decrease) in net assets from operations | $268,638,140 | ($11,683,071) | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($46,815,289) | ($44,690,295) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,230,265 | $70,646,900 | 4,011,146 | $68,570,719 | |
| Shares reinvested | 2,118,421 | 41,923,540 | 2,115,919 | 40,244,771 | |
| Shares redeemed | + | (4,430,219) | (96,220,989) | (7,060,916) | (120,148,036) |
| Net transactions in fund shares | 918,467 | $16,349,451 | (933,851) | ($11,332,546) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 35,135,909 | $623,094,911 | 36,069,760 | $690,800,823 | |
| Total increase (decrease) | + | 918,467 | 238,172,302 | (933,851) | (67,705,912) |
| End of period | 36,054,376 | $861,267,213 | 35,135,909 | $623,094,911 | |
25
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $22.42 | $23.54 | $22.67 | $23.47 | $20.54 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.35 | 0.43 | 0.41 | 0.37 | 0.34 | |
| Net realized and unrealized gains (losses) | 7.03 | (0.20) | 1.62 | (0.04) | 3.37 | |
| Total from investment operations | 7.38 | 0.23 | 2.03 | 0.33 | 3.71 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.39) | (0.47) | (0.45) | (0.40) | (0.36) | |
| Distributions from net realized gains | (1.57) | (0.88) | (0.71) | (0.73) | (0.42) | |
| Total distributions | (1.96) | (1.35) | (1.16) | (1.13) | (0.78) | |
| Net asset value at end of period | $27.84 | $22.42 | $23.54 | $22.67 | $23.47 | |
| Total return | 34.32% | 0.74% | 9.86% | 1.28% | 18.52% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.39% | 0.39% | 0.40% | 0.39% | 0.40% | |
| Gross operating expenses2 | 0.39% | 0.40% | 0.40% | 0.39% | 0.40% | |
| Net investment income (loss) | 1.33% | 1.92% | 1.82% | 1.59% | 1.57% | |
| Portfolio turnover rate | 8% | 19% | 7% | 7% | 20% 3 | |
| Net assets, end of period (x 1,000,000) | $982 | $748 | $817 | $783 | $804 | |
| 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, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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, 2021 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 98.5% OF NET ASSETS | ||||||||
| U.S. Stocks 56.4% | ||||||||
| Large-Cap 43.7% | ||||||||
| Schwab Fundamental US Large Company Index Fund | $89,154,595 | $6,035,161 | ($14,473,030) | $2,565,609 | $34,760,166 | $118,042,501 | 5,090,233 | $6,035,161 |
| Schwab S&P 500 Index Fund | 208,797,893 | 4,769,428 | (19,882,484) | 12,247,085 | 71,568,040 | 277,499,962 | 3,896,924 | 4,269,428 |
| Schwab U.S. Large-Cap Growth Index Fund | 25,481,188 | 195,697 | (3,115,000) | 1,182,062 | 9,376,586 | 33,120,533 | 371,182 | 195,697 |
| 428,662,996 | ||||||||
| Small-Cap 12.7% | ||||||||
| Schwab Fundamental US Small Company Index Fund | 29,234,040 | 482,019 | (8,190,000) | 1,365,390 | 14,689,959 | 37,581,408 | 1,945,207 | 482,019 |
| Schwab Small-Cap Index Fund | 67,813,605 | 7,394,969 | (17,475,000) | 9,067,968 | 20,527,197 | 87,328,739 | 2,184,857 | 1,994,969 |
| 124,910,147 | ||||||||
| 553,573,143 | ||||||||
| International Stocks 19.7% | ||||||||
| Developed Markets 16.4% | ||||||||
| Schwab Fundamental International Large Company Index Fund | 30,102,153 | 1,561,877 | (4,320,001) | 250,380 | 11,409,878 | 39,004,287 | 3,693,588 | 831,876 |
| Schwab Fundamental International Small Company Index Fund | 25,073,791 | 575,777 | (1,970,000) | 163,242 | 8,288,855 | 32,131,665 | 2,083,766 | 575,777 |
| Schwab International Index Fund | 69,700,927 | 3,524,557 | (5,300,000) | 669,751 | 21,230,128 | 89,825,363 | 3,673,839 | 1,504,558 |
| 160,961,315 | ||||||||
| Emerging Markets 3.3% | ||||||||
| Schwab Fundamental Emerging Markets Large Company Index Fund | 24,569,478 | 1,108,894 | (1,545,000) | (278) | 8,920,594 | 33,053,688 | 3,227,899 | 848,893 |
| 194,015,003 | ||||||||
| Real Estate 4.1% | ||||||||
| U.S. REITs 4.1% | ||||||||
| Schwab U.S. REIT ETF | 27,689,578 | 1,682,639 | (1,439,682) | 162,649 | 12,151,388 | 40,246,572 | 822,870 | 784,661 |
| Fixed Income 15.8% | ||||||||
| Intermediate-Term Bond 15.8% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 121,379,029 | 39,769,374 | (1,800,000) | (18,453) | (3,916,833) | 155,413,117 | 14,886,314 | 3,082,091 |
| Money Market Funds 2.5% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 19,567,411 | 5,007,237 | — | — | (1,957) | 24,572,691 | 24,565,322 | 7,287 |
| Total Affiliated Underlying Funds | $738,563,688 | $72,107,629 | ($79,510,197) | $27,655,405 | $209,004,001 | $967,820,526 | $20,612,417 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
28
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 | $967,820,526 | $— | $— | $967,820,526 |
| Short-Term Investments1 | — | 12,161,014 | — | 12,161,014 |
| Total | $967,820,526 | $12,161,014 | $— | $979,981,540 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
29
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $517,809,496) | $967,820,526 | |
| Investments in securities, at value - unaffiliated (cost $12,161,014) | 12,161,014 | |
| Receivables: | ||
| Investments sold | 5,717,749 | |
| Fund shares sold | 307,422 | |
| Dividends | 258,596 | |
| Prepaid expenses | + | 24,088 |
| Total assets | 986,289,395 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 3,259,098 | |
| Fund shares redeemed | 405,158 | |
| Shareholder service fees | 197,977 | |
| Investment adviser and administrator fees | 106,638 | |
| Accrued expenses | + | 74,642 |
| Total liabilities | 4,043,513 | |
| Net assets | $982,245,882 | |
| Net Assets by Source | ||
| Capital received from investors | $501,453,349 | |
| Total distributable earnings | + | 480,792,533 |
| Net assets | $982,245,882 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $982,245,882 | 35,275,579 | $27.84 | ||
30
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Growth
Portfolio
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $15,696,180 | |
| Interest received from securities - unaffiliated | + | 1,881 |
| Total investment income | 15,698,061 | |
| Expenses | ||
| Shareholder service fees | 2,200,153 | |
| Investment adviser and administrator fees | 1,183,320 | |
| Registration fees | 35,322 | |
| Portfolio accounting fees | 28,947 | |
| Shareholder reports | 26,407 | |
| Professional fees | 21,547 | |
| Independent trustees’ fees | 9,898 | |
| Transfer agent fees | 6,236 | |
| Custodian fees | 66 | |
| Other expenses | + | 10,548 |
| Total expenses | 3,522,444 | |
| Expense reduction by investment adviser and its affiliates | – | 6,236 |
| Net expenses | – | 3,516,208 |
| Net investment income | 12,181,853 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 4,916,237 | |
| Net realized gains on sales of securities - affiliated | + | 27,655,405 |
| Net realized gains | 32,571,642 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | + | 209,004,001 |
| Net realized and unrealized gains | 241,575,643 | |
| Increase in net assets resulting from operations | $253,757,496 | |
31
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $12,181,853 | $14,877,513 | |
| Net realized gains | 32,571,642 | 51,128,856 | |
| Net change in unrealized appreciation (depreciation) | + | 209,004,001 | (62,556,859) |
| Increase in net assets from operations | $253,757,496 | $3,449,510 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($64,608,050) | ($46,215,156) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,644,847 | $94,749,475 | 3,194,314 | $69,920,922 | |
| Shares reinvested | 2,487,105 | 59,466,671 | 1,816,570 | 42,344,247 | |
| Shares redeemed | + | (4,239,705) | (109,611,696) | (6,318,253) | (137,539,154) |
| Net transactions in fund shares | 1,892,247 | $44,604,450 | (1,307,369) | ($25,273,985) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 33,383,332 | $748,491,986 | 34,690,701 | $816,531,617 | |
| Total increase (decrease) | + | 1,892,247 | 233,753,896 | (1,307,369) | (68,039,631) |
| End of period | 35,275,579 | $982,245,882 | 33,383,332 | $748,491,986 | |
32
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $18.38 | $18.75 | $18.24 | $19.12 | $17.35 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.28 | 0.35 | 0.36 | 0.34 | 0.30 | |
| Net realized and unrealized gains (losses) | 4.11 | 0.10 | 1.32 | (0.24) | 2.02 | |
| Total from investment operations | 4.39 | 0.45 | 1.68 | 0.10 | 2.32 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.32) | (0.39) | (0.39) | (0.33) | (0.30) | |
| Distributions from net realized gains | (0.92) | (0.43) | (0.78) | (0.65) | (0.25) | |
| Total distributions | (1.24) | (0.82) | (1.17) | (0.98) | (0.55) | |
| Net asset value at end of period | $21.53 | $18.38 | $18.75 | $18.24 | $19.12 | |
| Total return | 24.66% | 2.37% | 10.14% | 0.44% | 13.71% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.39% | 0.40% | 0.40% | 0.40% | 0.40% | |
| Gross operating expenses2 | 0.39% | 0.40% | 0.40% | 0.40% | 0.40% | |
| Net investment income (loss) | 1.39% | 1.91% | 1.99% | 1.79% | 1.67% | |
| Portfolio turnover rate | 10% | 22% | 11% | 8% | 46% 3 | |
| Net assets, end of period (x 1,000,000) | $655 | $518 | $545 | $515 | $551 | |
| 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. |
33
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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.
34
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Portfolio Holdings as of
October 31, 2021 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 98.6% OF NET ASSETS | ||||||||
| U.S. Stocks 42.3% | ||||||||
| Large-Cap 33.3% | ||||||||
| Schwab Fundamental US Large Company Index Fund | $46,214,451 | $3,052,690 | ($9,150,224) | $1,606,224 | $17,362,719 | $59,085,860 | 2,547,903 | $3,052,690 |
| Schwab S&P 500 Index Fund | 108,431,681 | 5,685,618 | (17,638,660) | 8,798,840 | 33,941,015 | 139,218,494 | 1,955,041 | 2,185,619 |
| Schwab U.S. Large-Cap Growth Index Fund | 16,142,289 | 117,843 | (2,919,139) | 1,073,078 | 5,444,881 | 19,858,952 | 222,559 | 117,843 |
| 218,163,306 | ||||||||
| Small-Cap 9.0% | ||||||||
| Schwab Fundamental US Small Company Index Fund | 14,419,988 | 229,901 | (4,260,000) | 691,344 | 7,137,902 | 18,219,135 | 943,019 | 229,901 |
| Schwab Small-Cap Index Fund | 33,339,271 | 2,396,832 | (9,430,000) | 5,256,327 | 9,094,647 | 40,657,077 | 1,017,190 | 966,833 |
| 58,876,212 | ||||||||
| 277,039,518 | ||||||||
| International Stocks 14.8% | ||||||||
| Developed Markets 12.4% | ||||||||
| Schwab Fundamental International Large Company Index Fund | 15,545,027 | 1,544,291 | (2,970,000) | 267,766 | 5,674,638 | 20,061,722 | 1,899,784 | 424,291 |
| Schwab Fundamental International Small Company Index Fund | 13,085,236 | 558,030 | (2,040,060) | 429,631 | 3,912,208 | 15,945,045 | 1,034,050 | 288,030 |
| Schwab International Index Fund | 35,858,755 | 2,447,304 | (4,413,757) | 536,458 | 10,612,833 | 45,041,593 | 1,842,192 | 767,029 |
| 81,048,360 | ||||||||
| Emerging Markets 2.4% | ||||||||
| Schwab Fundamental Emerging Markets Large Company Index Fund | 12,691,376 | 477,486 | (1,830,000) | 302,450 | 4,272,406 | 15,913,718 | 1,554,074 | 427,486 |
| 96,962,078 | ||||||||
| Real Estate 3.1% | ||||||||
| U.S. REITs 3.1% | ||||||||
| Schwab U.S. REIT ETF | 13,880,515 | 1,943,511 | (1,907,942) | 132,241 | 6,233,185 | 20,281,510 | 414,670 | 406,407 |
| Fixed Income 35.8% | ||||||||
| Intermediate-Term Bond 34.9% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 182,212,199 | 58,294,764 | (6,220,000) | (184,273) | (5,764,867) | 228,337,823 | 21,871,439 | 4,584,041 |
| Short-Term Bond 0.9% | ||||||||
| Schwab Short-Term Bond Index Fund | 5,403,247 | 889,040 | — | — | (99,267) | 6,193,020 | 607,755 | 69,052 |
| 234,530,843 | ||||||||
| Money Market Funds 2.6% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 13,767,457 | 3,004,953 | — | — | (1,376) | 16,771,034 | 16,766,005 | 4,981 |
| Total Affiliated Underlying Funds | $510,991,492 | $80,642,263 | ($62,779,782) | $18,910,086 | $97,820,924 | $645,584,983 | $13,524,203 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
35
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 | $645,584,983 | $— | $— | $645,584,983 |
| Short-Term Investments1 | — | 9,126,118 | — | 9,126,118 |
| Total | $645,584,983 | $9,126,118 | $— | $654,711,101 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
36
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $412,716,247) | $645,584,983 | |
| Investments in securities, at value - unaffiliated (cost $9,126,118) | 9,126,118 | |
| Receivables: | ||
| Investments sold | 6,363,746 | |
| Dividends | 384,121 | |
| Fund shares sold | 111,995 | |
| Prepaid expenses | + | 20,924 |
| Total assets | 661,591,887 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 6,342,109 | |
| Shareholder service fees | 133,284 | |
| Fund shares redeemed | 110,772 | |
| Investment adviser and administrator fees | 71,348 | |
| Accrued expenses | + | 58,331 |
| Total liabilities | 6,715,844 | |
| Net assets | $654,876,043 | |
| Net Assets by Source | ||
| Capital received from investors | $402,686,535 | |
| Total distributable earnings | + | 252,189,508 |
| Net assets | $654,876,043 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $654,876,043 | 30,416,020 | $21.53 | ||
37
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Balanced
Portfolio
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $10,904,235 | |
| Interest received from securities - unaffiliated | + | 1,261 |
| Total investment income | 10,905,496 | |
| Expenses | ||
| Shareholder service fees | 1,484,127 | |
| Investment adviser and administrator fees | 794,727 | |
| Registration fees | 34,803 | |
| Portfolio accounting fees | 25,972 | |
| Professional fees | 20,944 | |
| Shareholder reports | 15,028 | |
| Independent trustees’ fees | 8,960 | |
| Transfer agent fees | 4,654 | |
| Other expenses | + | 8,221 |
| Total expenses | 2,397,436 | |
| Expense reduction by investment adviser and its affiliates | – | 4,654 |
| Net expenses | – | 2,392,782 |
| Net investment income | 8,512,714 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 2,619,968 | |
| Net realized gains on sales of securities - affiliated | + | 18,910,086 |
| Net realized gains | 21,530,054 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | + | 97,820,924 |
| Net realized and unrealized gains | 119,350,978 | |
| Increase in net assets resulting from operations | $127,863,692 | |
38
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $8,512,714 | $10,037,628 | |
| Net realized gains | 21,530,054 | 25,599,831 | |
| Net change in unrealized appreciation (depreciation) | + | 97,820,924 | (23,944,151) |
| Increase in net assets from operations | $127,863,692 | $11,693,308 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($34,781,810) | ($23,741,670) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 4,679,194 | $95,523,630 | 3,534,438 | $63,437,613 | |
| Shares reinvested | 1,640,068 | 31,604,119 | 1,162,605 | 21,612,831 | |
| Shares redeemed | + | (4,058,104) | (82,952,722) | (5,586,534) | (99,936,630) |
| Net transactions in fund shares | 2,261,158 | $44,175,027 | (889,491) | ($14,886,186) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 28,154,862 | $517,619,134 | 29,044,353 | $544,553,682 | |
| Total increase (decrease) | + | 2,261,158 | 137,256,909 | (889,491) | (26,934,548) |
| End of period | 30,416,020 | $654,876,043 | 28,154,862 | $517,619,134 | |
39
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.50 | $16.43 | $15.63 | $16.27 | $15.31 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.26 | 0.30 | 0.35 | 0.31 | 0.27 | |
| Net realized and unrealized gains (losses) | 2.27 | 0.27 | 1.18 | (0.38) | 1.09 | |
| Total from investment operations | 2.53 | 0.57 | 1.53 | (0.07) | 1.36 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.31) | (0.36) | (0.32) | (0.28) | |
| Distributions from net realized gains | (0.29) | (0.19) | (0.37) | (0.25) | (0.12) | |
| Total distributions | (0.56) | (0.50) | (0.73) | (0.57) | (0.40) | |
| Net asset value at end of period | $18.47 | $16.50 | $16.43 | $15.63 | $16.27 | |
| Total return | 15.50% | 3.57% | 10.31% | (0.49%) | 9.07% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.41% | 0.42% | 0.43% | 0.41% | 0.42% | |
| Gross operating expenses2 | 0.41% | 0.42% | 0.43% | 0.41% | 0.42% | |
| Net investment income (loss) | 1.45% | 1.84% | 2.19% | 1.93% | 1.71% | |
| Portfolio turnover rate | 13% | 35% | 26% | 9% | 74% 3 | |
| Net assets, end of period (x 1,000,000) | $335 | $279 | $263 | $239 | $251 | |
| 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. |
40
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Portfolio Holdings as of
October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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 MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Portfolio Holdings as of
October 31, 2021 (continued)
Below is
a summary of the fund’s transactions with its affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 98.8% OF NET ASSETS | ||||||||
| U.S. Stocks 28.2% | ||||||||
| Large-Cap 22.2% | ||||||||
| Schwab Fundamental US Large Company Index Fund | $16,751,890 | $1,945,348 | ($5,129,236) | $718,411 | $5,762,884 | $20,049,297 | 864,566 | $1,050,414 |
| Schwab S&P 500 Index Fund | 39,174,699 | 5,407,255 | (11,802,513) | 5,662,573 | 8,962,580 | 47,404,594 | 665,701 | 742,125 |
| Schwab U.S. Large-Cap Growth Index Fund | 5,642,623 | 40,130 | (941,452) | 306,418 | 1,910,549 | 6,958,268 | 77,981 | 40,130 |
| 74,412,159 | ||||||||
| Small-Cap 6.0% | ||||||||
| Schwab Fundamental US Small Company Index Fund | 4,832,284 | 499,002 | (2,056,929) | 431,574 | 2,210,793 | 5,916,724 | 306,249 | 79,002 |
| Schwab Small-Cap Index Fund | 11,934,226 | 1,266,909 | (3,924,616) | 2,164,787 | 2,776,245 | 14,217,551 | 355,706 | 326,907 |
| 20,134,275 | ||||||||
| 94,546,434 | ||||||||
| International Stocks 9.9% | ||||||||
| Developed Markets 8.3% | ||||||||
| Schwab Fundamental International Large Company Index Fund | 5,488,699 | 735,584 | (1,610,000) | 238,321 | 1,838,044 | 6,690,648 | 633,584 | 145,584 |
| Schwab Fundamental International Small Company Index Fund | 4,866,268 | 738,092 | (1,340,000) | 199,904 | 1,279,853 | 5,744,117 | 372,511 | 98,092 |
| Schwab International Index Fund | 12,901,329 | 861,112 | (1,987,433) | 217,584 | 3,574,352 | 15,566,944 | 636,685 | 261,112 |
| 28,001,709 | ||||||||
| Emerging Markets 1.6% | ||||||||
| Schwab Fundamental Emerging Markets Large Company Index Fund | 4,603,691 | 151,585 | (1,033,458) | 174,532 | 1,432,397 | 5,328,747 | 520,385 | 151,585 |
| 33,330,456 | ||||||||
| Real Estate 2.1% | ||||||||
| U.S. REITs 2.1% | ||||||||
| Schwab U.S. REIT ETF | 5,577,477 | 174,795 | (1,030,561) | (94,305) | 2,284,995 | 6,912,401 | 141,329 | 137,693 |
| Fixed Income 55.8% | ||||||||
| Intermediate-Term Bond 54.9% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 153,199,010 | 45,136,539 | (9,772,590) | (93,771) | (4,568,590) | 183,900,598 | 17,615,000 | 3,657,325 |
| Short-Term Bond 0.9% | ||||||||
| Schwab Short-Term Bond Index Fund | 2,968,009 | 265,013 | — | — | (51,113) | 3,181,909 | 312,258 | 36,019 |
| 187,082,507 | ||||||||
| Money Market Funds 2.8% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 9,218,973 | 2,780 | — | — | (921) | 9,220,832 | 9,218,067 | 2,772 |
| Total Affiliated Underlying Funds | $277,159,178 | $57,224,144 | ($40,628,788) | $9,926,028 | $27,412,068 | $331,092,630 | $6,728,760 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
42
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Portfolio Holdings as of
October 31, 2021 (continued)
The
following is a summary of the inputs used to value the fund’s investments as of October 31, 2021 (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 | $331,092,630 | $— | $— | $331,092,630 |
| Short-Term Investments1 | — | 4,267,197 | — | 4,267,197 |
| Total | $331,092,630 | $4,267,197 | $— | $335,359,827 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds and ETFs are classified as
Level 1, without consideration to the classification level of the underlying securities held by the mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.
43
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Statement of Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $249,460,306) | $331,092,630 | |
| Investments in securities, at value - unaffiliated (cost $4,267,197) | 4,267,197 | |
| Receivables: | ||
| Investments sold | 2,399,573 | |
| Fund shares sold | 604,756 | |
| Dividends | 303,546 | |
| Prepaid expenses | + | 18,411 |
| Total assets | 338,686,113 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 3,333,414 | |
| Fund shares redeemed | 90,985 | |
| Shareholder service fees | 67,485 | |
| Investment adviser and administrator fees | 35,851 | |
| Accrued expenses | + | 48,572 |
| Total liabilities | 3,576,307 | |
| Net assets | $335,109,806 | |
| Net Assets by Source | ||
| Capital received from investors | $245,706,471 | |
| Total distributable earnings | + | 89,403,335 |
| Net assets | $335,109,806 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $335,109,806 | 18,138,912 | $18.47 | ||
44
Schwab MarketTrack Portfolios | Annual Report
See financial notes
Schwab MarketTrack Conservative
Portfolio
Statement of Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $5,728,339 | |
| Interest received from securities - unaffiliated | + | 575 |
| Total investment income | 5,728,914 | |
| Expenses | ||
| Shareholder service fees | 754,640 | |
| Investment adviser and administrator fees | 401,039 | |
| Registration fees | 34,467 | |
| Portfolio accounting fees | 23,163 | |
| Professional fees | 20,335 | |
| Independent trustees’ fees | 8,002 | |
| Shareholder reports | 7,837 | |
| Transfer agent fees | 2,804 | |
| Custodian fees | 471 | |
| Other expenses | + | 5,853 |
| Total expenses | 1,258,611 | |
| Expense reduction by investment adviser and its affiliates | – | 2,804 |
| Net expenses | – | 1,255,807 |
| Net investment income | 4,473,107 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 1,000,421 | |
| Net realized gains on sales of securities - affiliated | + | 9,926,028 |
| Net realized gains | 10,926,449 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | + | 27,412,068 |
| Net realized and unrealized gains | 38,338,517 | |
| Increase in net assets resulting from operations | $42,811,624 | |
45
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $4,473,107 | $5,082,111 | |
| Net realized gains | 10,926,449 | 4,125,240 | |
| Net change in unrealized appreciation (depreciation) | + | 27,412,068 | (555,553) |
| Increase in net assets from operations | $42,811,624 | $8,651,798 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($9,242,129) | ($8,266,008) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 4,868,387 | $87,446,661 | 5,944,934 | $97,316,710 | |
| Shares reinvested | 450,769 | 7,876,623 | 435,195 | 7,084,017 | |
| Shares redeemed | + | (4,084,996) | (72,665,622) | (5,509,526) | (89,276,819) |
| Net transactions in fund shares | 1,234,160 | $22,657,662 | 870,603 | $15,123,908 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 16,904,752 | $278,882,649 | 16,034,149 | $263,372,951 | |
| Total increase | + | 1,234,160 | 56,227,157 | 870,603 | 15,509,698 |
| End of period | 18,138,912 | $335,109,806 | 16,904,752 | $278,882,649 | |
46
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 2045 Fund |
| Schwab MarketTrack Growth Portfolio | Schwab Target 2050 Fund |
| Schwab MarketTrack Balanced Portfolio | Schwab Target 2055 Fund |
| Schwab MarketTrack Conservative Portfolio | Schwab Target 2060 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2065 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 Health Care Fund | Schwab Target 2040 Index Fund |
| Schwab International Core Equity Fund | Schwab Target 2045 Index Fund |
| Schwab Target 2010 Fund | Schwab Target 2050 Index Fund |
| Schwab Target 2015 Fund | Schwab Target 2055 Index Fund |
| Schwab Target 2020 Fund | Schwab Target 2060 Index Fund |
| Schwab Target 2025 Fund | Schwab Target 2065 Index Fund |
| Schwab Target 2030 Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Target 2035 Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Target 2040 Fund | Schwab Monthly Income Fund - Maximum Payout |
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.
47
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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:
•
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.
•
Cash management sweep time deposits: Balances held in cash management sweep time deposits are accounted for on a cost basis, which approximates fair value.
• Mutual 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.
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, mututal funds 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 underlying securities 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
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Financial Notes
(continued)
2. Significant Accounting Policies (continued):
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, 2021 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
respective 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 each fund and is legally obligated to act in each 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. Errors relating to an index may occur from time to time and may not be identified by the underlying fund’s index provider for a period of time. In addition, market
disruptions could cause delays in an underlying fund’s index’s rebalancing schedule. Such errors and/or market disruptions may result in losses for an underlying fund.
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Financial Notes
(continued)
3. Risk
Factors (continued):
•
Tracking Error Risk. Each underlying index 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 an
underlying fund and its index, positive or negative, is called "tracking error." Tracking error can be caused by many factors and it may be significant. If an 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.
•
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 an underlying 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 $1.00 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 $1.00 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 a 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, auditing, financial reporting and recordkeeping 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
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Financial Notes
(continued)
3. Risk
Factors (continued):
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, but not the obligation, to buy or sell an instrument at a specific price on or 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 the 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., dba Schwab Asset
Management, 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 it and the trust.
For its advisory and administrative services to the funds, the
investment adviser 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 the investment adviser, (together, service
providers), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds.
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Financial Notes
(continued)
4. Affiliates
and Affiliated Transactions (continued):
Pursuant to the Plan, each fund’s shares are subject
to an annual shareholder servicing fee 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.
Expense Limitation
Although these agreements specify certain fees for these
services, the investment adviser and its affiliates have agreed with the funds, for so long as the investment adviser 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 each 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, 2021, 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 | 6.0% | 4.7% | 2.2% | 0.8% |
| Schwab Fundamental International Large Company Index Fund | 3.6% | 2.8% | 1.4% | 0.5% |
| Schwab Fundamental International Small Company Index Fund | 6.0% | 4.5% | 2.3% | 0.8% |
| Schwab Fundamental US Large Company Index Fund | 1.7% | 1.7% | 0.9% | 0.3% |
| Schwab Fundamental US Small Company Index Fund | 2.0% | 1.9% | 0.9% | 0.3% |
| Schwab International Index Fund | 1.3% | 1.0% | 0.5% | 0.2% |
| Schwab S&P 500 Index Fund | 0.4% | 0.4% | 0.2% | 0.1% |
| Schwab Short-Term Bond Index Fund | —% | —% | 0.3% | 0.1% |
| Schwab Small-Cap Index Fund | 1.3% | 1.3% | 0.6% | 0.2% |
| Schwab U.S. Aggregate Bond Index Fund | —% | 2.9% | 4.2% | 3.4% |
| Schwab U.S. Large-Cap Growth Index Fund | 5.0% | 3.8% | 2.3% | 0.8% |
| Schwab U.S. REIT ETF | 0.6% | 0.6% | 0.3% | 0.1% |
| Schwab Variable Share Price Money Fund, Ultra Shares | —% | 0.9% | 0.6% | 0.3% |
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.
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Financial Notes
(continued)
| 5. Board of Trustees: |
The Board may include people who are officers and/or
directors of the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout
the report period. The funds 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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended to run for a new 364 day
period with a line of credit remaining unchanged, maturing on September 29, 2022. 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 each 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, 2021, purchases and sales of
securities (excluding short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES | |
| Schwab MarketTrack All Equity Portfolio | $45,882,815 | $62,257,613 |
| Schwab MarketTrack Growth Portfolio | 72,107,629 | 79,510,197 |
| Schwab MarketTrack Balanced Portfolio | 80,642,263 | 62,779,782 |
| Schwab MarketTrack Conservative Portfolio | 57,224,144 | 40,628,788 |
8. Federal Income Taxes:
As of October 31, 2021, the tax basis cost of the funds’
investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) | |
| Schwab MarketTrack All Equity Portfolio | $438,801,066 | $433,362,516 | ($11,934,996) | $421,427,520 |
| Schwab MarketTrack Growth Portfolio | 531,679,019 | 450,011,030 | (1,708,509) | 448,302,521 |
| Schwab MarketTrack Balanced Portfolio | 426,097,199 | 232,896,380 | (4,282,478) | 228,613,902 |
| Schwab MarketTrack Conservative Portfolio | 256,761,888 | 81,648,103 | (3,050,164) | 78,597,939 |
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Financial Notes
(continued)
8. Federal
Income Taxes (continued):
As of October 31,
2021, the components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
TOTAL | |
| Schwab MarketTrack All Equity Portfolio | $4,418,108 | $13,759,374 | $421,427,520 | $439,605,002 |
| Schwab MarketTrack Growth Portfolio | 1,204,288 | 31,285,724 | 448,302,521 | 480,792,533 |
| Schwab MarketTrack Balanced Portfolio | 3,127,120 | 20,448,486 | 228,613,902 | 252,189,508 |
| Schwab MarketTrack Conservative Portfolio | 431,778 | 10,373,618 | 78,597,939 | 89,403,335 |
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 have no expiration and may be used
to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the funds had no capital loss carryforwards.
The tax basis components of distributions paid during the
current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| Schwab MarketTrack All Equity Portfolio | $7,460,784 | $39,354,505 | $19,507,535 | $25,182,760 |
| Schwab MarketTrack Growth Portfolio | 12,895,152 | 51,712,898 | 16,953,005 | 29,262,151 |
| Schwab MarketTrack Balanced Portfolio | 9,583,547 | 25,198,263 | 12,876,300 | 10,865,370 |
| Schwab MarketTrack Conservative Portfolio | 5,222,343 | 4,019,786 | 5,723,865 | 2,542,143 |
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, 2021, 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, 2021, the funds did not incur
any interest or penalties.
9. 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 MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
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, 2021, and the related statements of operations for the year then ended, the related statements of changes in net assets and the financial highlights for the
two years in the period 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, 2021, and the
results of their operations for the year then ended, and the changes in their net assets and the financial highlights for the two years in the period then ended in conformity with accounting principles generally accepted in the United States of
America. The financial highlights for each of the three 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
We have served as the auditor of one or more investment
companies in the Schwab Funds Complex since 2020.
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
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, 2021. The foreign tax credit and the foreign source income amounts are as follows:
| FOREIGN TAX CREDIT | FOREIGN SOURCE INCOME | |
| Schwab MarketTrack All Equity Portfolio | $590,127 | $4,767,644 |
| Schwab MarketTrack Growth Portfolio | 462,090 | 3,739,535 |
| Schwab MarketTrack Balanced Portfolio | 234,115 | 1,896,037 |
| Schwab MarketTrack Conservative Portfolio | 80,841 | 652,694 |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction:
| PERCENTAGE | |
| Schwab MarketTrack All Equity Portfolio | 53.65 |
| Schwab MarketTrack Growth Portfolio | 49.65 |
| Schwab MarketTrack Balanced Portfolio | 35.24 |
| Schwab MarketTrack Conservative Portfolio | 24.51 |
For the fiscal year ended October
31, 2021, the fund designates the following amounts of the dividend distributions as qualified dividends for the purposes of the maximum rate under section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS
Form 1099 of the amounts for use in preparing their 2021 income tax return.
| Schwab MarketTrack All Equity Portfolio | $7,769,771 |
| Schwab MarketTrack Growth Portfolio | 10,836,488 |
| Schwab MarketTrack Balanced Portfolio | 5,686,566 |
| Schwab MarketTrack Conservative Portfolio | 2,131,127 |
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, 2021:
| Schwab MarketTrack All Equity Portfolio | $39,354,505 |
| Schwab MarketTrack Growth Portfolio | 51,712,898 |
| Schwab MarketTrack Balanced Portfolio | 25,198,263 |
| Schwab MarketTrack Conservative Portfolio | 4,019,786 |
For the fiscal year ended October
31, 2021, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099 of the amounts
for use in preparing their 2021 income tax return.
| Schwab MarketTrack All Equity Portfolio | $281,140 |
| Schwab MarketTrack Growth Portfolio | 500,698 |
| Schwab MarketTrack Balanced Portfolio | 200,416 |
| Schwab MarketTrack Conservative Portfolio | 87,834 |
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity risk metrics. No significant liquidity events
impacting any of the Funds were noted in the report. In addition, the investment adviser provided its assessment that the program had been operating effectively in managing each Fund’s liquidity risk.
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Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
Investment Advisory Agreement Approval
59
Schwab MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
| 1 | The meeting on June 8, 2021 was held by means of videoconference 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 MarketTrack Portfolios | Annual Report
Schwab MarketTrack
Portfolios
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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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Schwab MarketTrack
Portfolios
| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | 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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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
Schwab Asset Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, 2021
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
Schwab Target 2065 Fund
This page is intentionally left blank.
Schwab Target Funds
In
This Report
Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab
Asset ManagementTM
Distributor: Charles Schwab & Co., Inc. (Schwab)
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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.schwabassetmanagement.com/schwabfunds_prospectus.
| Total Return for the 12 Months Ended October 31, 2021 | |
| Schwab Target 2010 Fund (Ticker Symbol: SWBRX) | 13.46% |
| Target 2010 Composite Index | 13.22% |
| Fund Category: Morningstar Target-Date 2000-20101 | 13.51% |
| Performance Details | pages 8-10 |
| Schwab Target 2015 Fund (Ticker Symbol: SWGRX) | 14.54% |
| Target 2015 Composite Index | 14.34% |
| Fund Category: Morningstar Target-Date 20151 | 15.87% |
| Performance Details | pages 11-13 |
| Schwab Target 2020 Fund (Ticker Symbol: SWCRX) | 15.27% |
| Target 2020 Composite Index | 15.10% |
| Fund Category: Morningstar Target-Date 20201 | 17.49% |
| Performance Details | pages 14-16 |
| Schwab Target 2025 Fund (Ticker Symbol: SWHRX) | 20.25% |
| Target 2025 Composite Index | 20.08% |
| Fund Category: Morningstar Target-Date 20251 | 20.05% |
| Performance Details | pages 17-19 |
| Schwab Target 2030 Fund (Ticker Symbol: SWDRX) | 24.38% |
| Target 2030 Composite Index | 24.32% |
| Fund Category: Morningstar Target-Date 20301 | 23.89% |
| Performance Details | pages 20-22 |
| Schwab Target 2035 Fund (Ticker Symbol: SWIRX) | 27.76% |
| Target 2035 Composite Index | 27.66% |
| Fund Category: Morningstar Target-Date 20351 | 28.05% |
| Performance Details | pages 23-25 |
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 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 the investment
adviser 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. |
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Schwab Target Funds | Annual Report
Schwab Target Funds
Performance at
a Glance (continued)
| Total Return for the 12 Months Ended October 31, 2021 | |
| Schwab Target 2040 Fund (Ticker Symbol: SWERX) | 30.57% |
| Target 2040 Composite Index | 30.55% |
| Fund Category: Morningstar Target-Date 20401 | 31.45% |
| Performance Details | pages 26-28 |
| Schwab Target 2045 Fund (Ticker Symbol: SWMRX) | 33.13% |
| Target 2045 Composite Index | 33.27% |
| Fund Category: Morningstar Target-Date 20451 | 33.77% |
| Performance Details | pages 29-31 |
| Schwab Target 2050 Fund (Ticker Symbol: SWNRX) | 34.83% |
| Target 2050 Composite Index | 34.85% |
| Fund Category: Morningstar Target-Date 20501 | 34.78% |
| Performance Details | pages 32-34 |
| Schwab Target 2055 Fund (Ticker Symbol: SWORX) | 35.79% |
| Target 2055 Composite Index | 35.90% |
| Fund Category: Morningstar Target-Date 20551 | 35.28% |
| Performance Details | pages 35-37 |
| Schwab Target 2060 Fund (Ticker Symbol: SWPRX) | 36.89% |
| Target 2060 Composite Index | 36.95% |
| Fund Category: Morningstar Target-Date 20601 | 35.67% |
| Performance Details | pages 38-40 |
| Schwab Target 2065 Fund (Ticker Symbol: SWQRX) | 13.30% 2 |
| Target 2065 Composite Index | 12.73% 2 |
| Fund Category: Morningstar Target-Date 2065+1 | N/A |
| Performance Details | pages 41-43 |
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 the investment
adviser 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 | Total returns shown are since the fund’s inception date of February 25, 2021. |
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.
Schwab Asset Management is the dba name
for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Laudus Funds, and Schwab ETFs.
| * | The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes. |
4
Schwab Target Funds | Annual Report
Schwab Target Funds
The Investment
Environment
For the 12-month reporting period ended October 31, 2021, U.S.
and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant during the summer, equity markets rose through most of the
period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be
more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. For the reporting period, the S&P
500® Index, a bellwether for the overall U.S. stock market, returned 42.91% with cyclically sensitive sectors, such as the energy, financials, information technology, and
real estate sectors, outperforming traditionally defensive sectors, such as the utilities and consumer staples sectors. U.S. small-cap stocks outperformed U.S. large-cap stocks, with the Russell 2000® Index and the Russell 1000® Index returning 50.80% and 43.51%, respectively. Among U.S.
large-caps, value stocks slightly outperformed growth stocks, with the Russell 1000® Value Index and Russell 1000® Growth Index returning 43.76% and 43.21%, respectively. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it
began, despite exhibiting volatility along the way. Among international markets, the MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance,
returned 34.18% and the MSCI Emerging Markets Index (Net)* returned 16.96%. The Bloomberg US Aggregate Bond Index returned -0.48% and the FTSE non-US Dollar World Government Bond Index returned -4.32%.
Bolstered by the extensive emergency rescue and fiscal
stimulus measures passed by the U.S. Congress and U.S. Federal Reserve (Fed) beginning in March 2020, the U.S. economy began to recover from the dramatic impact of the COVID-19 pandemic beginning in the third quarter of 2020. U.S. gross domestic
product (GDP) rose at an annualized rate of 4.3% for the fourth quarter of 2020, 6.4% for the first quarter of 2021, and 6.7% for the second quarter of 2021 before falling back to 2.0% for the third quarter of 2021 amid fading government stimuli,
persistent inflation, and a new surge in COVID-19 cases. Unemployment, which skyrocketed in April 2020, fell over the reporting period. Inflation, which had remained well below the Fed’s traditional 2% target until it jumped in March 2021,
continued to rise through June 2021 and remained elevated through October 2021, largely due to imbalances in the labor market, supply chain bottlenecks, increased consumer demand, particularly for travel-related services early in the reporting
period, and higher energy costs.
Asset
Class Performance Comparison % returns during the 12 months ended October 31, 2021
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 Schwab Asset
Management.
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)
Outside the United States, global economies also displayed
resilience but were somewhat more constrained amid continuing struggles against COVID-19 and the emergence and spread of the Delta variant. Oil prices rose through most of the reporting period, except for a dip in July and August, on growing demand
and reduced production. In the eurozone, GDP growth jumped in the third quarter of 2020, regaining much of its losses from the second quarter, but turned slightly negative for both the fourth quarter of 2020 and the first quarter of 2021. GDP growth
turned positive for the second and third quarters of 2021. The United Kingdom, which was particularly hard-hit by the COVID-19 pandemic, suffered its biggest slump in more than three centuries over the course of 2020, effectively wiping out its
growth over the past seven years, but posted a small positive gain in GDP for the first quarter of 2021. The United Kingdom removed many of the country’s stringent restrictions during the summer and posted a strong gain in GDP growth for the
second quarter of 2021. Japan’s economy, after rebounding sharply in the third quarter of 2020, posted a positive, albeit smaller, gain in the fourth quarter of 2020. Japan’s economy subsequently contracted in the first quarter of 2021
on a resurgence of COVID-19 cases and slow COVID-19 vaccine rollouts but posted a small gain for the second quarter of 2021. China, the only major economy to avoid contraction in the face of COVID-19 pandemic-related shocks, maintained positive GDP
growth in the fourth quarter of 2020. China’s GDP growth accelerated sharply for the first quarter of 2021 before easing for the subsequent two quarters in part because of the political landscape and an emphasis on domestic consumption over
globalization. India, after plunging into one of the worst recessions of any major economy, saw its first positive gain in GDP in the fourth quarter of 2020 and posted a sharp jump in GDP growth for the second quarter of 2021.
For the most part, central banks around the world, including
the Fed, maintained the low—and for some international central banks, negative—interest rates instituted prior to, and in response to, the COVID-19 pandemic. In the United States, despite improving economic data, the Fed reiterated
several times during the reporting period its intention to continue its support of the economy for as long as needed to achieve a full recovery. The Fed maintained the federal funds rate in a range of 0.00% to 0.25% throughout the reporting period.
However, as inflation continued to rise for most of 2021, the Fed tightened its stance, signaling that—due to significant progress made on its twin goals of maximum employment and price stability—it could start to reduce its bond-buying
program as soon as late 2021 and could begin to raise interest rates in the next 18 months. In developed international markets, most central banks were similarly accommodative while acknowledging that conditions were changing. The European Central
Bank held interest rates at 0.00%, unchanged since March 2016, but reduced the pace of its asset purchase program instituted to help counter the economic impacts of the COVID-19 pandemic. The Bank of Japan upheld its short-term interest rate target
of -0.1%, also unchanged since 2016, and—despite citing moderately improving conditions—vowed to continue to maintain stability in its financial markets through its ongoing programs. The Bank of England maintained its key official bank
rate at 0.1% and continued to support its bond-buying program. Emerging markets were mixed. Central banks in China, India, and Indonesia maintained their low rates to help counter the ongoing effects of the COVID-19 pandemic. Mexico, Brazil, Russia,
and Pakistan raised their rates, citing a stronger-than-expected recovery or to counteract the impacts of inflation.
U.S. bond prices drifted lower early in the reporting period,
driving yields higher, in anticipation of a new fiscal aid package and hope for economic improvement in 2021. (Bond yields and bond prices typically move in opposite directions.) After hitting a 12-month low in mid-March 2021, bond prices rose
during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns. The yield on the 10-year U.S. Treasury, which began the reporting period at 0.88%, ended the period at
1.55%. Short-term rates, which have also remained historically low, fell further over the reporting period, with three-month U.S. Treasury yields beginning the period at 0.09% and ending it at 0.05%.
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 Schwab in 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 from 2012 to 2016. Prior to that, he worked as a fund administration manager, where he was responsible for oversight of sub-advisers, trading, cash management, and fund administration supporting the Charles Schwab Trust Bank Collective Investment Trusts and multi-asset Schwab Funds. Prior to joining Schwab Asset Management 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, 2021
The Schwab Target 2010 Fund
(the 2010 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2010 Fund 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 beginning of February 2021, the 2010
Fund’s asset allocation was approximately 34.6% equity securities, 60.7% fixed-income securities, and 4.7% 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the 2010 Fund returned 13.46%. The 2010 Fund’s internally calculated comparative index, the Target 2010 Composite Index (the composite index), returned 13.22%.
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 U.S. equity allocations, particularly
the 2010 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2010 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2010 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2010 Fund’s international equity allocations also
contributed to the total return of the 2010 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2010 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2010 Fund’s real estate allocation also contributed
to the total return of the 2010 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2010 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2010 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2010 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The Schwab Short-Term Bond Index Fund also detracted from the total return of the 2010 Fund and generally tracked its comparative index, the Bloomberg US
Government/Credit 1-5 Year Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2010 Fund (7/1/05) | 13.46% | 7.67% | 6.62% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2010 Composite Index | 13.22% | 7.62% | 6.67% |
| Fund Category: Morningstar Target-Date 2000-20102 | 13.51% | 7.52% | 6.53% |
| Fund Expense Ratios3: Net 0.32%; Gross 0.46% | |||
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 the investment adviser 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2015 Fund
(the 2015 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2015 Fund 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 beginning of February 2021, the 2015
Fund’s asset allocation was approximately 37.6% equity securities, 58.1% fixed-income securities and 4.3% cash and cash equivalents (including money market funds). (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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the 2015 Fund returned 14.54%. The 2015 Fund’s internally calculated comparative index, the Target 2015 Composite Index (the composite index), returned 14.34%.
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 U.S. equity allocations, particularly
the 2015 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2015 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2015 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2015 Fund’s international equity allocations also
contributed to the total return of the 2015 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2015 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2015 Fund’s real estate allocation also contributed
to the total return of the 2015 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2015 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2015 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2015 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The Schwab Short-Term Bond Index Fund also detracted from the total return of the 2015 Fund and generally tracked its comparative index, the Bloomberg US
Government/Credit 1-5 Year Index.
Management views and portfolio holdings may have changed since
the report date.
11
Schwab Target Funds | Annual Report
Schwab Target 2015
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2015 Fund (3/12/08) | 14.54% | 7.99% | 7.12% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2015 Composite Index | 14.34% | 7.93% | 7.17% |
| Fund Category: Morningstar Target-Date 20152 | 15.87% | 8.31% | 7.41% |
| Fund Expense Ratios3: Net 0.33%; Gross 0.43% | |||
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 the investment adviser 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 0.33% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2020 Fund
(the 2020 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2020 Fund 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 beginning of February 2021, the 2020
Fund’s asset allocation was approximately 39.7% equity securities, 56.3% fixed-income securities, and 4.0% 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the 2020 Fund returned 15.27%. The 2020 Fund’s internally calculated comparative index, the Target 2020 Composite Index (the composite index), returned 15.10%.
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 U.S. equity allocations, particularly
the 2020 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2020 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2020 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2020 Fund’s international equity allocations also
contributed to the total return of the 2020 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2020 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2020 Fund’s real estate allocation also contributed
to the total return of the 2020 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2020 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2020 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2020 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The Schwab Short-Term Bond Index Fund also detracted from the total return of the 2020 Fund and generally tracked its comparative index, the Bloomberg US
Government/Credit 1-5 Year Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2020 Fund (7/1/05) | 15.27% | 8.69% | 8.01% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2020 Composite Index | 15.10% | 8.67% | 8.10% |
| Fund Category: Morningstar Target-Date 20202 | 17.49% | 8.85% | 7.97% |
| Fund Expense Ratios3: Net 0.35%; Gross 0.37% | |||
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 the investment adviser 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 0.35% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2025 Fund
(the 2025 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2025 Fund 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 beginning of February 2021, the 2025
Fund’s asset allocation was approximately 51.9% equity securities, 44.9% fixed-income securities, and 3.2% cash and cash equivalents (including money market funds). At its target date, the 2025 Fund’s allocation will be approximately
40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2025 Fund returned 20.25%. The 2025 Fund’s internally calculated comparative index, the Target 2025 Composite Index (the composite index), returned
20.08%.
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, particularly
the 2025 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2025 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2025 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2025 Fund’s international equity allocations also
contributed to the total return of the 2025 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2025 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2025 Fund’s real estate allocation also contributed
to the total return of the 2025 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2025 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2025 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2025 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The Schwab Short-Term Bond Index Fund also detracted from the total return of the 2025 Fund and generally tracked its comparative index, the Bloomberg US
Government/Credit 1-5 Year Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2025 Fund (3/12/08) | 20.25% | 10.09% | 9.11% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2025 Composite Index | 20.08% | 10.14% | 9.25% |
| Fund Category: Morningstar Target-Date 20252 | 20.05% | 9.82% | 8.58% |
| Fund Expense Ratios3: Net 0.46%; Gross 0.48% | |||
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 the investment adviser 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 0.46% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2030 Fund
(the 2030 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2030 Fund 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 beginning of February 2021, the 2030
Fund’s asset allocation was approximately 63.1% equity securities, 34.3% fixed-income securities, and 2.5% cash and cash equivalents (including money market funds).1 At
its target date, the 2030 Fund’s allocation will be approximately 40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the 2030 Fund returned 24.38%. The 2030 Fund’s internally calculated comparative index, the Target 2030 Composite Index (the composite index), returned 24.32%.
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, particularly
the 2030 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2030 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2030 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2030 Fund’s international equity allocations also
contributed to the total return of the 2030 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2030 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2030 Fund’s real estate allocation also contributed
to the total return of the 2030 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2030 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2030 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2030 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2030 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
Management views and portfolio holdings may have changed since
the report date.
| 1 | Percentages may not add up to 100% due to rounding. |
20
Schwab Target Funds | Annual Report
Schwab Target 2030
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2030 Fund (7/1/05) | 24.38% | 11.23% | 9.95% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2030 Composite Index | 24.32% | 11.28% | 10.13% |
| Fund Category: Morningstar Target-Date 20302 | 23.89% | 11.11% | 9.43% |
| Fund Expense Ratios3: Net 0.53%; 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 the investment adviser 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 0.53% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2035 Fund
(the 2035 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2035 Fund 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 beginning of February 2021, the 2035
Fund’s asset allocation was approximately 71.6% equity securities, 26.4% fixed-income securities, and 2.0% cash and cash equivalents (including money market funds). At its target date, the 2035 Fund’s allocation will be approximately
40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2035 Fund returned 27.76%. The 2035 Fund’s internally calculated comparative index, the Target 2035 Composite Index (the composite index), returned
27.66%.
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, particularly
the 2035 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2035 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2035 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2035 Fund’s international equity allocations also
contributed to the total return of the 2035 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2035 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2035 Fund’s real estate allocation also contributed
to the total return of the 2035 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2035 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2035 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2035 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2035 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
Management views and portfolio holdings may have changed since
the report date.
23
Schwab Target Funds | Annual Report
Schwab Target 2035
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2035 Fund (3/12/08) | 27.76% | 12.05% | 10.64% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2035 Composite Index | 27.66% | 12.18% | 10.87% |
| Fund Category: Morningstar Target-Date 20352 | 28.05% | 12.25% | 10.27% |
| Fund Expense Ratios3: Net 0.59%; Gross 0.62% | |||
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 the investment adviser 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 0.59% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2040 Fund
(the 2040 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2040 Fund 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 beginning of February 2021, the 2040
Fund’s asset allocation was approximately 78.7% equity securities, 19.7% fixed-income securities, and 1.5% cash and cash equivalents including money market funds).1 At its
target date, the 2040 Fund’s allocation will be approximately 40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the
12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and rapid spread of the Delta variant
during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities weakened amid growing evidence of a
slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap stocks outperformed U.S. large-cap
stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite exhibiting volatility along the way.
After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation concerns.
Performance. For the 12-month
reporting period ended October 31, 2021, the 2040 Fund returned 30.57%. The 2040 Fund’s internally calculated comparative index, the Target 2040 Composite Index (the composite index), returned 30.55%.
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, particularly
the 2040 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2040 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2040 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2040 Fund’s international equity allocations also
contributed to the total return of the 2040 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2040 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2040 Fund’s real estate allocation also contributed
to the total return of the 2040 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
The 2040 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2040 Fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the 2040 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2040 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
Management views and portfolio holdings may have changed since
the report date.
| 1 | Percentages may not add up to 100% due to rounding. |
26
Schwab Target Funds | Annual Report
Schwab Target 2040
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (October 31, 2011 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | 10 Years |
| Fund: Schwab Target 2040 Fund (7/1/05) | 30.57% | 12.77% | 11.21% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 16.04% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 3.00% |
| Target 2040 Composite Index | 30.55% | 12.96% | 11.45% |
| Fund Category: Morningstar Target-Date 20402 | 31.45% | 13.04% | 10.83% |
| Fund Expense Ratios3: Net 0.64%; Gross 0.66% | |||
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 the investment adviser 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 0.64% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2045 Fund
(the 2045 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2045 Fund 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 beginning of February 2021, the 2045
Fund’s asset allocation was approximately 85.4% equity securities, 13.5% fixed-income securities, and 1.1% cash and cash equivalents (including money market funds). At its target date, the 2045 Fund’s allocation will be approximately
40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2045 Fund returned 33.13%. The 2045 Fund’s internally calculated comparative index, the Target 2045 Composite Index (the composite index), returned
33.27%.
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, particularly
the 2045 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2045 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2045 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2045 Fund’s international equity allocations also
contributed to the total return of the 2045 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2045 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2045 Fund’s real estate allocation also contributed
to the total return of the 2045 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
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 was the largest detractor from the total return of the 2045 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2045 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
Management views and portfolio holdings may have changed since
the report date.
29
Schwab Target Funds | Annual Report
Schwab Target 2045
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2045 Fund (1/23/13) | 33.13% | 13.31% | 10.98% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 15.74% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 2.84% |
| Target 2045 Composite Index | 33.27% | 13.56% | 11.34% |
| Fund Category: Morningstar Target-Date 20452 | 33.77% | 13.61% | N/A |
| Fund Expense Ratios3: Net 0.68%; Gross 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 the investment adviser 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 0.68% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2050 Fund
(the 2050 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2050 Fund 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 beginning of February 2021, the 2050
Fund’s asset allocation was approximately 89.4% equity securities, 9.7% fixed-income securities, and 0.9% cash and cash equivalents (including money market funds). At its target date, the 2050 Fund’s allocation will be approximately
40.0% equity securities, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2050 Fund returned 34.83%. The 2050 Fund’s internally calculated comparative index, the Target 2050 Composite Index (the composite index), returned
34.85%.
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, particularly
the 2050 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2050 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2050 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2050 Fund’s international equity allocations also
contributed to the total return of the 2050 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2050 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2050 Fund’s real estate allocation also contributed
to the total return of the 2050 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
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 was the largest detractor from the total return of the 2050 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2050 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2050 Fund (1/23/13) | 34.83% | 13.65% | 11.25% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 15.74% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 2.84% |
| Target 2050 Composite Index | 34.85% | 13.90% | 11.60% |
| Fund Category: Morningstar Target-Date 20502 | 34.78% | 13.78% | N/A |
| Fund Expense Ratios3: Net 0.70%; Gross 0.76% | |||
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 the investment adviser 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 0.70% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2055 Fund
(the 2055 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2055 Fund 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 beginning of February 2021, the 2055
Fund’s asset allocation was approximately 92.0% equity securities, 7.3% 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, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2055 Fund returned 35.79%. The 2055 Fund’s internally calculated comparative index, the Target 2055 Composite Index (the composite index), returned
35.90%.
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, particularly
the 2055 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2055 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2055 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2055 Fund’s international equity allocations also
contributed to the total return of the 2055 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2055 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2055 Fund’s real estate allocation also contributed
to the total return of the 2055 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
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 was the largest detractor from the total return of the 2055 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2055 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (January 23, 2013 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2055 Fund (1/23/13) | 35.79% | 13.89% | 11.40% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 15.74% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 2.84% |
| Target 2055 Composite Index | 35.90% | 14.17% | 11.79% |
| Fund Category: Morningstar Target-Date 20552 | 35.28% | 13.94% | N/A |
| Fund Expense Ratios3: Net 0.72%; Gross 0.81% | |||
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 the investment adviser 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 0.72% 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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, 2021
The Schwab Target 2060 Fund
(the 2060 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2060 Fund 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 beginning of February 2021, the 2060
Fund’s asset allocation was approximately 94.5% equity securities, 5.0% 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, 56.0% fixed-income securities, and 4.0% 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. For the 12-month reporting period ended October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global economy and the emergence and
rapid spread of the Delta variant during the summer, equity markets rose through most of the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In September, global equities
weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record highs. U.S. small-cap
stocks outperformed U.S. large-cap stocks. Among U.S. large-caps, value stocks slightly outperformed growth stocks. The U.S. dollar, as measured against a basket of foreign currencies, ended the reporting period essentially where it began, despite
exhibiting volatility along the way. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing inflation
concerns.
Performance. For the 12-month reporting period ended October 31, 2021, the 2060 Fund returned 36.89%. The 2060 Fund’s internally calculated comparative index, the Target 2060 Composite Index (the composite index), returned
36.95%.
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, particularly
the 2060 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2060 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2060 Fund, returning approximately
43% for the reporting period and generally tracking its comparative index, the S&P 500® Index.
The 2060 Fund’s international equity allocations also
contributed to the total return of the 2060 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2060 Fund, returning approximately 34% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net).
The 2060 Fund’s real estate allocation also contributed
to the total return of the 2060 Fund. The Schwab Global Real Estate Fund returned approximately 38% for the reporting period, slightly outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 37% for
the reporting period.
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 was the largest detractor from the total return of the 2060 Fund and returned approximately -1% for the reporting period,
generally tracking its comparative index, the Bloomberg US Aggregate Bond Index. The PIMCO International Bond Fund (U.S. Dollar-Hedged) also detracted from the total return of the 2060 Fund but contributed to relative return, outperforming its
comparative index, the Bloomberg Global Aggregate ex-USD (USD Hedged) Index.
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, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (August 25, 2016 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | 1 Year | 5 Years | Since Inception |
| Fund: Schwab Target 2060 Fund (8/25/16) | 36.89% | 14.08% | 13.18% |
| Dow Jones U.S. Total Stock Market IndexSM | 44.07% | 18.87% | 17.68% |
| Bloomberg US Aggregate Bond Index | -0.48% | 3.10% | 2.83% |
| Target 2060 Composite Index | 36.95% | 14.34 | 13.34% |
| Fund Category: Morningstar Target-Date 20602 | 35.67% | 14.01% | N/A |
| Fund Expense Ratios3: Net 0.74%; Gross 1.15% | |||
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 the investment adviser 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 Schwab Asset Management 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, 2021 (continued)
Top Holdings % of Net Assets1,3,4
Portfolio holdings may have changed since the report
date.
| 1 | 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. |
| 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. |
| 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 2065 Fund as of October 31, 2021
The Schwab Target 2065 Fund
(the 2065 Fund) seeks to provide capital appreciation and income consistent with its current asset allocation. The 2065 Fund seeks to achieve its investment objective by investing primarily in a combination of other affiliated Schwab Funds and
Laudus Funds. The 2065 Fund may also invest in unaffiliated third-party mutual funds. The target asset allocation is adjusted annually by the investment adviser; at the fund’s inception, February 25, 2021, the 2065 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 2065 Fund’s allocation will be approximately 40.0% equity
securities, 56.0% fixed-income securities, and 4.0% cash and cash equivalents (including money market funds). (For portfolio allocations as of the end of this reporting period, please see the 2065 Fund’s Portfolio Holdings included in this
report.)
Market Highlights. For the reporting period of fund inception, February 25, 2021, to October 31, 2021, U.S. and international equity markets generated solid returns. Despite persisting COVID-19 pandemic-driven stresses on the global
economy and the emergence and rapid spread of the Delta variant during the summer, many equity markets rose through the period on strong earnings, ongoing fiscal stimulus measures, and optimism related to increased COVID-19 vaccination rates. In
September, global equities weakened amid growing evidence of a slowing economy and concerns that higher inflation may be more persistent than previously anticipated, but they regained momentum in October to end the reporting period at or near record
highs. U.S. large-cap stocks outperformed U.S. small-cap stocks. Among U.S. large-caps, growth stocks outperformed value stocks. The U.S. dollar, as measured against a basket of foreign currencies, rose over the reporting period, generally reducing
the return of overseas investments in U.S. dollar terms. After hitting a 12-month low in mid-March 2021, bond prices rose during the summer but slid again over the final three months of the reporting period on tepid employment reports and growing
inflation concerns.
Performance. For the reporting period of fund inception of February 25, 2021 through October 31, 2021, the 2065 Fund returned 13.30%. The 2065 Fund’s internally calculated comparative index, the Target 2065 Composite Index
(the composite index), returned 12.73%.
Positioning
and Strategies. The 2065 Fund’s asset allocations were broadly in line with those of the composite index over the reporting period.
The 2065 Fund’s U.S. equity allocations, particularly
the 2065 Fund’s U.S. large-cap equity allocations, provided the largest contribution to the total return of the 2065 Fund. The Schwab S&P 500 Index Fund was the top contributor to the total return of the 2065 Fund, returning approximately
21% for the reporting period and generally tracking its comparative index, the S&P 500® Index. The Schwab Core Equity Fund also contributed to the total return of the
2065 Fund, returning approximately 20% for the reporting period.
The 2065 Fund’s international equity allocations also
contributed to the total return of the 2065 Fund but detracted from relative performance. The Laudus International MarketMasters Fund contributed to the total return of the 2065 Fund, returning approximately 7% for the reporting period and slightly
underperforming its comparative index, the MSCI EAFE® Index (Net). The Goldman Sachs Emerging Markets Equity Insights Fund was the largest detractor from total return of
the 2065 Fund, returning approximately -6% for the reporting period.
The 2065 Fund’s real estate allocation also contributed
to the total return of the 2065 Fund. The Schwab Global Real Estate Fund returned approximately 15% for the reporting period, outperforming its comparative index, the FTSE EPRA Nareit Global Index (Net), which returned approximately 12% for the
reporting period.
The 2065 Fund’s fixed-income
allocations provided the smallest contribution to the total return of the 2065 Fund. The PIMCO International Bond Fund (U.S. Dollar-Hedged) detracted slightly from the total return of the 2065 Fund, returning approximately -1% for the reporting
period.
Management views and portfolio holdings may have changed since
the report date.
41
Schwab Target Funds | Annual Report
Schwab Target 2065
Fund
Performance and Fund Facts as
of October 31, 2021
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.schwabassetmanagement.com/schwabfunds_prospectus.
Performance
of Hypothetical $10,000 Investment (February 25, 2021 – October 31, 2021)1
Average Annual Total Returns1
| Fund and Inception Date | Since Inception |
| Fund: Schwab Target 2065 Fund (2/25/21) | 13.30% |
| Dow Jones U.S. Total Stock Market IndexSM | 19.07% |
| Bloomberg US Aggregate Bond Index | 1.42% |
| Target 2065 Composite Index | 12.73% |
| Fund Category: Morningstar Target-Date 2065+2 | N/A |
| Fund Expense Ratios3: Net 0.69%; Gross 3.18% | |
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.
For index definitions, please see the Glossary.
| 1 | Fund expenses may have been partially absorbed by the investment adviser 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 based on estimated amounts for the current fiscal year and 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 Schwab Asset Management serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers and is estimated based on the expenses the fund expects to incur for its first full fiscal year. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements. |
42
Schwab Target Funds | Annual Report
Schwab Target 2065
Fund
Performance and Fund Facts as
of October 31, 2021 (continued)
Top Holdings % of Net Assets2,4,5
Portfolio holdings may have changed since the report
date.
| 1 | Not annualized. |
| 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 | 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. |
| 4 | This list is not a recommendation of any security by the investment adviser. |
| 5 | The holdings listed exclude any temporary liquidity investments. |
43
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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/212 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212,5 |
EFFECTIVE
EXPENSES PAID DURING PERIOD 5/1/21-10/31/214,5 | |
| Schwab Target 2010 Fund | ||||||
| Actual Return | 0.00% | 0.30% | $1,000.00 | $1,034.70 | $0.00 | $1.54 |
| Hypothetical 5% Return | 0.00% | 0.30% | $1,000.00 | $1,025.21 | $0.00 | $1.53 |
| Schwab Target 2015 Fund | ||||||
| Actual Return | 0.00% | 0.32% | $1,000.00 | $1,037.30 | $0.00 | $1.64 |
| Hypothetical 5% Return | 0.00% | 0.32% | $1,000.00 | $1,025.21 | $0.00 | $1.63 |
| Schwab Target 2020 Fund | ||||||
| Actual Return | 0.00% | 0.33% | $1,000.00 | $1,037.90 | $0.00 | $1.70 |
| Hypothetical 5% Return | 0.00% | 0.33% | $1,000.00 | $1,025.21 | $0.00 | $1.68 |
| Schwab Target 2025 Fund | ||||||
| Actual Return | 0.00% | 0.42% | $1,000.00 | $1,044.10 | $0.00 | $2.16 |
| Hypothetical 5% Return | 0.00% | 0.42% | $1,000.00 | $1,025.21 | $0.00 | $2.14 |
| Schwab Target 2030 Fund | ||||||
| Actual Return | 0.00% | 0.49% | $1,000.00 | $1,048.90 | $0.00 | $2.53 |
| Hypothetical 5% Return | 0.00% | 0.49% | $1,000.00 | $1,025.21 | $0.00 | $2.50 |
| Schwab Target 2035 Fund | ||||||
| Actual Return | 0.00% | 0.54% | $1,000.00 | $1,053.10 | $0.00 | $2.79 |
| Hypothetical 5% Return | 0.00% | 0.54% | $1,000.00 | $1,025.21 | $0.00 | $2.75 |
| Schwab Target 2040 Fund | ||||||
| Actual Return | 0.00% | 0.59% | $1,000.00 | $1,056.60 | $0.00 | $3.06 |
| Hypothetical 5% Return | 0.00% | 0.59% | $1,000.00 | $1,025.21 | $0.00 | $3.01 |
| Schwab Target 2045 Fund | ||||||
| Actual Return | 0.00% | 0.63% | $1,000.00 | $1,059.60 | $0.00 | $3.27 |
| Hypothetical 5% Return | 0.00% | 0.63% | $1,000.00 | $1,025.21 | $0.00 | $3.21 |
| Schwab Target 2050 Fund | ||||||
| Actual Return | 0.00% | 0.65% | $1,000.00 | $1,061.50 | $0.00 | $3.38 |
| Hypothetical 5% Return | 0.00% | 0.65% | $1,000.00 | $1,025.21 | $0.00 | $3.31 |
| Schwab Target 2055 Fund | ||||||
| Actual Return | 0.00% | 0.67% | $1,000.00 | $1,062.40 | $0.00 | $3.48 |
| Hypothetical 5% Return | 0.00% | 0.67% | $1,000.00 | $1,025.21 | $0.00 | $3.41 |
44
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 5/1/21 |
ENDING
ACCOUNT VALUE (NET OF EXPENSES) AT 10/31/212 |
EXPENSES
PAID DURING PERIOD 5/1/21-10/31/212,5 |
EFFECTIVE
EXPENSES PAID DURING PERIOD 5/1/21-10/31/214,5 | |
| Schwab Target 2060 Fund | ||||||
| Actual Return | 0.00% | 0.68% | $1,000.00 | $1,063.50 | $0.00 | $3.54 |
| Hypothetical 5% Return | 0.00% | 0.68% | $1,000.00 | $1,025.21 | $0.00 | $3.47 |
| Schwab Target 2065 Fund | ||||||
| Actual Return | 0.00% | 0.68% | $1,000.00 | $1,062.90 | $0.00 | $3.54 |
| Hypothetical 5% Return | 0.00% | 0.68% | $1,000.00 | $1,025.21 | $0.00 | $3.47 |
| 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 expenses and the expense ratio; may differ from the acquired fund fees and expenses and the 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 365 days of the fiscal year. |
45
Schwab Target Funds | Annual Report
Schwab Target 2010 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $13.76 | $13.57 | $13.06 | $13.42 | $12.52 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.22 | 0.27 | 0.30 | 0.29 | 0.22 | |
| Net realized and unrealized gains (losses) | 1.61 | 0.57 | 0.97 | (0.35) | 0.90 | |
| Total from investment operations | 1.83 | 0.84 | 1.27 | (0.06) | 1.12 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.34) | (0.34) | (0.30) | (0.22) | |
| Distributions from net realized gains | (0.11) | (0.31) | (0.42) | — | — | |
| Total distributions | (0.38) | (0.65) | (0.76) | (0.30) | (0.22) | |
| Net asset value at end of period | $15.21 | $13.76 | $13.57 | $13.06 | $13.42 | |
| Total return | 13.46% | 6.38% | 10.42% | (0.52%) | 9.11% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.12% | 0.14% | 0.17% | 0.12% | 0.14% | |
| Net investment income (loss) | 1.50% | 2.03% | 2.33% | 2.15% | 1.75% | |
| Portfolio turnover rate | 21% | 27% | 13% | 16% | 51% 4 | |
| Net assets, end of period (x 1,000,000) | $65 | $56 | $51 | $52 | $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. |
46
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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 Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 73.9% OF NET ASSETS | ||||||||
| U.S. Stocks 17.3% | ||||||||
| Large-Cap 15.4% | ||||||||
| Schwab Core Equity Fund | $2,540,417 | $188,494 | ($1,759,736) | $404,793 | $194,988 | $1,568,956 | 53,695 | $108,495 |
| Schwab Dividend Equity Fund | 76,027 | — | (90,894) | (9,881) | 24,748 | — | — | 557 |
| Schwab Fundamental US Large Company Index Fund | — | 125,000 | — | — | 12,540 | 137,540 | 5,931 | — |
| Schwab S&P 500 Index Fund | 5,731,755 | 1,730,356 | (1,356,000) | 170,901 | 2,106,541 | 8,383,553 | 117,730 | 116,356 |
| 10,090,049 | ||||||||
| Mid-Cap 0.7% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 406,110 | 6,933 | (108,999) | 25,904 | 134,081 | 464,029 | 7,201 | 6,933 |
| Small-Cap 1.2% | ||||||||
| Schwab Small-Cap Equity Fund | 608,229 | 1,413 | (164,000) | 13,174 | 322,857 | 781,673 | 32,885 | 1,413 |
| 11,335,751 | ||||||||
| International Stocks 8.9% | ||||||||
| Developed Markets 8.9% | ||||||||
| Laudus International MarketMasters Fund | 3,453,864 | 293,769 | (777,000) | 101,446 | 767,975 | 3,840,054 | 125,492 | 243,769 |
| Schwab International Core Equity Fund | 1,781,129 | 790,393 | (1,016,000) | 30,111 | 397,620 | 1,983,253 | 171,710 | 20,392 |
| 5,823,307 | ||||||||
| Real Estate 2.1% | ||||||||
| Global Real Estate 2.1% | ||||||||
| Schwab Global Real Estate Fund | 847,973 | 228,644 | — | — | 273,549 | 1,350,166 | 166,893 | 50,644 |
| Fixed Income 42.5% | ||||||||
| Inflation-Protected Bond 6.7% | ||||||||
| Schwab Treasury Inflation Protected Securities Index Fund | 3,472,960 | 935,176 | (170,000) | (2,301) | 130,021 | 4,365,856 | 346,772 | 129,176 |
| Intermediate-Term Bond 25.9% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 14,401,866 | 5,419,953 | (2,416,925) | (59,645) | (401,820) | 16,943,429 | 1,622,934 | 336,776 |
| Short-Term Bond 9.9% | ||||||||
| Schwab Short-Term Bond Index Fund | 5,538,328 | 1,451,224 | (386,962) | (2,992) | (99,683) | 6,499,915 | 637,872 | 70,236 |
| 27,809,200 | ||||||||
| Money Market Funds 3.1% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 2,040,684 | 600,613 | (600,000) | 38 | (242) | 2,041,093 | 2,040,481 | 611 |
| Total Affiliated Underlying Funds | $40,899,342 | $11,771,968 | ($8,846,516) | $671,548 | $3,863,175 | $48,359,517 | $1,085,358 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
48
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $48,359,517 | $— | $— | $48,359,517 |
| Unaffiliated Underlying Funds1 | 16,062,515 | — | — | 16,062,515 |
| Short-Term Investments1 | — | 990,514 | — | 990,514 |
| Total | $64,422,032 | $990,514 | $— | $65,412,546 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
49
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $38,586,562) | $48,359,517 | |
| Investments in securities, at value - unaffiliated (cost $15,257,016) | 17,053,029 | |
| Receivables: | ||
| Investments sold | 544,176 | |
| Dividends | 41,088 | |
| Fund shares sold | 13,177 | |
| Due from investment adviser | 6,252 | |
| Prepaid expenses | + | 11,450 |
| Total assets | 66,028,689 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 517,611 | |
| Accrued expenses | + | 33,691 |
| Total liabilities | 551,302 | |
| Net assets | $65,477,387 | |
| Net Assets by Source | ||
| Capital received from investors | $51,891,085 | |
| Total distributable earnings | + | 13,586,302 |
| Net assets | $65,477,387 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $65,477,387 | 4,304,687 | $15.21 | ||
50
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2010 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $699,209 | |
| Dividends received from securities - unaffiliated | 199,656 | |
| Interest received from securities - unaffiliated | + | 45 |
| Total investment income | 898,910 | |
| Expenses | ||
| Professional fees | 21,745 | |
| Registration fees | 21,550 | |
| Portfolio accounting fees | 11,911 | |
| Independent trustees’ fees | 7,216 | |
| Shareholder reports | 2,210 | |
| Transfer agent fees | 1,047 | |
| Custodian fees | 198 | |
| Other expenses | + | 3,785 |
| Total expenses | 69,662 | |
| Expense reduction by investment adviser | – | 69,662 |
| Net expenses | – | — |
| Net investment income | 898,910 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 386,149 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 540,290 | |
| Net realized gains on sales of securities - affiliated | 671,548 | |
| Net realized gains on sales of securities - unaffiliated | + | 367,381 |
| Net realized gains | 1,965,368 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 3,863,175 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 614,458 |
| Net change in unrealized appreciation (depreciation) | + | 4,477,633 |
| Net realized and unrealized gains | 6,443,001 | |
| Increase in net assets resulting from operations | $7,341,911 | |
51
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $898,910 | $1,088,288 | |
| Net realized gains | 1,965,368 | 391,654 | |
| Net change in unrealized appreciation (depreciation) | + | 4,477,633 | 1,752,405 |
| Increase in net assets from operations | $7,341,911 | $3,232,347 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($1,544,083) | ($2,519,058) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 1,210,571 | $17,923,236 | 1,235,019 | $16,620,379 | |
| Shares reinvested | 94,692 | 1,353,144 | 172,129 | 2,273,818 | |
| Shares redeemed | + | (1,035,698) | (15,103,593) | (1,139,051) | (15,206,801) |
| Net transactions in fund shares | 269,565 | $4,172,787 | 268,097 | $3,687,396 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 4,035,122 | $55,506,772 | 3,767,025 | $51,106,087 | |
| Total increase | + | 269,565 | 9,970,615 | 268,097 | 4,400,685 |
| End of period | 4,304,687 | $65,477,387 | 4,035,122 | $55,506,772 | |
52
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.18 | $12.07 | $11.49 | $12.21 | $11.72 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.19 | 0.25 | 0.27 | 0.25 | 0.20 | |
| Net realized and unrealized gains (losses) | 1.54 | 0.50 | 0.86 | (0.30) | 0.88 | |
| Total from investment operations | 1.73 | 0.75 | 1.13 | (0.05) | 1.08 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.24) | (0.31) | (0.30) | (0.27) | (0.22) | |
| Distributions from net realized gains | (0.31) | (0.33) | (0.25) | (0.40) | (0.37) | |
| Total distributions | (0.55) | (0.64) | (0.55) | (0.67) | (0.59) | |
| Net asset value at end of period | $13.36 | $12.18 | $12.07 | $11.49 | $12.21 | |
| Total return | 14.54% | 6.41% | 10.48% | (0.57%) | 9.67% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.08% | 0.10% | 0.11% | 0.07% | 0.09% | |
| Net investment income (loss) | 1.47% | 2.07% | 2.35% | 2.12% | 1.74% | |
| Portfolio turnover rate | 14% | 15% | 10% | 14% | 52% 4 | |
| Net assets, end of period (x 1,000,000) | $81 | $77 | $81 | $90 | $103 | |
| 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. |
53
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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 Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 74.3% OF NET ASSETS | ||||||||
| U.S. Stocks 18.7% | ||||||||
| Large-Cap 16.5% | ||||||||
| Schwab Core Equity Fund | $3,737,720 | $162,388 | ($2,514,000) | $1,033,450 | ($142,481) | $2,277,077 | 77,929 | $162,388 |
| Schwab Dividend Equity Fund | 89,000 | — | (102,487) | 22,866 | (9,379) | — | — | 652 |
| Schwab Fundamental US Large Company Index Fund | — | 68,000 | — | — | 16,013 | 84,013 | 3,623 | — |
| Schwab S&P 500 Index Fund | 8,418,126 | 874,772 | (1,582,588) | 438,914 | 2,943,505 | 11,092,729 | 155,775 | 169,065 |
| 13,453,819 | ||||||||
| Mid-Cap 0.9% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 608,622 | 10,392 | (165,000) | 39,235 | 200,269 | 693,518 | 10,762 | 10,392 |
| Small-Cap 1.3% | ||||||||
| Schwab Small-Cap Equity Fund | 1,003,720 | 2,332 | (450,000) | 136,784 | 399,239 | 1,092,075 | 45,943 | 2,332 |
| 15,239,412 | ||||||||
| International Stocks 10.1% | ||||||||
| Developed Markets 10.1% | ||||||||
| Laudus International MarketMasters Fund | 5,392,510 | 761,965 | (1,492,000) | 164,857 | 1,191,835 | 6,019,167 | 196,705 | 366,965 |
| Schwab International Core Equity Fund | 2,755,151 | 30,691 | (1,286,000) | 157,527 | 520,386 | 2,177,755 | 188,550 | 30,691 |
| 8,196,922 | ||||||||
| Real Estate 2.2% | ||||||||
| Global Real Estate 2.2% | ||||||||
| Schwab Global Real Estate Fund | 1,318,093 | 134,117 | (114,000) | 12,729 | 397,427 | 1,748,366 | 216,114 | 74,116 |
| Fixed Income 40.1% | ||||||||
| Inflation-Protected Bond 6.3% | ||||||||
| Schwab Treasury Inflation Protected Securities Index Fund | 4,745,389 | 455,791 | (260,000) | 5,220 | 172,455 | 5,118,855 | 406,581 | 163,791 |
| Intermediate-Term Bond 24.5% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 19,039,900 | 3,486,403 | (1,981,431) | (44,611) | (504,437) | 19,995,824 | 1,915,309 | 433,050 |
| Short-Term Bond 9.3% | ||||||||
| Schwab Short-Term Bond Index Fund | 7,265,534 | 773,551 | (354,128) | (1,677) | (122,611) | 7,560,669 | 741,970 | 89,559 |
| 32,675,348 | ||||||||
| Money Market Funds 3.2% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 2,289,929 | 300,771 | — | — | (259) | 2,590,441 | 2,589,665 | 774 |
| Total Affiliated Underlying Funds | $56,663,694 | $7,061,173 | ($10,301,634) | $1,965,294 | $5,061,962 | $60,450,489 | $1,503,775 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
55
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $60,450,489 | $— | $— | $60,450,489 |
| Unaffiliated Underlying Funds1 | 20,019,925 | — | — | 20,019,925 |
| Short-Term Investments1 | — | 849,867 | — | 849,867 |
| Total | $80,470,414 | $849,867 | $— | $81,320,281 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
56
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $44,980,491) | $60,450,489 | |
| Investments in securities, at value - unaffiliated (cost $18,215,924) | 20,869,792 | |
| Receivables: | ||
| Investments sold | 627,898 | |
| Dividends | 48,999 | |
| Fund shares sold | 21,276 | |
| Due from investment adviser | 6,002 | |
| Prepaid expenses | + | 4,650 |
| Total assets | 82,029,106 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 596,144 | |
| Accrued expenses | + | 34,278 |
| Total liabilities | 630,422 | |
| Net assets | $81,398,684 | |
| Net Assets by Source | ||
| Capital received from investors | $59,533,419 | |
| Total distributable earnings | + | 21,865,265 |
| Net assets | $81,398,684 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $81,398,684 | 6,092,558 | $13.36 | ||
57
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2015 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $929,862 | |
| Dividends received from securities - unaffiliated | 270,399 | |
| Interest received from securities - unaffiliated | + | 54 |
| Total investment income | 1,200,315 | |
| Expenses | ||
| Professional fees | 21,740 | |
| Registration fees | 20,071 | |
| Portfolio accounting fees | 12,122 | |
| Independent trustees’ fees | 7,288 | |
| Shareholder reports | 2,321 | |
| Transfer agent fees | 1,431 | |
| Other expenses | + | 3,952 |
| Total expenses | 68,925 | |
| Expense reduction by investment adviser | – | 68,925 |
| Net expenses | – | — |
| Net investment income | 1,200,315 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 573,913 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 752,439 | |
| Net realized gains on sales of securities - affiliated | 1,965,294 | |
| Net realized gains on sales of securities - unaffiliated | + | 510,795 |
| Net realized gains | 3,802,441 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 5,061,962 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 956,315 |
| Net change in unrealized appreciation (depreciation) | + | 6,018,277 |
| Net realized and unrealized gains | 9,820,718 | |
| Increase in net assets resulting from operations | $11,021,033 | |
58
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $1,200,315 | $1,605,087 | |
| Net realized gains | 3,802,441 | 1,910,607 | |
| Net change in unrealized appreciation (depreciation) | + | 6,018,277 | 1,251,931 |
| Increase in net assets from operations | $11,021,033 | $4,767,625 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($3,467,726) | ($4,189,125) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 645,653 | $8,261,663 | 767,274 | $9,075,200 | |
| Shares reinvested | 263,836 | 3,295,303 | 335,649 | 3,930,448 | |
| Shares redeemed | + | (1,161,720) | (14,985,882) | (1,481,051) | (17,448,525) |
| Net transactions in fund shares | (252,231) | ($3,428,916) | (378,128) | ($4,442,877) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 6,344,789 | $77,274,293 | 6,722,917 | $81,138,670 | |
| Total increase (decrease) | + | (252,231) | 4,124,391 | (378,128) | (3,864,377) |
| End of period | 6,092,558 | $81,398,684 | 6,344,789 | $77,274,293 | |
59
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.55 | $14.46 | $13.87 | $14.71 | $13.84 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.23 | 0.30 | 0.32 | 0.30 | 0.23 | |
| Net realized and unrealized gains (losses) | 1.94 | 0.58 | 1.04 | (0.33) | 1.39 | |
| Total from investment operations | 2.17 | 0.88 | 1.36 | (0.03) | 1.62 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.29) | (0.36) | (0.35) | (0.33) | (0.24) | |
| Distributions from net realized gains | (0.29) | (0.43) | (0.42) | (0.48) | (0.51) | |
| Total distributions | (0.58) | (0.79) | (0.77) | (0.81) | (0.75) | |
| Net asset value at end of period | $16.14 | $14.55 | $14.46 | $13.87 | $14.71 | |
| Total return | 15.27% | 6.33% | 10.58% | (0.32%) | 12.28% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| Gross operating expenses2 | 0.02% | 0.02% | 0.03% | 0.02% | 0.03% | |
| Net investment income (loss) | 1.47% | 2.13% | 2.28% | 2.07% | 1.67% | |
| Portfolio turnover rate | 10% | 17% | 14% | 18% | 47% 3 | |
| Net assets, end of period (x 1,000,000) | $531 | $525 | $549 | $542 | $579 | |
| 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 31% without including these transactions. There were no transaction costs associated with these transactions. |
60
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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 Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 74.4% OF NET ASSETS | ||||||||
| U.S. Stocks 19.5% | ||||||||
| Large-Cap 17.1% | ||||||||
| Schwab Core Equity Fund | $26,819,643 | $1,271,702 | ($19,117,999) | $7,066,384 | ($939,438) | $15,100,292 | 516,779 | $1,271,702 |
| Schwab Dividend Equity Fund | 494,768 | — | (569,758) | 128,535 | (53,545) | — | — | 3,627 |
| Schwab Fundamental US Large Company Index Fund | — | 510,000 | — | — | 120,096 | 630,096 | 27,171 | — |
| Schwab S&P 500 Index Fund | 60,049,369 | 3,290,415 | (11,710,699) | 3,929,265 | 19,501,376 | 75,059,726 | 1,054,062 | 1,180,417 |
| 90,790,114 | ||||||||
| Mid-Cap 0.8% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 4,522,092 | 65,662 | (1,770,000) | 399,805 | 1,243,578 | 4,461,137 | 69,229 | 65,662 |
| Small-Cap 1.6% | ||||||||
| Schwab Small-Cap Equity Fund | 7,030,894 | 15,715 | (2,547,504) | 600,735 | 3,128,939 | 8,228,779 | 346,183 | 15,715 |
| 103,480,030 | ||||||||
| International Stocks 11.0% | ||||||||
| Developed Markets 11.0% | ||||||||
| Laudus International MarketMasters Fund | 40,299,521 | 2,654,741 | (12,027,943) | 2,077,390 | 7,798,126 | 40,801,835 | 1,333,393 | 2,654,741 |
| Schwab International Core Equity Fund | 20,415,732 | 226,200 | (7,913,000) | 808,767 | 4,173,955 | 17,711,654 | 1,533,477 | 226,200 |
| 58,513,489 | ||||||||
| Real Estate 2.3% | ||||||||
| Global Real Estate 2.3% | ||||||||
| Schwab Global Real Estate Fund | 9,469,280 | 526,744 | (730,000) | (54,303) | 2,980,038 | 12,191,759 | 1,507,016 | 526,744 |
| Fixed Income 38.6% | ||||||||
| Inflation-Protected Bond 6.2% | ||||||||
| Schwab Treasury Inflation Protected Securities Index Fund | 30,768,451 | 2,969,051 | (2,063,330) | 4,432 | 1,111,388 | 32,789,992 | 2,604,447 | 1,049,050 |
| Intermediate-Term Bond 23.6% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 125,652,527 | 19,795,768 | (16,556,724) | (347,675) | (3,236,386) | 125,307,510 | 12,002,635 | 2,747,610 |
| Short-Term Bond 8.8% | ||||||||
| Schwab Short-Term Bond Index Fund | 47,708,605 | 3,062,107 | (3,250,000) | (25,117) | (761,571) | 46,734,024 | 4,586,263 | 570,180 |
| 204,831,526 | ||||||||
| Money Market Funds 3.0% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 14,748,426 | 1,204,771 | — | — | (1,594) | 15,951,603 | 15,946,819 | 4,772 |
| Total Affiliated Underlying Funds | $387,979,308 | $35,592,876 | ($78,256,957) | $14,588,218 | $35,064,962 | $394,968,407 | $10,316,420 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
62
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $394,968,407 | $— | $— | $394,968,407 |
| Unaffiliated Underlying Funds1 | 130,306,073 | — | — | 130,306,073 |
| Short-Term Investments1 | — | 3,762,370 | — | 3,762,370 |
| Total | $525,274,480 | $3,762,370 | $— | $529,036,850 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
63
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $287,535,320) | $394,968,407 | |
| Investments in securities, at value - unaffiliated (cost $116,431,739) | 134,068,443 | |
| Receivables: | ||
| Investments sold | 3,916,832 | |
| Fund shares sold | 409,064 | |
| Dividends | 309,969 | |
| Due from investment adviser | 7,265 | |
| Prepaid expenses | + | 16,699 |
| Total assets | 533,696,679 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 2,472,633 | |
| Fund shares redeemed | 159,385 | |
| Accrued expenses | + | 52,899 |
| Total liabilities | 2,684,917 | |
| Net assets | $531,011,762 | |
| Net Assets by Source | ||
| Capital received from investors | $377,208,242 | |
| Total distributable earnings | + | 153,803,520 |
| Net assets | $531,011,762 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $531,011,762 | 32,890,315 | $16.14 | ||
64
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2020 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $6,120,144 | |
| Dividends received from securities - unaffiliated | 1,779,354 | |
| Interest received from securities - unaffiliated | + | 310 |
| Total investment income | 7,899,808 | |
| Expenses | ||
| Registration fees | 33,175 | |
| Portfolio accounting fees | 25,678 | |
| Professional fees | 22,546 | |
| Shareholder reports | 9,741 | |
| Independent trustees’ fees | 8,757 | |
| Transfer agent fees | 4,521 | |
| Custodian fees | 10 | |
| Other expenses | + | 7,874 |
| Total expenses | 112,302 | |
| Expense reduction by investment adviser | – | 112,302 |
| Net expenses | – | — |
| Net investment income | 7,899,808 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 4,196,276 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 5,149,139 | |
| Net realized gains on sales of securities - affiliated | 14,588,218 | |
| Net realized gains on sales of securities - unaffiliated | + | 3,893,370 |
| Net realized gains | 27,827,003 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 35,064,962 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 5,815,992 |
| Net change in unrealized appreciation (depreciation) | + | 40,880,954 |
| Net realized and unrealized gains | 68,707,957 | |
| Increase in net assets resulting from operations | $76,607,765 | |
65
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $7,899,808 | $11,277,294 | |
| Net realized gains | 27,827,003 | 10,062,566 | |
| Net change in unrealized appreciation (depreciation) | + | 40,880,954 | 9,049,897 |
| Increase in net assets from operations | $76,607,765 | $30,389,757 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($20,699,693) | ($29,966,408) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,640,033 | $56,415,138 | 5,736,654 | $81,673,353 | |
| Shares reinvested | 1,291,646 | 19,426,353 | 1,985,761 | 27,880,086 | |
| Shares redeemed | + | (8,142,847) | (126,181,394) | (9,574,984) | (133,223,621) |
| Net transactions in fund shares | (3,211,168) | ($50,339,903) | (1,852,569) | ($23,670,182) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 36,101,483 | $525,443,593 | 37,954,052 | $548,690,426 | |
| Total increase (decrease) | + | (3,211,168) | 5,568,169 | (1,852,569) | (23,246,833) |
| End of period | 32,890,315 | $531,011,762 | 36,101,483 | $525,443,593 | |
66
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.81 | $14.74 | $14.10 | $14.71 | $13.45 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.22 | 0.31 | 0.30 | 0.28 | 0.22 | |
| Net realized and unrealized gains (losses) | 2.74 | 0.55 | 1.10 | (0.34) | 1.73 | |
| Total from investment operations | 2.96 | 0.86 | 1.40 | (0.06) | 1.95 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.28) | (0.35) | (0.34) | (0.34) | (0.23) | |
| Distributions from net realized gains | (0.19) | (0.44) | (0.42) | (0.21) | (0.46) | |
| Total distributions | (0.47) | (0.79) | (0.76) | (0.55) | (0.69) | |
| Net asset value at end of period | $17.30 | $14.81 | $14.74 | $14.10 | $14.71 | |
| Total return | 20.25% | 5.98% | 10.79% | (0.53%) | 15.17% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| Gross operating expenses2 | 0.02% | 0.02% | 0.03% | 0.02% | 0.03% | |
| Net investment income (loss) | 1.33% | 2.14% | 2.10% | 1.88% | 1.59% | |
| Portfolio turnover rate | 16% | 16% | 15% | 13% | 36% 3 | |
| Net assets, end of period (x 1,000,000) | $662 | $572 | $577 | $531 | $521 | |
| 1 | Calculated based on the average shares outstanding during the period. |
| 2 | Ratio excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
| 3 | The portfolio turnover rate increased due to the in-kind transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 26% without including these transactions. There were no transaction costs associated with these transactions. |
67
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2021
This section shows all the securities in the fund’s portfolio and their
values as of the report date.
The fund files its complete
schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at www.sec.gov. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the
end of the month on the fund’s website.
68
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
| ISSUER | FACE
AMOUNT ($) |
VALUE ($) |
| JPMorgan Chase Bank | ||
| 0.01%, 11/01/21 (b) | 1,399,224 | 1,399,224 |
| Total
Short-Term Investments (Cost $8,034,446) |
8,034,446 | |
| Total
Investments in Securities (Cost $504,903,546) |
661,376,956 | |
| * | Non-income producing security. |
| (a) | The rate shown is the 7-day yield. |
| (b) | The rate shown is the current daily overnight rate. |
69
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 72.3% OF NET ASSETS | ||||||||
| U.S. Stocks 26.0% | ||||||||
| Large-Cap 22.6% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $7,470,645 | $383,139 | ($3,920,000) | $1,974,880 | ($465,642) | $5,443,022 | 154,193 | $383,139 |
| Schwab Core Equity Fund | 46,480,332 | 2,304,654 | (28,877,649) | 5,710,875 | 5,192,685 | 30,810,897 | 1,054,445 | 2,304,654 |
| Schwab Dividend Equity Fund | 930,257 | — | (1,071,251) | 303,691 | (162,697) | — | — | 6,820 |
| Schwab Fundamental US Large Company Index Fund | — | 970,000 | — | — | 173,426 | 1,143,426 | 49,307 | — |
| Schwab S&P 500 Index Fund | 77,105,046 | 11,094,640 | (8,210,000) | 703,539 | 31,541,986 | 112,235,211 | 1,576,116 | 1,554,640 |
| 149,632,556 | ||||||||
| Mid-Cap 1.1% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 6,590,860 | 97,533 | (2,059,998) | 417,514 | 2,029,265 | 7,075,174 | 109,795 | 97,533 |
| Small-Cap 2.3% | ||||||||
| Schwab Small-Cap Equity Fund | 12,279,447 | 28,532 | (3,720,000) | 485,154 | 6,102,758 | 15,175,891 | 638,447 | 28,532 |
| 171,883,621 | ||||||||
| International Stocks 14.6% | ||||||||
| Developed Markets 14.6% | ||||||||
| Laudus International MarketMasters Fund | 57,737,488 | 6,947,890 | (13,416,000) | 1,471,251 | 12,957,963 | 65,698,592 | 2,147,013 | 3,897,890 |
| Schwab International Core Equity Fund | 32,272,214 | 1,623,533 | (10,804,000) | 511,299 | 7,337,454 | 30,940,500 | 2,678,831 | 363,532 |
| 96,639,092 | ||||||||
| Real Estate 2.9% | ||||||||
| Global Real Estate 2.9% | ||||||||
| Schwab Global Real Estate Fund | 14,248,053 | 1,897,884 | (1,170,000) | (89,234) | 4,453,975 | 19,340,678 | 2,390,689 | 797,886 |
| Fixed Income 26.9% | ||||||||
| Inflation-Protected Bond 2.9% | ||||||||
| Schwab Treasury Inflation Protected Securities Index Fund | 12,560,445 | 5,911,997 | — | — | 594,381 | 19,066,823 | 1,514,442 | 553,995 |
| Intermediate-Term Bond 17.6% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 93,421,065 | 31,090,903 | (4,900,000) | (140,943) | (2,951,857) | 116,519,168 | 11,160,840 | 2,356,430 |
| Short-Term Bond 6.4% | ||||||||
| Schwab Short-Term Bond Index Fund | 36,034,341 | 8,968,911 | (1,700,000) | (12,552) | (659,563) | 42,631,137 | 4,183,625 | 468,514 |
| 178,217,128 | ||||||||
| Money Market Funds 1.9% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 10,650,887 | 2,003,751 | — | — | (1,265) | 12,653,373 | 12,649,578 | 3,767 |
| Total Affiliated Underlying Funds | $407,781,080 | $73,323,367 | ($79,848,898) | $11,335,474 | $66,142,869 | $478,733,892 | $12,817,332 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
70
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $478,733,892 | $— | $— | $478,733,892 |
| Unaffiliated Underlying Funds1 | 174,608,618 | — | — | 174,608,618 |
| Short-Term Investments1 | — | 8,034,446 | — | 8,034,446 |
| Total | $653,342,510 | $8,034,446 | $— | $661,376,956 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
71
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $345,737,386) | $478,733,892 | |
| Investments in securities, at value - unaffiliated (cost $159,166,160) | 182,643,064 | |
| Receivables: | ||
| Investments sold | 3,621,913 | |
| Dividends | 316,796 | |
| Fund shares sold | 214,953 | |
| Due from investment adviser | 7,620 | |
| Prepaid expenses | + | 13,376 |
| Total assets | 665,551,614 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 2,981,935 | |
| Fund shares redeemed | 279,733 | |
| Accrued expenses | + | 54,170 |
| Total liabilities | 3,315,838 | |
| Net assets | $662,235,776 | |
| Net Assets by Source | ||
| Capital received from investors | $478,969,957 | |
| Total distributable earnings | + | 183,265,819 |
| Net assets | $662,235,776 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $662,235,776 | 38,289,713 | $17.30 | ||
72
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2025 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $6,119,535 | |
| Dividends received from securities - unaffiliated | 2,345,972 | |
| Interest received from securities - unaffiliated | + | 469 |
| Total investment income | 8,465,976 | |
| Expenses | ||
| Registration fees | 35,815 | |
| Portfolio accounting fees | 26,556 | |
| Professional fees | 22,987 | |
| Shareholder reports | 11,424 | |
| Independent trustees’ fees | 9,041 | |
| Transfer agent fees | 6,379 | |
| Other expenses | + | 8,507 |
| Total expenses | 120,709 | |
| Expense reduction by investment adviser | – | 120,709 |
| Net expenses | – | — |
| Net investment income | 8,465,976 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 6,697,797 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 6,003,462 | |
| Net realized gains on sales of securities - affiliated | 11,335,474 | |
| Net realized gains on sales of securities - unaffiliated | + | 3,651,132 |
| Net realized gains | 27,687,865 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 66,142,869 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 11,487,253 |
| Net change in unrealized appreciation (depreciation) | + | 77,630,122 |
| Net realized and unrealized gains | 105,317,987 | |
| Increase in net assets resulting from operations | $113,783,963 | |
73
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $8,465,976 | $12,235,811 | |
| Net realized gains | 27,687,865 | 6,167,034 | |
| Net change in unrealized appreciation (depreciation) | + | 77,630,122 | 11,665,987 |
| Increase in net assets from operations | $113,783,963 | $30,068,832 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($17,910,599) | ($31,204,773) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 6,926,067 | $114,143,701 | 6,665,930 | $96,099,310 | |
| Shares reinvested | 1,088,638 | 17,189,589 | 2,073,359 | 29,960,039 | |
| Shares redeemed | + | (8,322,542) | (136,708,712) | (9,291,366) | (130,280,378) |
| Net transactions in fund shares | (307,837) | ($5,375,422) | (552,077) | ($4,221,029) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 38,597,550 | $571,737,834 | 39,149,627 | $577,094,804 | |
| Total increase (decrease) | + | (307,837) | 90,497,942 | (552,077) | (5,356,970) |
| End of period | 38,289,713 | $662,235,776 | 38,597,550 | $571,737,834 | |
74
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.67 | $15.79 | $15.24 | $16.10 | $14.51 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.22 | 0.33 | 0.30 | 0.29 | 0.23 | |
| Net realized and unrealized gains (losses) | 3.54 | 0.57 | 1.21 | (0.38) | 2.18 | |
| Total from investment operations | 3.76 | 0.90 | 1.51 | (0.09) | 2.41 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.27) | (0.37) | (0.37) | (0.39) | (0.24) | |
| Distributions from net realized gains | (0.28) | (0.65) | (0.59) | (0.38) | (0.58) | |
| Total distributions | (0.55) | (1.02) | (0.96) | (0.77) | (0.82) | |
| Net asset value at end of period | $18.88 | $15.67 | $15.79 | $15.24 | $16.10 | |
| Total return | 24.38% | 5.81% | 10.94% | (0.75%) | 17.47% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| Gross operating expenses2 | 0.01% | 0.02% | 0.02% | 0.02% | 0.02% | |
| Net investment income (loss) | 1.21% | 2.15% | 2.00% | 1.79% | 1.53% | |
| Portfolio turnover rate | 14% | 13% | 17% | 14% | 30% | |
| Net assets, end of period (x 1,000,000) | $1,166 | $965 | $999 | $958 | $966 | |
| 1 | Calculated based on the average shares outstanding during the period. |
| 2 | Ratio excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds. |
75
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2021
This section shows all the securities in the fund’s portfolio and their
values as of the report date.
The fund files its complete
schedule of portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at www.sec.gov. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the
end of the month on the fund’s website.
76
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
| ISSUER | FACE
AMOUNT ($) |
VALUE ($) |
| Citibank NA | ||
| 0.01%, 11/01/21 (b) | 1,815,176 | 1,815,176 |
| Total
Short-Term Investments (Cost $13,502,893) |
13,502,893 | |
| Total
Investments in Securities (Cost $819,093,538) |
1,164,901,679 | |
| * | Non-income producing security. |
| (a) | The rate shown is the 7-day yield. |
| (b) | The rate shown is the current daily overnight rate. |
77
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 71.5% OF NET ASSETS | ||||||||
| U.S. Stocks 31.7% | ||||||||
| Large-Cap 27.3% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $23,072,141 | $1,298,085 | ($6,600,000) | $3,712,958 | $2,100,738 | $23,583,922 | 668,100 | $1,298,085 |
| Schwab Core Equity Fund | 92,635,966 | 4,671,441 | (48,880,431) | 11,824,336 | 10,658,837 | 70,910,149 | 2,426,768 | 4,671,441 |
| Schwab Dividend Equity Fund | 7,754,406 | — | (8,910,071) | 1,860,615 | (704,950) | — | — | 52,968 |
| Schwab Fundamental US Large Company Index Fund | — | 4,770,000 | — | — | 1,123,250 | 5,893,250 | 254,129 | — |
| Schwab S&P 500 Index Fund | 142,592,653 | 26,363,956 | (12,980,000) | 1,398,787 | 60,313,486 | 217,688,882 | 3,056,999 | 2,843,956 |
| 318,076,203 | ||||||||
| Mid-Cap 1.3% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 11,503,681 | 196,417 | (1,490,000) | 332,885 | 4,451,954 | 14,994,937 | 232,696 | 196,417 |
| Small-Cap 3.1% | ||||||||
| Schwab Small-Cap Equity Fund | 28,900,959 | 65,408 | (7,921,601) | 1,255,243 | 13,986,117 | 36,286,126 | 1,526,551 | 65,408 |
| 369,357,266 | ||||||||
| International Stocks 17.6% | ||||||||
| Developed Markets 17.6% | ||||||||
| Laudus International MarketMasters Fund | 112,996,078 | 7,775,592 | (16,124,000) | 1,632,463 | 26,904,497 | 133,184,630 | 4,352,439 | 7,775,592 |
| Schwab International Core Equity Fund | 66,512,210 | 741,111 | (11,581,000) | 88,930 | 16,624,386 | 72,385,637 | 6,267,155 | 741,111 |
| 205,570,267 | ||||||||
| Real Estate 3.3% | ||||||||
| Global Real Estate 3.3% | ||||||||
| Schwab Global Real Estate Fund | 28,896,417 | 1,649,288 | (920,000) | (85,831) | 9,206,120 | 38,745,994 | 4,789,369 | 1,649,288 |
| Fixed Income 17.7% | ||||||||
| Inflation-Protected Bond 0.8% | ||||||||
| Schwab Treasury Inflation Protected Securities Index Fund | 4,607,974 | 4,786,411 | (702,353) | (10,965) | 281,963 | 8,963,030 | 711,917 | 246,411 |
| Intermediate-Term Bond 12.4% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 112,389,577 | 41,152,410 | (4,771,835) | (120,895) | (3,637,212) | 145,012,045 | 13,890,043 | 2,910,330 |
| Short-Term Bond 4.5% | ||||||||
| Schwab Short-Term Bond Index Fund | 43,172,563 | 9,799,457 | — | — | (822,306) | 52,149,714 | 5,117,734 | 569,554 |
| 206,124,789 | ||||||||
| Money Market Funds 1.2% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 12,656,711 | 2,004,354 | — | — | (1,465) | 14,659,600 | 14,655,204 | 4,370 |
| Total Affiliated Underlying Funds | $687,691,336 | $105,273,930 | ($120,881,291) | $21,888,526 | $140,485,415 | $834,457,916 | $23,024,931 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
78
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $834,457,916 | $— | $— | $834,457,916 |
| Unaffiliated Underlying Funds1 | 316,940,870 | — | — | 316,940,870 |
| Short-Term Investments1 | — | 13,502,893 | — | 13,502,893 |
| Total | $1,151,398,786 | $13,502,893 | $— | $1,164,901,679 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
79
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $535,539,611) | $834,457,916 | |
| Investments in securities, at value - unaffiliated (cost $283,553,927) | 330,443,763 | |
| Receivables: | ||
| Investments sold | 5,480,221 | |
| Fund shares sold | 486,399 | |
| Dividends | 429,027 | |
| Due from investment adviser | 8,369 | |
| Prepaid expenses | + | 23,103 |
| Total assets | 1,171,328,798 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 4,438,954 | |
| Fund shares redeemed | 431,050 | |
| Accrued expenses | + | 69,114 |
| Total liabilities | 4,939,118 | |
| Net assets | $1,166,389,680 | |
| Net Assets by Source | ||
| Capital received from investors | $771,966,272 | |
| Total distributable earnings | + | 394,423,408 |
| Net assets | $1,166,389,680 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,166,389,680 | 61,773,307 | $18.88 | ||
80
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2030 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $9,243,084 | |
| Dividends received from securities - unaffiliated | 4,128,288 | |
| Interest received from securities - unaffiliated | + | 754 |
| Total investment income | 13,372,126 | |
| Expenses | ||
| Registration fees | 37,448 | |
| Portfolio accounting fees | 31,313 | |
| Professional fees | 23,816 | |
| Shareholder reports | 20,100 | |
| Independent trustees’ fees | 10,538 | |
| Transfer agent fees | 6,870 | |
| Other expenses | + | 12,395 |
| Total expenses | 142,480 | |
| Expense reduction by investment adviser | – | 142,480 |
| Net expenses | – | — |
| Net investment income | 13,372,126 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 13,781,847 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 10,186,371 | |
| Net realized gains on sales of securities - affiliated | 21,888,526 | |
| Net realized gains on sales of securities - unaffiliated | + | 5,545,910 |
| Net realized gains | 51,402,654 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 140,485,415 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 27,833,660 |
| Net change in unrealized appreciation (depreciation) | + | 168,319,075 |
| Net realized and unrealized gains | 219,721,729 | |
| Increase in net assets resulting from operations | $233,093,855 | |
81
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $13,372,126 | $20,928,995 | |
| Net realized gains | 51,402,654 | 16,570,661 | |
| Net change in unrealized appreciation (depreciation) | + | 168,319,075 | 11,397,857 |
| Increase in net assets from operations | $233,093,855 | $48,897,513 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($33,685,506) | ($64,665,015) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 8,679,574 | $154,456,722 | 8,331,450 | $126,649,806 | |
| Shares reinvested | 1,918,145 | 32,455,024 | 4,044,928 | 62,251,430 | |
| Shares redeemed | + | (10,436,498) | (185,218,592) | (14,016,675) | (206,526,474) |
| Net transactions in fund shares | 161,221 | $1,693,154 | (1,640,297) | ($17,625,238) | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 61,612,086 | $965,288,177 | 63,252,383 | $998,680,917 | |
| Total increase (decrease) | + | 161,221 | 201,101,503 | (1,640,297) | (33,392,740) |
| End of period | 61,773,307 | $1,166,389,680 | 61,612,086 | $965,288,177 | |
82
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $15.34 | $15.46 | $14.94 | $15.58 | $13.82 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.20 | 0.31 | 0.28 | 0.27 | 0.21 | |
| Net realized and unrealized gains (losses) | 3.99 | 0.53 | 1.19 | (0.38) | 2.32 | |
| Total from investment operations | 4.19 | 0.84 | 1.47 | (0.11) | 2.53 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.24) | (0.34) | (0.36) | (0.39) | (0.22) | |
| Distributions from net realized gains | (0.24) | (0.62) | (0.59) | (0.14) | (0.55) | |
| Total distributions | (0.48) | (0.96) | (0.95) | (0.53) | (0.77) | |
| Net asset value at end of period | $19.05 | $15.34 | $15.46 | $14.94 | $15.58 | |
| Total return | 27.76% | 5.51% | 10.90% | (0.88%) | 19.19% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.02% | 0.03% | 0.03% | 0.03% | 0.04% | |
| Net investment income (loss) | 1.11% | 2.06% | 1.87% | 1.70% | 1.48% | |
| Portfolio turnover rate | 14% | 12% | 15% | 14% | 24% | |
| Net assets, end of period (x 1,000,000) | $612 | $477 | $483 | $447 | $440 | |
| 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. |
83
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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.
84
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 72.7% OF NET ASSETS | ||||||||
| U.S. Stocks 35.9% | ||||||||
| Large-Cap 30.7% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $16,683,899 | $938,670 | ($2,230,001) | $763,290 | $4,110,910 | $20,266,768 | 574,129 | $938,670 |
| Schwab Core Equity Fund | 51,276,494 | 3,259,778 | (25,310,000) | 3,443,927 | 9,224,225 | 41,894,424 | 1,433,759 | 2,582,087 |
| Schwab Dividend Equity Fund | 7,043,705 | — | (8,111,279) | 738,519 | 329,055 | — | — | 51,638 |
| Schwab Fundamental US Large Company Index Fund | — | 5,840,000 | — | — | 1,375,216 | 7,215,216 | 311,135 | — |
| Schwab S&P 500 Index Fund | 71,231,322 | 18,935,736 | (4,210,001) | 235,257 | 32,504,627 | 118,696,941 | 1,666,858 | 1,460,277 |
| 188,073,349 | ||||||||
| Mid-Cap 1.5% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 7,118,767 | 121,549 | (1,060,001) | 180,921 | 2,689,698 | 9,050,934 | 140,455 | 121,549 |
| Small-Cap 3.7% | ||||||||
| Schwab Small-Cap Equity Fund | 17,736,031 | 449,881 | (4,930,000) | (242,007) | 9,637,486 | 22,651,391 | 952,940 | 39,882 |
| 219,775,674 | ||||||||
| International Stocks 19.9% | ||||||||
| Developed Markets 19.9% | ||||||||
| Laudus International MarketMasters Fund | 63,600,010 | 8,630,508 | (8,580,000) | 586,171 | 15,934,558 | 80,171,247 | 2,619,975 | 4,321,507 |
| Schwab International Core Equity Fund | 36,326,402 | 3,507,886 | (7,820,001) | 133,247 | 9,362,010 | 41,509,544 | 3,593,900 | 427,886 |
| 121,680,791 | ||||||||
| Real Estate 3.8% | ||||||||
| Global Real Estate 3.8% | ||||||||
| Schwab Global Real Estate Fund | 16,026,608 | 1,898,373 | — | — | 5,278,428 | 23,203,409 | 2,868,159 | 968,372 |
| Fixed Income 12.1% | ||||||||
| Intermediate-Term Bond 9.0% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 40,060,770 | 18,318,702 | (1,800,000) | (40,602) | (1,350,271) | 55,188,599 | 5,286,264 | 1,089,938 |
| Short-Term Bond 3.1% | ||||||||
| Schwab Short-Term Bond Index Fund | 15,108,866 | 4,205,074 | — | — | (298,443) | 19,015,497 | 1,866,094 | 205,111 |
| 74,204,096 | ||||||||
| Money Market Funds 1.0% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 4,015,524 | 2,001,583 | — | — | (601) | 6,016,506 | 6,014,702 | 1,607 |
| Total Affiliated Underlying Funds | $346,228,398 | $68,107,740 | ($64,051,283) | $5,798,723 | $88,796,898 | $444,880,476 | $12,208,524 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
85
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $444,880,476 | $— | $— | $444,880,476 |
| Unaffiliated Underlying Funds1 | 161,120,126 | — | — | 161,120,126 |
| Short-Term Investments1 | — | 5,759,593 | — | 5,759,593 |
| Total | $606,000,602 | $5,759,593 | $— | $611,760,195 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
86
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $295,029,890) | $444,880,476 | |
| Investments in securities, at value - unaffiliated (cost $140,851,229) | 166,879,719 | |
| Receivables: | ||
| Fund shares sold | 1,430,004 | |
| Investments sold | 1,175,429 | |
| Dividends | 170,214 | |
| Due from investment adviser | 6,625 | |
| Prepaid expenses | + | 9,379 |
| Total assets | 614,551,846 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 2,284,861 | |
| Fund shares redeemed | 18,010 | |
| Accrued expenses | + | 54,465 |
| Total liabilities | 2,357,336 | |
| Net assets | $612,194,510 | |
| Net Assets by Source | ||
| Capital received from investors | $416,933,766 | |
| Total distributable earnings | + | 195,260,744 |
| Net assets | $612,194,510 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $612,194,510 | 32,129,899 | $19.05 | ||
87
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2035 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $4,385,996 | |
| Dividends received from securities - unaffiliated | 1,979,068 | |
| Interest received from securities - unaffiliated | + | 362 |
| Total investment income | 6,365,426 | |
| Expenses | ||
| Registration fees | 30,467 | |
| Portfolio accounting fees | 25,781 | |
| Professional fees | 22,869 | |
| Shareholder reports | 12,067 | |
| Independent trustees’ fees | 8,836 | |
| Transfer agent fees | 5,323 | |
| Other expenses | + | 7,598 |
| Total expenses | 112,941 | |
| Expense reduction by investment adviser | – | 112,941 |
| Net expenses | – | — |
| Net investment income | 6,365,426 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 7,822,528 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 4,907,393 | |
| Net realized gains on sales of securities - affiliated | 5,798,723 | |
| Net realized gains on sales of securities - unaffiliated | + | 1,795,719 |
| Net realized gains | 20,324,363 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 88,796,898 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 17,594,264 |
| Net change in unrealized appreciation (depreciation) | + | 106,391,162 |
| Net realized and unrealized gains | 126,715,525 | |
| Increase in net assets resulting from operations | $133,080,951 | |
88
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $6,365,426 | $9,814,349 | |
| Net realized gains | 20,324,363 | 7,393,258 | |
| Net change in unrealized appreciation (depreciation) | + | 106,391,162 | 5,898,345 |
| Increase in net assets from operations | $133,080,951 | $23,105,952 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($15,121,800) | ($30,104,205) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 5,580,980 | $98,912,959 | 4,950,446 | $73,475,207 | |
| Shares reinvested | 875,675 | 14,737,609 | 1,911,963 | 29,023,597 | |
| Shares redeemed | + | (5,406,863) | (96,325,760) | (7,041,886) | (101,780,856) |
| Net transactions in fund shares | 1,049,792 | $17,324,808 | (179,477) | $717,948 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 31,080,107 | $476,910,551 | 31,259,584 | $483,190,856 | |
| Total increase (decrease) | + | 1,049,792 | 135,283,959 | (179,477) | (6,280,305) |
| End of period | 32,129,899 | $612,194,510 | 31,080,107 | $476,910,551 | |
89
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $16.24 | $16.61 | $16.27 | $17.14 | $15.12 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.20 | 0.32 | 0.28 | 0.28 | 0.23 | |
| Net realized and unrealized gains (losses) | 4.68 | 0.56 | 1.28 | (0.45) | 2.78 | |
| Total from investment operations | 4.88 | 0.88 | 1.56 | (0.17) | 3.01 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.24) | (0.35) | (0.39) | (0.44) | (0.24) | |
| Distributions from net realized gains | (0.36) | (0.90) | (0.83) | (0.26) | (0.75) | |
| Total distributions | (0.60) | (1.25) | (1.22) | (0.70) | (0.99) | |
| Net asset value at end of period | $20.52 | $16.24 | $16.61 | $16.27 | $17.14 | |
| Total return | 30.57% | 5.31% | 10.90% | (1.17%) | 21.02% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.01% | 0.02% | 0.02% | 0.02% | 0.02% | |
| Net investment income (loss) | 1.05% | 2.01% | 1.78% | 1.65% | 1.44% | |
| Portfolio turnover rate | 14% | 10% | 15% | 17% | 21% | |
| Net assets, end of period (x 1,000,000) | $1,236 | $985 | $1,012 | $962 | $998 | |
| 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. |
90
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
91
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 74.4% OF NET ASSETS | ||||||||
| U.S. Stocks 39.7% | ||||||||
| Large-Cap 33.8% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $45,866,279 | $3,737,247 | ($4,690,001) | $646,097 | $13,201,974 | $58,761,596 | 1,664,634 | $2,637,247 |
| Schwab Core Equity Fund | 114,355,888 | 5,759,619 | (56,925,455) | 11,792,894 | 16,278,619 | 91,261,565 | 3,123,257 | 5,759,619 |
| Schwab Dividend Equity Fund | 19,513,656 | — | (22,554,863) | 2,216,161 | 825,046 | — | — | 143,057 |
| Schwab Fundamental US Large Company Index Fund | — | 18,520,000 | (910,000) | 37,200 | 4,155,600 | 21,802,800 | 940,181 | — |
| Schwab S&P 500 Index Fund | 148,784,034 | 38,660,146 | (9,525,000) | 721,875 | 67,541,774 | 246,182,829 | 3,457,138 | 3,050,146 |
| 418,008,790 | ||||||||
| Mid-Cap 1.5% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 15,436,223 | 263,561 | (2,890,000) | 556,563 | 5,598,830 | 18,965,177 | 294,308 | 263,561 |
| Small-Cap 4.4% | ||||||||
| Schwab Small-Cap Equity Fund | 42,629,978 | 94,900 | (11,260,000) | 1,178,477 | 21,302,425 | 53,945,780 | 2,269,490 | 94,900 |
| 490,919,747 | ||||||||
| International Stocks 21.8% | ||||||||
| Developed Markets 21.8% | ||||||||
| Laudus International MarketMasters Fund | 139,977,655 | 15,921,427 | (18,210,000) | 1,755,658 | 34,630,464 | 174,075,204 | 5,688,732 | 9,721,427 |
| Schwab International Core Equity Fund | 83,622,077 | 969,793 | (11,100,001) | (390,864) | 21,930,433 | 95,031,438 | 8,227,830 | 969,793 |
| 269,106,642 | ||||||||
| Real Estate 4.2% | ||||||||
| Global Real Estate 4.2% | ||||||||
| Schwab Global Real Estate Fund | 36,808,630 | 2,914,080 | — | — | 11,958,739 | 51,681,449 | 6,388,313 | 2,164,081 |
| Fixed Income 8.3% | ||||||||
| Intermediate-Term Bond 6.1% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 58,368,806 | 22,601,587 | (3,300,000) | (123,181) | (1,849,455) | 75,697,757 | 7,250,743 | 1,538,435 |
| Short-Term Bond 2.2% | ||||||||
| Schwab Short-Term Bond Index Fund | 21,554,981 | 5,379,345 | — | — | (405,324) | 26,529,002 | 2,603,435 | 285,214 |
| 102,226,759 | ||||||||
| Money Market Funds 0.4% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 4,877,113 | 1,472 | — | — | (488) | 4,878,097 | 4,876,634 | 1,466 |
| Total Affiliated Underlying Funds | $731,795,320 | $114,823,177 | ($141,365,320) | $18,390,880 | $195,168,637 | $918,812,694 | $26,628,946 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
92
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $918,812,694 | $— | $— | $918,812,694 |
| Unaffiliated Underlying Funds1 | 302,680,097 | — | — | 302,680,097 |
| Short-Term Investments1 | — | 12,412,892 | — | 12,412,892 |
| Total | $1,221,492,791 | $12,412,892 | $— | $1,233,905,683 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
93
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $547,860,278) | $918,812,694 | |
| Investments in securities, at value - unaffiliated (cost $260,721,882) | 315,092,989 | |
| Receivables: | ||
| Investments sold | 5,793,044 | |
| Fund shares sold | 161,063 | |
| Interest | 146,240 | |
| Dividends | 98,918 | |
| Due from investment adviser | 7,532 | |
| Prepaid expenses | + | 19,691 |
| Total assets | 1,240,132,171 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 4,132,632 | |
| Fund shares redeemed | 382,259 | |
| Accrued expenses | + | 79,088 |
| Total liabilities | 4,593,979 | |
| Net assets | $1,235,538,192 | |
| Net Assets by Source | ||
| Capital received from investors | $764,420,825 | |
| Total distributable earnings | + | 471,117,367 |
| Net assets | $1,235,538,192 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $1,235,538,192 | 60,221,295 | $20.52 | ||
94
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2040 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $8,630,781 | |
| Dividends received from securities - unaffiliated | 3,652,849 | |
| Interest received from securities - unaffiliated | + | 712 |
| Total investment income | 12,284,342 | |
| Expenses | ||
| Registration fees | 35,720 | |
| Portfolio accounting fees | 31,947 | |
| Shareholder reports | 28,005 | |
| Professional fees | 23,994 | |
| Independent trustees’ fees | 10,711 | |
| Transfer agent fees | 8,372 | |
| Other expenses | + | 12,713 |
| Total expenses | 151,462 | |
| Expense reduction by investment adviser | – | 151,462 |
| Net expenses | – | — |
| Net investment income | 12,284,342 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 17,998,165 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 9,789,923 | |
| Net realized gains on sales of securities - affiliated | 18,390,880 | |
| Net realized gains on sales of securities - unaffiliated | + | 5,218,021 |
| Net realized gains | 51,396,989 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 195,168,637 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 38,889,787 |
| Net change in unrealized appreciation (depreciation) | + | 234,058,424 |
| Net realized and unrealized gains | 285,455,413 | |
| Increase in net assets resulting from operations | $297,739,755 | |
95
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $12,284,342 | $19,809,310 | |
| Net realized gains | 51,396,989 | 20,142,431 | |
| Net change in unrealized appreciation (depreciation) | + | 234,058,424 | 7,925,275 |
| Increase in net assets from operations | $297,739,755 | $47,877,016 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($36,450,563) | ($75,661,959) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 7,151,395 | $135,282,209 | 7,287,918 | $111,975,602 | |
| Shares reinvested | 1,997,627 | 35,757,521 | 4,584,013 | 74,123,497 | |
| Shares redeemed | + | (9,615,839) | (182,116,086) | (12,097,184) | (184,546,752) |
| Net transactions in fund shares | (466,817) | ($11,076,356) | (225,253) | $1,552,347 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 60,688,112 | $985,325,356 | 60,913,365 | $1,011,557,952 | |
| Total increase (decrease) | + | (466,817) | 250,212,836 | (225,253) | (26,232,596) |
| End of period | 60,221,295 | $1,235,538,192 | 60,688,112 | $985,325,356 | |
96
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $13.83 | $13.88 | $13.35 | $13.92 | $12.00 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.16 | 0.25 | 0.22 | 0.21 | 0.17 | |
| Net realized and unrealized gains (losses) | 4.36 | 0.46 | 1.09 | (0.39) | 2.37 | |
| Total from investment operations | 4.52 | 0.71 | 1.31 | (0.18) | 2.54 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.18) | (0.28) | (0.31) | (0.36) | (0.18) | |
| Distributions from net realized gains | (0.20) | (0.48) | (0.47) | (0.03) | (0.44) | |
| Total distributions | (0.38) | (0.76) | (0.78) | (0.39) | (0.62) | |
| Net asset value at end of period | $17.97 | $13.83 | $13.88 | $13.35 | $13.92 | |
| Total return | 33.13% | 5.10% | 10.91% | (1.43%) | 22.11% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.04% | 0.05% | 0.08% | 0.06% | 0.10% | |
| Net investment income (loss) | 0.96% | 1.87% | 1.65% | 1.52% | 1.31% | |
| Portfolio turnover rate | 12% | 6% | 8% | 12% | 11% | |
| Net assets, end of period (x 1,000,000) | $252 | $178 | $162 | $139 | $121 | |
| 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. |
97
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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
See financial notes
Schwab Target 2045 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 76.6% OF NET ASSETS | ||||||||
| U.S. Stocks 43.0% | ||||||||
| Large-Cap 36.5% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $10,802,694 | $1,755,333 | ($1,000,000) | $28,679 | $3,442,580 | $15,029,286 | 425,759 | $609,923 |
| Schwab Core Equity Fund | 22,076,096 | 1,503,552 | (9,294,682) | 638,881 | 4,990,579 | 19,914,426 | 681,534 | 1,120,680 |
| Schwab Dividend Equity Fund | 3,996,168 | — | (4,601,847) | (391,953) | 997,632 | — | — | 29,295 |
| Schwab Fundamental US Large Company Index Fund | — | 5,540,000 | — | — | 1,151,733 | 6,691,733 | 288,561 | — |
| Schwab S&P 500 Index Fund | 27,015,854 | 11,929,027 | (1,510,000) | 59,074 | 13,076,548 | 50,570,503 | 710,160 | 577,624 |
| 92,205,948 | ||||||||
| Mid-Cap 1.7% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 2,782,886 | 447,515 | (239,999) | 45,373 | 1,155,250 | 4,191,025 | 65,038 | 47,516 |
| Small-Cap 4.8% | ||||||||
| Schwab Small-Cap Equity Fund | 8,281,447 | 458,836 | (1,249,999) | (141,252) | 4,733,098 | 12,082,130 | 508,293 | 18,836 |
| 108,479,103 | ||||||||
| International Stocks 23.8% | ||||||||
| Developed Markets 23.8% | ||||||||
| Laudus International MarketMasters Fund | 27,175,788 | 4,941,715 | (1,979,998) | 114,568 | 7,149,282 | 37,401,355 | 1,222,267 | 1,909,428 |
| Schwab International Core Equity Fund | 16,458,791 | 4,715,552 | (2,880,000) | (65,730) | 4,476,865 | 22,705,478 | 1,965,842 | 191,831 |
| 60,106,833 | ||||||||
| Real Estate 4.5% | ||||||||
| Global Real Estate 4.5% | ||||||||
| Schwab Global Real Estate Fund | 7,063,252 | 1,925,452 | — | — | 2,389,738 | 11,378,442 | 1,406,482 | 446,000 |
| Fixed Income 5.1% | ||||||||
| Intermediate-Term Bond 3.8% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 6,574,580 | 3,410,100 | (200,000) | (4,292) | (232,205) | 9,548,183 | 914,577 | 178,619 |
| Short-Term Bond 1.3% | ||||||||
| Schwab Short-Term Bond Index Fund | 2,462,881 | 833,846 | — | — | (47,988) | 3,248,739 | 318,816 | 32,585 |
| 12,796,922 | ||||||||
| Money Market Funds 0.2% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 425,331 | 129 | — | — | (43) | 425,417 | 425,289 | 129 |
| Total Affiliated Underlying Funds | $135,115,768 | $37,461,057 | ($22,956,525) | $283,348 | $43,283,069 | $193,186,717 | $5,162,466 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
99
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $193,186,717 | $— | $— | $193,186,717 |
| Unaffiliated Underlying Funds1 | 56,546,722 | — | — | 56,546,722 |
| Short-Term Investments1 | — | 2,666,593 | — | 2,666,593 |
| Total | $249,733,439 | $2,666,593 | $— | $252,400,032 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
100
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $137,556,799) | $193,186,717 | |
| Investments in securities, at value - unaffiliated (cost $48,455,707) | 59,213,315 | |
| Receivables: | ||
| Investments sold | 514,682 | |
| Fund shares sold | 268,879 | |
| Dividends | 31,622 | |
| Due from investment adviser | 9,615 | |
| Prepaid expenses | + | 6,715 |
| Total assets | 253,231,545 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 721,118 | |
| Fund shares redeemed | 169,609 | |
| Accrued expenses | + | 46,878 |
| Total liabilities | 937,605 | |
| Net assets | $252,293,940 | |
| Net Assets by Source | ||
| Capital received from investors | $179,922,192 | |
| Total distributable earnings | + | 72,371,748 |
| Net assets | $252,293,940 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $252,293,940 | 14,038,771 | $17.97 | ||
101
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2045 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $1,553,626 | |
| Dividends received from securities - unaffiliated | 610,545 | |
| Interest received from securities - unaffiliated | + | 121 |
| Total investment income | 2,164,292 | |
| Expenses | ||
| Registration fees | 24,865 | |
| Professional fees | 22,203 | |
| Portfolio accounting fees | 21,632 | |
| Shareholder reports | 8,127 | |
| Independent trustees’ fees | 7,732 | |
| Transfer agent fees | 2,655 | |
| Other expenses | + | 4,964 |
| Total expenses | 92,178 | |
| Expense reduction by investment adviser | – | 92,178 |
| Net expenses | – | — |
| Net investment income | 2,164,292 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 3,608,840 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 1,655,948 | |
| Net realized gains on sales of securities - affiliated | 283,348 | |
| Net realized gains on sales of securities - unaffiliated | + | 429,784 |
| Net realized gains | 5,977,920 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 43,283,069 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 8,646,037 |
| Net change in unrealized appreciation (depreciation) | + | 51,929,106 |
| Net realized and unrealized gains | 57,907,026 | |
| Increase in net assets resulting from operations | $60,071,318 | |
102
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $2,164,292 | $3,165,797 | |
| Net realized gains | 5,977,920 | 2,612,624 | |
| Net change in unrealized appreciation (depreciation) | + | 51,929,106 | 2,859,982 |
| Increase in net assets from operations | $60,071,318 | $8,638,403 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($4,963,016) | ($8,999,527) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,403,163 | $56,732,083 | 2,950,192 | $38,924,237 | |
| Shares reinvested | 312,568 | 4,851,051 | 634,950 | 8,781,363 | |
| Shares redeemed | + | (2,547,667) | (42,389,208) | (2,390,959) | (31,369,522) |
| Net transactions in fund shares | 1,168,064 | $19,193,926 | 1,194,183 | $16,336,078 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 12,870,707 | $177,991,712 | 11,676,524 | $162,016,758 | |
| Total increase | + | 1,168,064 | 74,302,228 | 1,194,183 | 15,974,954 |
| End of period | 14,038,771 | $252,293,940 | 12,870,707 | $177,991,712 | |
103
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.03 | $14.03 | $13.49 | $14.07 | $12.08 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.16 | 0.25 | 0.21 | 0.21 | 0.16 | |
| Net realized and unrealized gains (losses) | 4.66 | 0.45 | 1.11 | (0.41) | 2.47 | |
| Total from investment operations | 4.82 | 0.70 | 1.32 | (0.20) | 2.63 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.17) | (0.27) | (0.31) | (0.36) | (0.18) | |
| Distributions from net realized gains | (0.20) | (0.43) | (0.47) | (0.02) | (0.46) | |
| Total distributions | (0.37) | (0.70) | (0.78) | (0.38) | (0.64) | |
| Net asset value at end of period | $18.48 | $14.03 | $14.03 | $13.49 | $14.07 | |
| Total return | 34.83% | 4.96% | 10.87% | (1.50%) | 22.68% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.04% | 0.06% | 0.08% | 0.07% | 0.11% | |
| Net investment income (loss) | 0.93% | 1.83% | 1.54% | 1.45% | 1.27% | |
| Portfolio turnover rate | 19% | 5% | 7% | 10% | 10% | |
| Net assets, end of period (x 1,000,000) | $245 | $181 | $161 | $122 | $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. |
104
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
105
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 78.2% OF NET ASSETS | ||||||||
| U.S. Stocks 45.5% | ||||||||
| Large-Cap 38.6% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $12,216,880 | $3,159,689 | ($2,400,000) | $272,646 | $3,612,890 | $16,862,105 | 477,680 | $724,098 |
| Schwab Core Equity Fund | 23,187,335 | 1,177,090 | (9,449,998) | 581,786 | 5,217,897 | 20,714,110 | 708,902 | 1,177,090 |
| Schwab Dividend Equity Fund | 4,987,939 | — | (5,743,936) | (316,062) | 1,072,059 | — | — | 36,567 |
| Schwab Fundamental US Large Company Index Fund | — | 6,140,000 | — | — | 1,361,204 | 7,501,204 | 323,467 | — |
| Schwab S&P 500 Index Fund | 27,248,154 | 13,533,636 | (4,165,002) | 229,497 | 12,739,730 | 49,586,015 | 696,335 | 573,635 |
| 94,663,434 | ||||||||
| Mid-Cap 1.6% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 3,036,218 | 51,841 | (399,999) | 86,118 | 1,187,943 | 3,962,121 | 61,485 | 51,841 |
| Small-Cap 5.3% | ||||||||
| Schwab Small-Cap Equity Fund | 9,203,031 | 471,385 | (1,950,000) | (132,490) | 5,232,467 | 12,824,393 | 539,520 | 21,384 |
| 111,449,948 | ||||||||
| International Stocks 24.8% | ||||||||
| Developed Markets 24.8% | ||||||||
| Laudus International MarketMasters Fund | 29,200,634 | 6,267,718 | (5,200,000) | 567,773 | 7,256,593 | 38,092,718 | 1,244,860 | 2,060,939 |
| Schwab International Core Equity Fund | 17,195,358 | 4,115,467 | (3,310,000) | (56,166) | 4,652,679 | 22,597,338 | 1,956,479 | 205,552 |
| 60,690,056 | ||||||||
| Real Estate 4.7% | ||||||||
| Global Real Estate 4.7% | ||||||||
| Schwab Global Real Estate Fund | 7,584,737 | 2,243,739 | (740,000) | (89,243) | 2,580,504 | 11,579,737 | 1,431,364 | 453,739 |
| Fixed Income 3.2% | ||||||||
| Intermediate-Term Bond 2.4% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 4,740,365 | 1,414,178 | — | — | (136,394) | 6,018,149 | 576,451 | 114,220 |
| Short-Term Bond 0.8% | ||||||||
| Schwab Short-Term Bond Index Fund | 1,709,365 | 241,069 | — | — | (30,066) | 1,920,368 | 188,456 | 21,072 |
| 7,938,517 | ||||||||
| Money Market Funds 0.0% | ||||||||
| Schwab Variable Share Price Money Fund, Ultra Shares | 28,050 | 8 | — | — | (3) | 28,055 | 28,047 | 6 |
| Total Affiliated Underlying Funds | $140,338,066 | $38,815,820 | ($33,358,935) | $1,143,859 | $44,747,503 | $191,686,313 | $5,440,143 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
106
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $191,686,313 | $— | $— | $191,686,313 |
| Unaffiliated Underlying Funds1 | 51,354,033 | — | — | 51,354,033 |
| Short-Term Investments1 | — | 1,980,121 | — | 1,980,121 |
| Total | $243,040,346 | $1,980,121 | $— | $245,020,467 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
107
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $135,595,667) | $191,686,313 | |
| Investments in securities, at value - unaffiliated (cost $42,777,090) | 53,334,154 | |
| Receivables: | ||
| Fund shares sold | 173,188 | |
| Dividends | 20,569 | |
| Due from investment adviser | 9,175 | |
| Prepaid expenses | + | 7,719 |
| Total assets | 245,231,118 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 108,975 | |
| Investments bought | 15,162 | |
| Accrued expenses | + | 48,244 |
| Total liabilities | 172,381 | |
| Net assets | $245,058,737 | |
| Net Assets by Source | ||
| Capital received from investors | $171,259,323 | |
| Total distributable earnings | + | 73,799,414 |
| Net assets | $245,058,737 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $245,058,737 | 13,261,388 | $18.48 | ||
108
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2050 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $1,518,341 | |
| Dividends received from securities - unaffiliated | 535,565 | |
| Interest received from securities - unaffiliated | + | 120 |
| Total investment income | 2,054,026 | |
| Expenses | ||
| Registration fees | 24,425 | |
| Professional fees | 22,262 | |
| Portfolio accounting fees | 21,708 | |
| Shareholder reports | 9,751 | |
| Independent trustees’ fees | 7,720 | |
| Transfer agent fees | 2,996 | |
| Other expenses | + | 4,952 |
| Total expenses | 93,814 | |
| Expense reduction by investment adviser | – | 93,814 |
| Net expenses | – | — |
| Net investment income | 2,054,026 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 3,921,802 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 1,558,744 | |
| Net realized gains on sales of securities - affiliated | 1,143,859 | |
| Net realized gains on sales of securities - unaffiliated | + | 765,161 |
| Net realized gains | 7,389,566 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 44,747,503 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 8,771,760 |
| Net change in unrealized appreciation (depreciation) | + | 53,519,263 |
| Net realized and unrealized gains | 60,908,829 | |
| Increase in net assets resulting from operations | $62,962,855 | |
109
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 | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $2,054,026 | $3,085,100 | |
| Net realized gains | 7,389,566 | 2,499,877 | |
| Net change in unrealized appreciation (depreciation) | + | 53,519,263 | 2,239,611 |
| Increase in net assets from operations | $62,962,855 | $7,824,588 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($4,905,042) | ($8,146,453) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 3,400,099 | $58,030,659 | 3,278,640 | $44,358,522 | |
| Shares reinvested | 302,276 | 4,791,072 | 564,445 | 7,947,390 | |
| Shares redeemed | + | (3,366,800) | (57,211,988) | (2,395,025) | (31,595,800) |
| Net transactions in fund shares | 335,575 | $5,609,743 | 1,448,060 | $20,710,112 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 12,925,813 | $181,391,181 | 11,477,753 | $161,002,934 | |
| Total increase | + | 335,575 | 63,667,556 | 1,448,060 | 20,388,247 |
| End of period | 13,261,388 | $245,058,737 | 12,925,813 | $181,391,181 | |
110
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $14.11 | $14.15 | $13.60 | $14.18 | $12.09 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.15 | 0.24 | 0.21 | 0.20 | 0.16 | |
| Net realized and unrealized gains (losses) | 4.83 | 0.45 | 1.10 | (0.39) | 2.55 | |
| Total from investment operations | 4.98 | 0.69 | 1.31 | (0.19) | 2.71 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.16) | (0.27) | (0.31) | (0.37) | (0.17) | |
| Distributions from net realized gains | (0.19) | (0.46) | (0.45) | (0.02) | (0.45) | |
| Total distributions | (0.35) | (0.73) | (0.76) | (0.39) | (0.62) | |
| Net asset value at end of period | $18.74 | $14.11 | $14.15 | $13.60 | $14.18 | |
| Total return | 35.79% | 4.86% | 10.73% | (1.49%) | 23.35% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% 3 | 0.00% | |
| Gross operating expenses2 | 0.06% | 0.09% | 0.13% | 0.11% | 0.19% | |
| Net investment income (loss) | 0.88% | 1.78% | 1.53% | 1.41% | 1.24% | |
| Portfolio turnover rate | 11% | 6% | 6% | 10% | 9% | |
| Net assets, end of period (x 1,000,000) | $158 | $107 | $94 | $73 | $60 | |
| 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. |
111
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
112
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 79.2% OF NET ASSETS | ||||||||
| U.S. Stocks 46.8% | ||||||||
| Large-Cap 39.5% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $8,126,767 | $1,807,229 | ($621,290) | $30,954 | $2,715,265 | $12,058,925 | 341,613 | $457,228 |
| Schwab Core Equity Fund | 13,835,514 | 702,351 | (4,959,999) | 331,787 | 3,318,791 | 13,228,444 | 452,719 | 702,351 |
| Schwab Dividend Equity Fund | 3,126,027 | — | (3,599,823) | (234,162) | 707,958 | — | — | 22,917 |
| Schwab Fundamental US Large Company Index Fund | — | 4,470,000 | — | — | 927,376 | 5,397,376 | 232,746 | — |
| Schwab S&P 500 Index Fund | 16,166,175 | 7,978,612 | (516,273) | 11,990 | 8,122,302 | 31,762,806 | 446,044 | 347,611 |
| 62,447,551 | ||||||||
| Mid-Cap 1.7% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 1,888,066 | 32,237 | — | — | 824,051 | 2,744,354 | 42,588 | 32,237 |
| Small-Cap 5.6% | ||||||||
| Schwab Small-Cap Equity Fund | 5,575,641 | 813,955 | (730,000) | (55,514) | 3,254,720 | 8,858,802 | 372,688 | 12,956 |
| 74,050,707 | ||||||||
| International Stocks 25.3% | ||||||||
| Developed Markets 25.3% | ||||||||
| Laudus International MarketMasters Fund | 17,531,912 | 4,284,004 | (1,300,000) | 138,830 | 4,687,672 | 25,342,418 | 828,184 | 1,237,377 |
| Schwab International Core Equity Fund | 10,523,299 | 1,990,064 | (750,000) | 6,941 | 2,869,009 | 14,639,313 | 1,267,473 | 125,794 |
| 39,981,731 | ||||||||
| Real Estate 4.9% | ||||||||
| Global Real Estate 4.9% | ||||||||
| Schwab Global Real Estate Fund | 4,687,042 | 1,490,981 | — | — | 1,617,417 | 7,795,440 | 963,590 | 300,982 |
| Fixed Income 2.2% | ||||||||
| Intermediate-Term Bond 1.6% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 1,909,309 | 920,016 | (200,000) | (4,154) | (60,172) | 2,564,999 | 245,690 | 50,033 |
| Short-Term Bond 0.6% | ||||||||
| Schwab Short-Term Bond Index Fund | 729,579 | 159,431 | — | — | (13,535) | 875,475 | 85,915 | 9,431 |
| 3,440,474 | ||||||||
| Total Affiliated Underlying Funds | $84,099,331 | $24,648,880 | ($12,677,385) | $226,672 | $28,970,854 | $125,268,352 | $3,298,917 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
113
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $125,268,352 | $— | $— | $125,268,352 |
| Unaffiliated Underlying Funds1 | 31,869,466 | — | — | 31,869,466 |
| Short-Term Investments1 | — | 1,286,013 | — | 1,286,013 |
| Total | $157,137,818 | $1,286,013 | $— | $158,423,831 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
114
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $89,281,215) | $125,268,352 | |
| Investments in securities, at value - unaffiliated (cost $26,278,836) | 33,155,479 | |
| Receivables: | ||
| Fund shares sold | 94,076 | |
| Dividends | 9,208 | |
| Due from investment adviser | 7,507 | |
| Prepaid expenses | + | 6,291 |
| Total assets | 158,540,913 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 151,415 | |
| Investments bought | 126,543 | |
| Accrued expenses | + | 39,664 |
| Total liabilities | 317,622 | |
| Net assets | $158,223,291 | |
| Net Assets by Source | ||
| Capital received from investors | $112,064,941 | |
| Total distributable earnings | + | 46,158,350 |
| Net assets | $158,223,291 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $158,223,291 | 8,444,175 | $18.74 | ||
115
Schwab Target Funds | Annual Report
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Schwab Target 2055 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $920,420 | |
| Dividends received from securities - unaffiliated | 316,928 | |
| Interest received from securities - unaffiliated | + | 61 |
| Total investment income | 1,237,409 | |
| Expenses | ||
| Registration fees | 22,781 | |
| Professional fees | 22,025 | |
| Portfolio accounting fees | 12,668 | |
| Shareholder reports | 10,518 | |
| Independent trustees’ fees | 7,465 | |
| Transfer agent fees | 2,095 | |
| Other expenses | + | 4,343 |
| Total expenses | 81,895 | |
| Expense reduction by investment adviser | – | 81,895 |
| Net expenses | – | — |
| Net investment income | 1,237,409 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 2,378,497 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 899,150 | |
| Net realized gains on sales of securities - affiliated | 226,672 | |
| Net realized gains on sales of securities - unaffiliated | + | 175,164 |
| Net realized gains | 3,679,483 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 28,970,854 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 5,768,762 |
| Net change in unrealized appreciation (depreciation) | + | 34,739,616 |
| Net realized and unrealized gains | 38,419,099 | |
| Increase in net assets resulting from operations | $39,656,508 | |
116
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2055 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| OPERATIONS | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $1,237,409 | $1,785,195 | |
| Net realized gains | 3,679,483 | 1,028,863 | |
| Net change in unrealized appreciation (depreciation) | + | 34,739,616 | 2,151,448 |
| Increase in net assets from operations | $39,656,508 | $4,965,506 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($2,778,154) | ($4,969,426) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 2,415,853 | $41,626,853 | 2,219,735 | $29,888,670 | |
| Shares reinvested | 169,303 | 2,710,532 | 340,618 | 4,836,775 | |
| Shares redeemed | + | (1,750,620) | (30,393,721) | (1,576,305) | (21,062,762) |
| Net transactions in fund shares | 834,536 | $13,943,664 | 984,048 | $13,662,683 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 7,609,639 | $107,401,273 | 6,625,591 | $93,742,510 | |
| Total increase | + | 834,536 | 50,822,018 | 984,048 | 13,658,763 |
| End of period | 8,444,175 | $158,223,291 | 7,609,639 | $107,401,273 | |
117
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 11/1/20–
10/31/21 |
11/1/19–
10/31/20 |
11/1/18–
10/31/19 |
11/1/17–
10/31/18 |
11/1/16–
10/31/17 |
||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $12.21 | $12.16 | $11.53 | $12.02 | $9.83 | |
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)1 | 0.12 | 0.20 | 0.16 | 0.14 | 0.08 | |
| Net realized and unrealized gains (losses) | 4.34 | 0.38 | 0.99 | (0.32) | 2.22 | |
| Total from investment operations | 4.46 | 0.58 | 1.15 | (0.18) | 2.30 | |
| Less distributions: | ||||||
| Distributions from net investment income | (0.13) | (0.22) | (0.26) | (0.29) | (0.11) | |
| Distributions from net realized gains | (0.12) | (0.31) | (0.26) | (0.02) | — | |
| Total distributions | (0.25) | (0.53) | (0.52) | (0.31) | (0.11) | |
| Net asset value at end of period | $16.42 | $12.21 | $12.16 | $11.53 | $12.02 | |
| Total return | 36.89% | 4.73% | 10.85% | (1.64%) | 23.63% | |
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses2 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| Gross operating expenses2 | 0.22% | 0.41% | 0.67% | 0.73% | 1.89% | |
| Net investment income (loss) | 0.80% | 1.67% | 1.42% | 1.18% | 0.75% | |
| Portfolio turnover rate | 11% | 8% | 13% | 22% | 7% | |
| Net assets, end of period (x 1,000,000) | $40 | $22 | $16 | $10 | $6 | |
| 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. |
118
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.
119
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 10/31/20 |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 80.1% OF NET ASSETS | ||||||||
| U.S. Stocks 47.7% | ||||||||
| Large-Cap 40.4% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $1,763,036 | $1,051,080 | ($170,000) | $5,722 | $672,744 | $3,322,582 | 94,124 | $102,187 |
| Schwab Core Equity Fund | 2,819,014 | 327,364 | (690,000) | 25,463 | 777,042 | 3,258,883 | 111,529 | 143,106 |
| Schwab Dividend Equity Fund | 677,221 | — | (785,181) | (19,295) | 127,255 | — | — | 4,965 |
| Schwab Fundamental US Large Company Index Fund | — | 1,300,000 | (50,000) | 331 | 224,548 | 1,474,879 | 63,600 | — |
| Schwab S&P 500 Index Fund | 3,253,286 | 3,484,231 | (431,000) | 10,160 | 1,814,542 | 8,131,219 | 114,186 | 70,978 |
| 16,187,563 | ||||||||
| Mid-Cap 1.7% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | 377,955 | 131,453 | — | — | 174,482 | 683,890 | 10,613 | 6,453 |
| Small-Cap 5.6% | ||||||||
| Schwab Small-Cap Equity Fund | 1,201,420 | 401,792 | (80,000) | (880) | 718,964 | 2,241,296 | 94,291 | 2,791 |
| 19,112,749 | ||||||||
| International Stocks 26.2% | ||||||||
| Developed Markets 26.2% | ||||||||
| Laudus International MarketMasters Fund | 3,562,611 | 2,080,573 | (421,000) | 30,272 | 1,017,096 | 6,269,552 | 204,887 | 257,246 |
| Schwab International Core Equity Fund | 2,127,378 | 1,670,272 | (194,998) | (5,430) | 624,840 | 4,222,062 | 365,547 | 26,168 |
| 10,491,614 | ||||||||
| Real Estate 5.0% | ||||||||
| Global Real Estate 5.0% | ||||||||
| Schwab Global Real Estate Fund | 944,042 | 773,645 | (40,000) | (6,298) | 360,487 | 2,031,876 | 251,159 | 69,197 |
| Fixed Income 1.2% | ||||||||
| Intermediate-Term Bond 0.9% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | 232,349 | 237,105 | (90,000) | (1,436) | (6,324) | 371,694 | 35,603 | 6,108 |
| Short-Term Bond 0.3% | ||||||||
| Schwab Short-Term Bond Index Fund | 78,241 | 30,952 | — | — | (1,412) | 107,781 | 10,577 | 951 |
| 479,475 | ||||||||
| Total Affiliated Underlying Funds | $17,036,553 | $11,488,467 | ($2,952,179) | $38,609 | $6,504,264 | $32,115,714 | $690,150 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
120
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $32,115,714 | $— | $— | $32,115,714 |
| Unaffiliated Underlying Funds1 | 7,763,215 | — | — | 7,763,215 |
| Short-Term Investments1 | — | 216,616 | — | 216,616 |
| Total | $39,878,929 | $216,616 | $— | $40,095,545 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
121
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $24,836,055) | $32,115,714 | |
| Investments in securities, at value - unaffiliated (cost $6,514,711) | 7,979,831 | |
| Receivables: | ||
| Fund shares sold | 10,466 | |
| Due from investment adviser | 5,941 | |
| Dividends | 1,380 | |
| Prepaid expenses | + | 11,117 |
| Total assets | 40,124,449 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 10,893 | |
| Investments bought | 971 | |
| Accrued expenses | + | 35,959 |
| Total liabilities | 47,823 | |
| Net assets | $40,076,626 | |
| Net Assets by Source | ||
| Capital received from investors | $30,792,808 | |
| Total distributable earnings | + | 9,283,818 |
| Net assets | $40,076,626 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $40,076,626 | 2,440,778 | $16.42 | ||
122
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Statement of
Operations
| For the period November 1, 2020 through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $191,110 | |
| Dividends received from securities - unaffiliated | 63,324 | |
| Interest received from securities - unaffiliated | + | 10 |
| Total investment income | 254,444 | |
| Expenses | ||
| Professional fees | 21,654 | |
| Registration fees | 20,296 | |
| Portfolio accounting fees | 11,571 | |
| Independent trustees’ fees | 7,122 | |
| Shareholder reports | 5,114 | |
| Transfer agent fees | 817 | |
| Custodian fees | 259 | |
| Other expenses | + | 3,531 |
| Total expenses | 70,364 | |
| Expense reduction by investment adviser | – | 70,364 |
| Net expenses | – | — |
| Net investment income | 254,444 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - affiliated | 499,040 | |
| Realized capital gain distributions received from underlying funds - unaffiliated | 170,008 | |
| Net realized gains on sales of securities - affiliated | 38,609 | |
| Net realized gains on sales of securities - unaffiliated | + | 24,599 |
| Net realized gains | 732,256 | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 6,504,264 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 1,274,277 |
| Net change in unrealized appreciation (depreciation) | + | 7,778,541 |
| Net realized and unrealized gains | 8,510,797 | |
| Increase in net assets resulting from operations | $8,765,241 | |
123
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2060 Fund
Statement of
Changes in Net Assets
For the current and prior report periods
| OPERATIONS | |||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||
| Net investment income | $254,444 | $303,465 | |
| Net realized gains | 732,256 | 84,396 | |
| Net change in unrealized appreciation (depreciation) | + | 7,778,541 | 471,488 |
| Increase in net assets from operations | $8,765,241 | $859,349 | |
| DISTRIBUTIONS TO SHAREHOLDERS | |||
| Total distributions | ($458,337) | ($715,136) | |
| TRANSACTIONS IN FUND SHARES | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | VALUE | SHARES | VALUE | ||
| Shares sold | 1,163,081 | $17,567,794 | 930,416 | $10,935,135 | |
| Shares reinvested | 31,814 | 444,437 | 55,993 | 689,274 | |
| Shares redeemed | + | (515,554) | (7,751,420) | (521,878) | (6,024,879) |
| Net transactions in fund shares | 679,341 | $10,260,811 | 464,531 | $5,599,530 | |
| SHARES OUTSTANDING AND NET ASSETS | |||||
| 11/1/20-10/31/21 | 11/1/19-10/31/20 | ||||
| SHARES | NET ASSETS | SHARES | NET ASSETS | ||
| Beginning of period | 1,761,437 | $21,508,911 | 1,296,906 | $15,765,168 | |
| Total increase | + | 679,341 | 18,567,715 | 464,531 | 5,743,743 |
| End of period | 2,440,778 | $40,076,626 | 1,761,437 | $21,508,911 | |
124
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Financial Statements
FINANCIAL
HIGHLIGHTS
| 2/26/21
1– 10/31/21 |
||||||
| Per-Share Data | ||||||
| Net asset value at beginning of period | $10.00 | |||||
| Income (loss) from investment operations: | ||||||
| Net investment income (loss)2 | 0.03 | |||||
| Net realized and unrealized gains (losses) | 1.30 | |||||
| Total from investment operations | 1.33 | |||||
| Net asset value at end of period | $11.33 | |||||
| Total return | 13.30% 3 | |||||
| Ratios/Supplemental Data | ||||||
| Ratios to average net assets: | ||||||
| Net operating expenses4 | 0.00% 5 | |||||
| Gross operating expenses4 | 1.90% 5 | |||||
| Net investment income (loss)4 | 0.35% 5 | |||||
| Portfolio turnover rate | 34% 3 | |||||
| Net assets, end of period (x 1,000,000) | $4 | |||||
| 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. |
125
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Portfolio
Holdings as of October 31, 2021
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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com.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.
126
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
Below is a summary of the fund’s transactions with its
affiliated underlying funds during the period ended October 31, 2021:
| VALUE
AT 2/26/21(a) |
PURCHASES | SALES | REALIZED
GAINS (LOSSES) |
NET
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) |
VALUE
AT 10/31/21 |
BALANCE
OF SHARES HELD AT 10/31/21 |
DISTRIBUTIONS
RECEIVED* | |
| AFFILIATED UNDERLYING FUNDS 80.2% OF NET ASSETS | ||||||||
| U.S. Stocks 48.0% | ||||||||
| Large-Cap 40.7% | ||||||||
| Laudus U.S. Large Cap Growth Fund | $— | $348,198 | ($11,462) | $120 | $38,506 | $375,362 | 10,633 | $— |
| Schwab Core Equity Fund | — | 350,272 | (17,164) | 199 | 28,798 | 362,105 | 12,392 | — |
| Schwab Fundamental US Large Company Index Fund | — | 156,062 | — | — | 10,147 | 166,209 | 7,167 | — |
| Schwab S&P 500 Index Fund | — | 943,549 | (102,841) | 541 | 83,611 | 924,860 | 12,988 | — |
| Schwab U.S. Large-Cap ETF | — | 341,250 | (338,083) | (3,167) | — | — | — | — |
| 1,828,536 | ||||||||
| Mid-Cap 1.7% | ||||||||
| Schwab U.S. Mid-Cap Index Fund | — | 71,704 | — | — | 5,588 | 77,292 | 1,199 | — |
| Small-Cap 5.6% | ||||||||
| Schwab Small-Cap Equity Fund | — | 248,124 | (12,617) | 84 | 14,567 | 250,158 | 10,524 | — |
| Schwab U.S. Small-Cap ETF | — | 51,887 | (51,638) | (249) | — | — | — | — |
| 250,158 | ||||||||
| 2,155,986 | ||||||||
| International Stocks 26.2% | ||||||||
| Developed Markets 26.2% | ||||||||
| Laudus International MarketMasters Fund | — | 664,385 | (40,090) | (67) | 20,930 | 645,158 | 21,084 | — |
| Schwab International Core Equity Fund | — | 559,248 | (38,330) | (142) | 10,816 | 531,592 | 46,025 | — |
| Schwab International Equity ETF | — | 173,354 | (173,063) | (291) | — | — | — | — |
| 1,176,750 | ||||||||
| Emerging Markets 0.0% | ||||||||
| Schwab Emerging Markets Equity ETF | — | 30,976 | (30,976) | — | — | — | — | — |
| 1,176,750 | ||||||||
| Real Estate 5.0% | ||||||||
| Global Real Estate 5.0% | ||||||||
| Schwab Global Real Estate Fund | — | 221,392 | (7,409) | (81) | 9,614 | 223,516 | 27,629 | 3,405 |
| Fixed Income 1.0% | ||||||||
| Intermediate-Term Bond 0.7% | ||||||||
| Schwab U.S. Aggregate Bond Index Fund | — | 30,824 | — | — | (142) | 30,682 | 2,939 | 244 |
| Short-Term Bond 0.3% | ||||||||
| Schwab Short-Term Bond Index Fund | — | 15,141 | — | — | (121) | 15,020 | 1,474 | 38 |
| 45,702 | ||||||||
| Total Affiliated Underlying Funds | $— | $4,206,366 | ($823,673) | ($3,053) | $222,314 | $3,601,954 | $3,687 | |
| * | Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. |
| (a) | Commencement of operations. |
127
Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Portfolio
Holdings as of October 31, 2021 (continued)
The following is a summary of the inputs used to value the
fund’s investments as of October 31, 2021 (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 | $3,601,954 | $— | $— | $3,601,954 |
| Unaffiliated Underlying Funds1 | 857,394 | — | — | 857,394 |
| Short-Term Investments1 | — | 40,394 | — | 40,394 |
| Total | $4,459,348 | $40,394 | $— | $4,499,742 |
| 1 | As categorized in the Portfolio Holdings. |
Fund investments in mutual funds are classified as Level 1,
without consideration to the classification level of the underlying securities held by the mutual funds, which could be Level 1, Level 2 or Level 3.
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Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Statement of
Assets and Liabilities
As of October 31, 2021
| Assets | ||
| Investments in securities, at value - affiliated (cost $3,379,640) | $3,601,954 | |
| Investments in securities, at value - unaffiliated (cost $877,216) | 897,788 | |
| Receivables: | ||
| Fund shares sold | 6,931 | |
| Due from investment adviser | 4,059 | |
| Dividends | + | 125 |
| Total assets | 4,510,857 | |
| Liabilities | ||
| Payables: | ||
| Investments bought | 84 | |
| Accrued expenses | + | 21,638 |
| Total liabilities | 21,722 | |
| Net assets | $4,489,135 | |
| Net Assets by Source | ||
| Capital received from investors | $4,242,783 | |
| Total distributable earnings | + | 246,352 |
| Net assets | $4,489,135 | |
| Net Asset Value (NAV) | ||||
| Net Assets | ÷ | Shares
Outstanding |
= | NAV |
| $4,489,135 | 396,121 | $11.33 | ||
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Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Statement of
Operations
| For the period February 26, 2021* through October 31, 2021 | ||
| Investment Income | ||
| Dividends received from securities - affiliated | $3,687 | |
| Dividends received from securities - unaffiliated | + | 2,194 |
| Total investment income | 5,881 | |
| Expenses | ||
| Professional fees | 10,754 | |
| Portfolio accounting fees | 8,127 | |
| Independent trustees’ fees | 5,395 | |
| Custodian fees | 2,594 | |
| Registration fees | 1,408 | |
| Shareholder reports | 1,045 | |
| Transfer agent fees | 403 | |
| Other expenses | + | 2,286 |
| Total expenses | 32,012 | |
| Expense reduction by investment adviser | – | 32,012 |
| Net expenses | – | — |
| Net investment income | 5,881 | |
| Realized and Unrealized Gains (Losses) | ||
| Realized capital gain distributions received from underlying funds - unaffiliated | 380 | |
| Net realized losses on sales of securities - affiliated | (3,053) | |
| Net realized gains on sales of securities - unaffiliated | + | 258 |
| Net realized losses | (2,415) | |
| Net change in unrealized appreciation (depreciation) on securities - affiliated | 222,314 | |
| Net change in unrealized appreciation (depreciation) on securities - unaffiliated | + | 20,572 |
| Net change in unrealized appreciation (depreciation) | + | 242,886 |
| Net realized and unrealized gains | 240,471 | |
| Increase in net assets resulting from operations | $246,352 | |
| * | Commencement of operations. |
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Schwab Target Funds | Annual Report
See financial notes
Schwab Target 2065 Fund
Statement of
Changes in Net Assets
For the current period only
| OPERATIONS | ||
| 2/26/21*-10/31/21 | ||
| Net investment income | 5,881 | |
| Net realized losses | (2,415) | |
| Net change in unrealized appreciation (depreciation) | + | 242,886 |
| Increase in net assets from operations | $246,352 | |
| TRANSACTIONS IN FUND SHARES | |||
| 2/26/21*-10/31/21 | |||
| SHARES | VALUE | ||
| Shares sold | $438,998 | $4,713,650 | |
| Shares redeemed | + | (42,877) | (470,867) |
| Net transactions in fund shares | 396,121 | $4,242,783 | |
| SHARES OUTSTANDING AND NET ASSETS | |||
| 2/26/21*-10/31/21 | |||
| SHARES | NET ASSETS | ||
| Beginning of period | — | — | |
| Total increase or decrease | + | 396,121 | 4,489,135 |
| End of period | 396,121 | $4,489,135 | |
| * | Commencement of operations. |
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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 Dividend Equity Fund |
| Schwab Target 2015 Fund | Schwab Large-Cap Growth Fund |
| Schwab Target 2020 Fund | Schwab Small-Cap 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 Target 2065 Fund | Schwab Target 2010 Index Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2015 Index Fund |
| Schwab Small-Cap Index Fund® | Schwab Target 2020 Index Fund |
| Schwab Total Stock Market Index Fund® | Schwab Target 2025 Index Fund |
| Schwab U.S. Large-Cap Growth Index Fund | Schwab Target 2030 Index Fund |
| Schwab U.S. Large-Cap Value Index Fund | Schwab Target 2035 Index Fund |
| Schwab U.S. Mid-Cap Index Fund | Schwab Target 2040 Index Fund |
| Schwab International Index Fund® | Schwab Target 2045 Index Fund |
| Schwab MarketTrack All Equity Portfolio™ | Schwab Target 2050 Index Fund |
| Schwab MarketTrack Growth Portfolio™ | Schwab Target 2055 Index Fund |
| Schwab MarketTrack Balanced Portfolio™ | Schwab Target 2060 Index Fund |
| Schwab MarketTrack Conservative Portfolio™ | Schwab Target 2065 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 |
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, (all such mutual funds referred to as “underlying 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.
The Schwab Target 2065 Fund
commenced operations on February 26, 2021.
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.
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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:
•
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.
•
Mutual 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.
•
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.
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 mutual funds. 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 underlying securities 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,
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Schwab Target Funds
Financial Notes
(continued)
2. Significant Accounting Policies (continued):
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, 2021 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 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.
(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
respective 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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Schwab Target Funds | Annual Report
Schwab Target Funds
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 each fund and is legally obligated to act in each 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 an underlying 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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Schwab Target Funds
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 $1.00 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 $1.00 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 a 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, auditing, financial reporting and recording 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, but not the obligation, to buy or sell an instrument at a specific price on or 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 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.
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Schwab Target Funds | Annual Report
Schwab Target Funds
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., dba Schwab Asset
Management, 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 it 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 the investment adviser (together, service providers),
of certain shareholder services to the current shareholders of the funds. The funds are not subject to any fee under the Plan.
Expense Limitation
The investment adviser and its affiliates have agreed with the
funds, for so long as the investment adviser 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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Schwab Target Funds | Annual Report
Schwab Target Funds
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, 2021, 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 |
SCHWAB
TARGET 2065 FUND |
| Laudus International MarketMasters Fund | 0.3% | 0.4% | 2.7% | 4.4% | 8.9% | 5.4% | 11.6% | 2.5% | 2.5% | 1.7% | 0.4% | 0.0%* |
| Laudus U.S. Large Cap Growth Fund | —% | —% | —% | 0.2% | 0.7% | 0.6% | 1.7% | 0.4% | 0.5% | 0.3% | 0.1% | 0.0%* |
| Schwab Core Equity Fund | 0.1% | 0.1% | 0.8% | 1.7% | 3.8% | 2.3% | 4.9% | 1.1% | 1.1% | 0.7% | 0.2% | 0.0%* |
| Schwab Fundamental US Large Company Index Fund | 0.0%* | 0.0%* | 0.0%* | 0.0%* | 0.1% | 0.1% | 0.3% | 0.1% | 0.1% | 0.1% | 0.0%* | 0.0%* |
| Schwab Global Real Estate Fund | 0.4% | 0.5% | 3.7% | 5.9% | 11.8% | 7.1% | 15.7% | 3.5% | 3.5% | 2.4% | 0.6% | 0.1% |
| Schwab International Core Equity Fund | 0.3% | 0.3% | 2.6% | 4.5% | 10.5% | 6.0% | 13.7% | 3.3% | 3.3% | 2.1% | 0.6% | 0.1% |
| Schwab S&P 500 Index Fund | 0.0%* | 0.0%* | 0.1% | 0.2% | 0.3% | 0.2% | 0.4% | 0.1% | 0.1% | 0.0%* | 0.0%* | 0.0%* |
| Schwab Short-Term Bond Index Fund | 0.3% | 0.3% | 2.1% | 1.9% | 2.3% | 0.8% | 1.2% | 0.1% | 0.1% | 0.0%* | 0.0%* | 0.0%* |
| Schwab Small-Cap Equity Fund | 0.1% | 0.2% | 1.2% | 2.3% | 5.4% | 3.4% | 8.1% | 1.8% | 1.9% | 1.3% | 0.3% | 0.0%* |
| Schwab Treasury Inflation Protected Securities Index Fund | 0.2% | 0.2% | 1.3% | 0.7% | 0.3% | —% | —% | —% | —% | —% | —% | —% |
| Schwab U.S. Aggregate Bond Index Fund | 0.3% | 0.4% | 2.3% | 2.1% | 2.7% | 1.0% | 1.4% | 0.2% | 0.1% | 0.0%* | 0.0%* | 0.0%* |
| Schwab U.S. Mid Cap Index Fund | 0.1% | 0.1% | 0.5% | 0.8% | 1.7% | 1.0% | 2.1% | 0.5% | 0.4% | 0.3% | 0.1% | 0.0%* |
| Schwab Variable Share Price Money Fund, Ultra Shares | 0.1% | 0.1% | 0.6% | 0.5% | 0.6% | 0.2% | 0.2% | 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 the investment adviser or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trusts were in compliance with these limitations throughout the report
period. The funds 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.
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Schwab Target Funds
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 $850 million line of credit (the Syndicated Credit Facility), which matured on September 30, 2021. On September 30, 2021, the Syndicated Credit Facility was amended
to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 30, 2021. On September 30, 2021, the Uncommitted Credit
Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 29, 2022. 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 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, 2021, purchases and sales of
securities (excluding short-term obligations) were as follows:
| PURCHASES
OF SECURITIES |
SALES
OF SECURITIES | |
| Schwab Target 2010 Fund | $16,630,428 | $12,703,276 |
| Schwab Target 2015 Fund | 10,900,029 | 15,209,278 |
| Schwab Target 2020 Fund | 50,641,203 | 103,922,137 |
| Schwab Target 2025 Fund | 100,857,309 | 104,806,159 |
| Schwab Target 2030 Fund | 154,617,308 | 153,754,496 |
| Schwab Target 2035 Fund | 98,329,752 | 78,546,707 |
| Schwab Target 2040 Fund | 161,037,059 | 173,482,903 |
| Schwab Target 2045 Fund | 47,746,515 | 27,236,521 |
| Schwab Target 2050 Fund | 48,925,738 | 41,233,935 |
| Schwab Target 2055 Fund | 30,166,139 | 14,841,559 |
| Schwab Target 2060 Fund | 13,959,846 | 3,327,178 |
| Schwab Target 2065 Fund | 5,076,576 | 857,329 |
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Financial Notes
(continued)
| 8. Federal Income Taxes: |
As of October 31, 2021, the tax basis
cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
| TAX COST | GROSS
UNREALIZED APPRECIATION |
GROSS
UNREALIZED DEPRECIATION |
NET
UNREALIZED APPRECIATION (DEPRECIATION) | |
| Schwab Target 2010 Fund | $54,202,827 | $11,576,286 | ($366,567) | $11,209,719 |
| Schwab Target 2015 Fund | 63,728,563 | 18,134,620 | (542,902) | 17,591,718 |
| Schwab Target 2020 Fund | 406,293,457 | 125,172,044 | (2,428,651) | 122,743,393 |
| Schwab Target 2025 Fund | 508,372,891 | 156,721,216 | (3,717,151) | 153,004,065 |
| Schwab Target 2030 Fund | 825,573,394 | 346,215,320 | (6,887,035) | 339,328,285 |
| Schwab Target 2035 Fund | 438,293,670 | 176,049,706 | (2,583,181) | 173,466,525 |
| Schwab Target 2040 Fund | 816,533,844 | 425,644,764 | (8,272,925) | 417,371,839 |
| Schwab Target 2045 Fund | 186,549,119 | 66,436,368 | (585,455) | 65,850,913 |
| Schwab Target 2050 Fund | 179,009,851 | 66,683,855 | (673,239) | 66,010,616 |
| Schwab Target 2055 Fund | 116,239,136 | 42,885,170 | (700,475) | 42,184,695 |
| Schwab Target 2060 Fund | 31,599,622 | 8,749,372 | (253,449) | 8,495,923 |
| Schwab Target 2065 Fund | 4,257,483 | 257,744 | (15,485) | 242,259 |
As of October 31, 2021, the
components of distributable earnings on a tax basis were as follows:
| UNDISTRIBUTED
ORDINARY INCOME |
UNDISTRIBUTED
LONG-TERM CAPITAL GAINS |
NET
UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS |
CAPITAL
LOSS CARRYFORWARDS |
TOTAL | |
| Schwab Target 2010 Fund | $637,140 | $1,739,443 | $11,209,719 | $— | $13,586,302 |
| Schwab Target 2015 Fund | 835,811 | 3,437,736 | 17,591,718 | — | 21,865,265 |
| Schwab Target 2020 Fund | 5,506,414 | 25,553,713 | 122,743,393 | — | 153,803,520 |
| Schwab Target 2025 Fund | 5,928,180 | 24,333,574 | 153,004,065 | — | 183,265,819 |
| Schwab Target 2030 Fund | 8,586,443 | 46,508,680 | 339,328,285 | — | 394,423,408 |
| Schwab Target 2035 Fund | 3,963,724 | 17,830,495 | 173,466,525 | — | 195,260,744 |
| Schwab Target 2040 Fund | 6,975,431 | 46,770,097 | 417,371,839 | — | 471,117,367 |
| Schwab Target 2045 Fund | 1,052,953 | 5,467,882 | 65,850,913 | — | 72,371,748 |
| Schwab Target 2050 Fund | 1,161,532 | 6,627,266 | 66,010,616 | — | 73,799,414 |
| Schwab Target 2055 Fund | 546,377 | 3,427,278 | 42,184,695 | — | 46,158,350 |
| Schwab Target 2060 Fund | 144,363 | 643,532 | 8,495,923 | — | 9,283,818 |
| Schwab Target 2065 Fund | 5,900 | — | 242,259 | (1,807) | 246,352 |
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.
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Schwab Target Funds
Financial Notes
(continued)
8. Federal
Income Taxes (continued):
Capital loss
carryforwards have no expiration and may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2021, the fund had capital loss carryforwards available as follows:
| NO EXPIRATION | |
| 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 | — |
| Schwab Target 2065 Fund | 1,807 |
The tax basis components of
distributions paid during the current and prior fiscal years were as follows:
| CURRENT FISCAL YEAR END DISTRIBUTIONS | PRIOR FISCAL YEAR END DISTRIBUTIONS | |||
| ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS |
ORDINARY
INCOME |
LONG-TERM
CAPITAL GAINS | |
| Schwab Target 2010 Fund | $1,158,878 | $385,205 | $1,314,831 | $1,204,227 |
| Schwab Target 2015 Fund | 1,603,533 | 1,864,193 | 2,018,665 | 2,170,460 |
| Schwab Target 2020 Fund | 10,442,930 | 10,256,763 | 13,636,822 | 16,329,586 |
| Schwab Target 2025 Fund | 10,641,524 | 7,269,075 | 13,898,587 | 17,306,186 |
| Schwab Target 2030 Fund | 16,741,235 | 16,944,271 | 23,515,128 | 41,149,887 |
| Schwab Target 2035 Fund | 7,639,008 | 7,482,792 | 10,709,488 | 19,394,717 |
| Schwab Target 2040 Fund | 14,499,604 | 21,950,959 | 21,322,805 | 54,339,154 |
| Schwab Target 2045 Fund | 2,368,978 | 2,594,038 | 3,301,292 | 5,698,235 |
| Schwab Target 2050 Fund | 2,230,995 | 2,674,047 | 3,187,945 | 4,958,508 |
| Schwab Target 2055 Fund | 1,270,190 | 1,507,964 | 1,817,735 | 3,151,691 |
| Schwab Target 2060 Fund | 239,872 | 218,465 | 302,277 | 412,859 |
| Schwab Target 2065 Fund | — | — | — | — |
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, 2021, 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, 2021, the funds did not incur
any interest or penalties.
9. 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, Schwab Target 2060 Fund, and Schwab Target 2065 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, Schwab Target 2060 Fund, and Schwab Target 2065 Fund (the “Funds”), twelve of the funds constituting Schwab Capital Trust, as of October 31, 2021, the related statements of
operations for the year then ended, the related statements of changes in net assets and the financial highlights for the two years in the period then ended (excluding Schwab Target 2065 Fund); the related statement of operations, statement of
changes in net assets, and the financial highlights for the period from February 26, 2021 (commencement of operations) through October 31, 2021 for Schwab Target 2065 Fund; 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 (excluding Schwab Target 2065 Fund) as of October 31, 2021, 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. Also, in our opinion, the financial statements and financial highlights present fairly, in all material
respects, the financial position of Schwab Target 2065 Fund as of October 31, 2021, and the results of its operations, changes in net assets, and financial highlights for the period from February 26, 2021 (commencement of operations) through October
31, 2021 in conformity with accounting principles generally accepted in the United States of America. For each of the Funds (excluding Schwab Target 2065 Fund), the financial highlights for each of the three 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 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, 2021, 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, 2021
Denver, Colorado
December 16, 2021
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 its shareholders for the fiscal year ended October 31, 2021, and the respective foreign source income on the funds as follows:
| FOREIGN TAX CREDIT | FOREIGN SOURCE INCOME | |
| Schwab Target 2010 Fund | $11,872 | $287,409 |
| Schwab Target 2015 Fund | 18,019 | 431,529 |
| Schwab Target 2020 Fund | 131,135 | 3,121,000 |
| Schwab Target 2025 Fund | 217,935 | 4,700,401 |
| Schwab Target 2030 Fund | 458,778 | 9,505,082 |
| Schwab Target 2035 Fund | 269,929 | 5,367,668 |
| Schwab Target 2040 Fund | 628,100 | 12,165,942 |
| Schwab Target 2045 Fund | 127,386 | 2,416,881 |
| Schwab Target 2050 Fund | 137,058 | 2,597,345 |
| Schwab Target 2055 Fund | 85,795 | 1,584,889 |
| Schwab Target 2060 Fund | 18,085 | 333,894 |
| Schwab Target 2065 Fund | — | — |
For corporate shareholders, the
following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2021, qualify for the corporate dividends received deduction:
| PERCENTAGE | |
| Schwab Target 2010 Fund | 16.63 |
| Schwab Target 2015 Fund | 18.13 |
| Schwab Target 2020 Fund | 19.04 |
| Schwab Target 2025 Fund | 22.74 |
| Schwab Target 2030 Fund | 26.30 |
| Schwab Target 2035 Fund | 28.90 |
| Schwab Target 2040 Fund | 31.40 |
| Schwab Target 2045 Fund | 34.34 |
| Schwab Target 2050 Fund | 34.05 |
| Schwab Target 2055 Fund | 36.88 |
| Schwab Target 2060 Fund | 34.77 |
| Schwab Target 2065 Fund | — |
For the fiscal year ended October
31, 2021, the funds designated the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under section 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS
form 1099 of the amount for use in preparing their 2021 income tax return.
| Schwab Target 2010 Fund | $305,635 |
| Schwab Target 2015 Fund | 466,632 |
| Schwab Target 2020 Fund | 3,277,417 |
| Schwab Target 2025 Fund | 4,136,469 |
| Schwab Target 2030 Fund | 7,672,433 |
| Schwab Target 2035 Fund | 3,905,971 |
| Schwab Target 2040 Fund | 8,166,816 |
| Schwab Target 2045 Fund | 1,457,330 |
| Schwab Target 2050 Fund | 1,370,748 |
| Schwab Target 2055 Fund | 841,686 |
| Schwab Target 2060 Fund | 149,597 |
| Schwab Target 2065 Fund | — |
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Schwab Target Funds
Other Federal
Tax Information (unaudited) (continued)
Under section 852(b)(3)(C) of the Internal Revenue Code, the
fund hereby designates the following amounts as long term capital gain dividends for the fiscal year ended October 31, 2021.
| Schwab Target 2010 Fund | $385,205 |
| Schwab Target 2015 Fund | 1,864,193 |
| Schwab Target 2020 Fund | 10,256,763 |
| Schwab Target 2025 Fund | 7,269,075 |
| Schwab Target 2030 Fund | 16,944,271 |
| Schwab Target 2035 Fund | 7,482,792 |
| Schwab Target 2040 Fund | 21,950,959 |
| Schwab Target 2045 Fund | 2,594,038 |
| Schwab Target 2050 Fund | 2,674,047 |
| Schwab Target 2055 Fund | 1,507,964 |
| Schwab Target 2060 Fund | 218,465 |
| Schwab Target 2065 Fund | — |
For the fiscal year ended October
31, 2021, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2022 via IRS form 1099 of the amounts
for use in preparing their 2021 income tax return.
| Schwab Target 2010 Fund | $11,029 |
| Schwab Target 2015 Fund | 16,894 |
| Schwab Target 2020 Fund | 122,837 |
| Schwab Target 2025 Fund | 195,100 |
| Schwab Target 2030 Fund | 436,297 |
| Schwab Target 2035 Fund | 264,337 |
| Schwab Target 2040 Fund | 629,303 |
| Schwab Target 2045 Fund | 138,684 |
| Schwab Target 2050 Fund | 135,070 |
| Schwab Target 2055 Fund | 97,993 |
| Schwab Target 2060 Fund | 20,098 |
| Schwab Target 2065 Fund | — |
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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., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.
Under the program, the investment adviser 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. The investment adviser’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 20, 2021 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2020, through May 31, 2021, which included individual Fund liquidity risk metrics. No significant liquidity events
impacting any of the Funds were noted in the report. In addition, the investment adviser 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 8, 2021 was held by means of videoconference 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 103 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. | 103 | 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. | 103 | 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). | 103 | 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. | 103 | Director
(2004 – present), Corcept Therapeutics Incorporated Director (2009 – present), Adamas Pharmaceuticals, Inc. Director (2003 – 2019), Symantec Corporation |
| 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). | 103 | None |
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| Independent Trustees (continued) | |||
| Name,
Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1) |
Principal
Occupations During the Past Five Years |
Number
of Portfolios in Fund Complex Overseen by the Trustee |
Other Directorships |
| Kiran
M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016) |
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). | 103 | 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). | 103 | None |
|
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services). | 103 | None |
| 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 and Chief Executive Officer (Oct. 2008 – present) and President (Oct. 2008 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), 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 – Oct. 2021), Charles Schwab Investment Management, Inc. | 103 | 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 |
| 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. | 103 | 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), Chief Operating Officer (Jan. 2020 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – present) and Chief Operating Officer (Jan. 2020 – present), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), 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 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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. |
| Brett
Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (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). |
| William
P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021) |
Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc. |
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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 |
| Catherine
MacGregor 1964 Chief Legal Officer and 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; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), 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 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., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of Schwab. |
| 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
Schwab Asset
Management
With a straightforward lineup of core products and solutions
for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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, Kimberly S. Patmore and J. Derek Penn, 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, Ms. Patmore and Mr. Penn 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-two 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, twelve 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-two operational series during 2021/2022 and the fifty-one operational series during 2020/2021, based on their respective 2021/2022 and 2020/2021 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 2021/2022 |
Fiscal Year 2020/2021 |
Fiscal Year 2021/2022 |
Fiscal Year 2020/2021 |
Fiscal Year 2021/2022 |
Fiscal Year 2020/2021 |
Fiscal Year 2021/2022 |
Fiscal Year 2020/2021 |
|||||||||||||||||||||||
| $ | 1,187,075 | $ | 1,203,450 | $ | 96,000 | $ | 90,000 | $ | 161,200 | $ | 158,100 | $ | 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. |
| 2020/2021: $3,309,631 | 2019/2020: $3,570,594 |
| (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.
The schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form.
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.
| (a) (1) |
| (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, 2021 | |
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, 2021 | |
| By: | /s/ Mark Fischer | |
| Mark Fischer Chief Financial Officer | ||
| Date: | December 16, 2021 | |