nvcsr

Purchases of Securities

Sales/Maturities of Securities

$270,280,077

$264,858,466

Performance at a Glance

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


Total Return for the 12 Months Ended February 28, 2013

Schwab Global Real Estate Fund^tm (Ticker Symbol: SWASX)	16.47%	*


FTSE EPRA/NAREIT Global Index	20.19%
Fund Category: Morningstar Global Real Estate	19.93%


Performance Details	pages 6-7


Minimum Initial Investment¹	$	100

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

Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, 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.

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.


*		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 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 semi-annual reports.
¹		Please see prospectus for further detail and eligibility requirements.

2 Schwab Global Real Estate Fund

From the President

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

Dear Shareholder,

As President and CEO of Charles Schwab Investment Management, Inc., I’d like to thank you for trusting us to help you meet your investment goals, and for reading this important report concerning the Schwab Global Real Estate Fund. This fund is a potential solution for investing in global real estate securities, providing shareholders with access to markets in Asia, Europe, and the Americas. Using Schwab’s proprietary research, the fund invests in securities of real estate companies and in companies related to the real estate industry, including real estate investment trusts (REITs) and real estate operating companies (REOCs).

For the 12 months ended February 28, 2013, the fund underperformed the 20.2% return of the FTSE EPRA/NAREIT Global Index (please see page 6 for details), but generated a return that reflected a strong rally by global real estate securities. Efforts by European leaders to resolve the euro zone’s sovereign debt crisis and better-than-expected earnings reports from several high-profile real estate companies supported the market’s performance. Low interest rates established by many central banks around the world also helped, making long-term financing costs for businesses and homeowners more affordable. However, shareholders should keep in mind that if long-term interest rates begin to rise, this could negatively affect the performance of the securities held by the fund.

Among developed global markets, real estate securities in Japan and Singapore were the top performers. In the euro zone, several markets rebounded from depressed levels, while U.S. REITs benefitted from easy access to capital and some signs of economic improvement, but generated smaller returns than

Asset Class Performance Comparison % returns during the report period

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



		13.46%		S&P 500^® Index: measures U.S. large-cap stocks

		20.19%		FTSE EPRA/NAREIT Global Index: measures (in U.S. dollars) real estate equities worldwide

		10.37%		MSCI EAFE^® Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.12%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

These figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and you cannot invest in them directly. Remember that past performance is not an indication of future results.

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

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

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

Schwab Global Real Estate Fund 3

From the President continued

For the 12 months ended February 28, 2013, the fund underperformed the 20.2% return of the FTSE EPRA/NAREIT Global Index, but generated a return that reflected a strong rally by global real estate securities.

most developed markets. Real estate securities in emerging markets, such as China and select countries in Southeast Asia, generated solid returns as China’s economy seemed to pick up speed heading into 2013.

For more information about the Schwab Global Real Estate Fund, please continue reading this report. In addition, you can find answers to frequently asked questions and further details about the fund by visiting www.schwabfunds.com, or by contacting us at 1-800-435-4000.

Sincerely,

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

4 Schwab Global Real Estate Fund

Fund Management



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

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

Schwab Global Real Estate Fund 5

Schwab Global Real Estate Fund™

The Schwab Global Real Estate Fund (the fund) seeks capital growth and income consistent with prudent investment management. Under normal circumstances, the fund invests at least 80% of its net assets in securities of U.S. and non-U.S. real estate companies and of companies related to the real estate industry. The fund invests globally, and as of the end of the report period, held securities in 24 countries. For more information on the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

The fund returned 16.47% for the 12 months ended February 28, 2013. For performance comparisons, the fund uses the FTSE EPRA/NAREIT Global Index (the comparative index), which returned 20.19%.

Market Performance. Global real estate securities generated solid returns for the 12 months. Progress by European leaders regarding the euro zone’s sovereign debt crisis helped, as investors became more comfortable with developments in the region. Efforts by many central banks around the world to keep interest rates low also played a supportive role, holding down long-term financing costs for businesses and households. This generally boosted consumer confidence and the performance of many property markets in the process. Among developed property markets, real estate securities from Japan and Singapore solidly outperformed securities from North America.

Positioning and Strategies. The fund’s stock choices reduced overall performance compared with the index, with selections among U.S. stocks generating particularly disappointing results. The U.S. was the fund’s largest country allocation, representing an average weight of approximately 42% of holdings—roughly in line with the index—and contributing the most to the fund’s absolute return. Compared with the index, however, the fund emphasized Residential REITs, which include properties such as rental apartments and student housing. Although Residential REITs generated positive returns, their performance as a sub-industry was below that of many other types of U.S. REITs. The performance of Essex Property Trust, which provides apartment homes throughout the West Coast, was one example. The fund’s Essex Property Trust holdings returned approximately 10%. By comparison, the U.S. REITs in the index returned 17% overall, and the fund’s U.S. REITs returned 13% overall.

Stock selections in Hong Kong also weighed on the fund’s performance compared with the index, while returning approximately 16%. One example of a stock in this market that underperformed was Shangri-La Asia Limited, which owns and operates hotels. Although securities of this company seemed attractively valued based on proprietary research, they returned -11% for the fund for the 12 months. The index did not include this company’s stock and generated an overall return of approximately 24% in real estate securities from Hong Kong, well above the return generated by the fund.

German real estate security choices worked out more favorably, as did an overweight in German securities compared with the index. Holdings in this market returned approximately 37% for the fund, outperforming the 30% return that German real estate securities generated for the index. One example of a stock that helped to make the fund’s outperformance in this market possible was Deutsche Wohnen AG, which develops, rents, and sells residential properties. The fund held a substantial overweight in securities of Deutsche Wohnen AG compared with the index, and therefore benefitted from the approximately 45% return generated by these securities for the 12 months.

In addition, the fund owned real estate securities from Chile, and these holdings returned approximately 46%. This helped performance compared with the index, which did not include Chilean stocks.

As of 02/28/13:

Statistics


Number of Holdings			134
Weighted Average Market Cap ($ x 1,000,000)			$13,011
Price/Earnings Ratio (P/E)			24.1
Price/Book Ratio (P/B)			1.5
Portfolio Turnover Rate			128%

Industry Weightings % of Investments


Real Estate Management & Development			31.6%
Retail REITs			20.2%
Specialized REITs			12.3%
Office REITs			11.4%
Residential REITs			10.2%
Diversified REITs			7.8%
Industrial REITs			2.9%
Homebuilding			0.9%
Health Care Facilities			0.1%
Short-Term Investments			2.6%
Total			100.0%

Top Holdings % of Net Assets¹


Simon Property Group, Inc.			4.6%
Westfield Group			3.0%
SL Green Realty Corp.			2.6%
Mitsui Fudosan Co., Ltd.			2.5%
Essex Property Trust, Inc.			2.4%
The Macerich Co.			2.2%
Sun Hung Kai Properties Ltd.			2.2%
Unibail-Rodamco SE			2.1%
British Land Co., plc			2.1%
Hang Lung Properties Ltd.			1.8%
Total			25.5%

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

Source of Sector Classification: S&P and MSCI.


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

6 Schwab Global Real Estate Fund

Schwab Global Real Estate Fund^tm

Performance and Fund Facts as of 02/28/13

May 31, 2007 – February 28, 2013
Performance of Hypothetical
$10,000 Investment^1,3

Average Annual Total Returns^1,2,3


Fund and Inception Date	1 Year				5 Years			Since Inception


Fund: Schwab Global Real Estate Fund^tm (5/31/07)		16.47	%	*		2.61	%		-1.43	%
FTSE EPRA/NAREIT Global Index		20.19	%			2.84	%		-0.69	%
Fund Category: Morningstar Global Real Estate		19.93	%			2.10	%		-2.13	%

Fund Expense Ratios⁴: Net 1.05%; Gross 1.18%

Country Weightings % of Investments


United States			41.1%
Hong Kong			12.3%
Japan			9.4%
Australia			7.7%
Canada			5.4%
Singapore			4.1%
United Kingdom			3.5%
China			2.4%
Brazil			2.3%
France			2.1%
Other Countries			9.7%
Total			100.0%

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

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

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

The fund is subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets.

Index ownership—“FTSE^®” is trademark of The Financial Times Limited (“FT”) and the London Exchange Plc (the “Exchange”) and is used by the fund under license. The Schwab Global Real Estate Fund is not sponsored, endorsed, sold or promoted by FT or the Exchange, and FT and the Exchange do not make any representation regarding the advisability of investing in shares of the fund.


*		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 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 semi-annual reports.
¹		Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the fund’s returns may 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.
²		Source for category information: Morningstar, Inc.
³		On September 28, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund, and the fund no longer offers multiple classes of shares. The performance history of the fund, prior to September 28, 2009, is that of the fund’s former Select Shares.
⁴		As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the reporting period, refer to the financial highlights section of the financial statements.

Schwab Global Real Estate Fund 7

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

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

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in the fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning September 1, 2012 and held through February 28, 2013.

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

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

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

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. Therefore, the hypothetical return lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 9/1/12		at 2/28/13		9/1/12–2/28/13

Schwab Global Real Estate Fund^tm
Actual Return		1.05%	$	1,000	$	1,098.00	$	5.46
Hypothetical 5% Return		1.05%	$	1,000	$	1,019.59	$	5.26


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²		Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

8 Schwab Global Real Estate Fund

Schwab Global Real Estate Fund™

Financial Statements

Financial Highlights


	3/1/12–			3/1/11–			3/1/10–			3/1/09–			3/1/08–
	2/28/13			2/29/12			2/28/11			2/28/10¹			2/28/09


Per-Share Data ($)

Net asset value at beginning of period		6.32			6.69			5.71			3.27			7.89

Income (loss) from investment operations:
Net investment income (loss)		0.14			0.12			0.19			0.16			0.16
Net realized and unrealized gains (losses)		0.89			(0.27	)		1.28			2.64			(4.65	)

Total from investment operations		1.03			(0.15	)		1.47			2.80			(4.49	)
Less distributions:
Distributions from net investment income		(0.41	)		(0.22	)		(0.49	)		(0.36	)		(0.13	)

Net asset value at end of period		6.94			6.32			6.69			5.71			3.27

Total return (%)		16.64			(2.13	)		26.70			86.27			(57.72	)

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		1.05			1.05			1.05			1.07	²		1.05
Gross operating expenses		1.16			1.18			1.20			1.30			1.24
Net investment income (loss)		1.70			1.79			2.29			2.31			2.83
Portfolio turnover rate		128			120			129			115			108
Net assets, end of period ($ x 1,000,000)		233			198			200			147			45

¹ Effective September 28, 2009, the Investor Shares class and the Select Shares class were combined into a single class of shares of the fund. The financial history as shown in the financial highlights is that of the former Select Shares.

² The ratio of net operating expenses would have been 1.05% if certain non-routine expenses (proxy and tax expense) had not been incurred.

See financial notes 9

Schwab Global Real Estate Fund

Portfolio Holdings as of February 28, 2013

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

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting the fund’s website at www.schwabfunds.com/prospectus.

Cost

Value

Holdings by Category

($)

.2%

Common Stock

193,020,639

226,520,222

.6%

Short-Term Investments

6,110,993

.8%

Total Investments

199,131,632

232,631,215

.2%

Other Assets and Liabilities, Net

423,859

100

.0%

Net Assets

233,055,074


	Number		Value
Security	of Shares		($)

Common Stock 97.2% of net assets

Australia 7.5%


Real Estate 7.5%
CFS Retail Property Trust Group		145,900		311,002
Commonwealth Property Office Fund		2,510,460		2,853,334
Federation Centres		58,400		146,149
Goodman Group		213,900		1,014,634
GPT Group		173,900		696,784
Investa Office Fund		130,500		405,602
Mirvac Group		510,600		854,324
Westfield Group		612,640		7,000,965
Westfield Retail Trust		1,278,741		4,149,061

				17,431,855

Austria 1.0%


Real Estate 1.0%
Immofinanz AG *		581,000		2,426,687

Belgium 0.2%


Real Estate 0.2%
Befimmo S.C.A.		7,500		493,976

Brazil 2.3%


Consumer Durables & Apparel 0.9%
Cyrela Brazil Realty S.A. Empreendimentos e Participacoes		59,200		520,400
Even Construtora e Incorporadora S.A.		93,200		470,850
MRV Engenharia e Participacoes S.A.		86,100		552,425
Rossi Residencial S.A.		329,300		583,936

				2,127,611


Real Estate 1.4%
BR Properties S.A.		60,100		746,923
Multiplan Empreendimentos Imobiliarios S.A.		84,050		2,405,493

				3,152,416

				5,280,027

Canada 5.4%


Health Care Equipment & Services 0.1%
Extendicare, Inc.		30,700		239,646


Real Estate 5.3%
Allied Properties Real Estate Investment Trust		16,100		535,496
Boardwalk Real Estate Investment Trust		23,279		1,459,156
Brookfield Canada Office Properties		14,796		419,525
Brookfield Office Properties, Inc.		33,863		564,794
Canadian Apartment Properties Real Estate Investment Trust		132,614		3,265,037
Canadian Real Estate Investment Trust		37,593		1,713,694
Chartwell Retirement Residences		129,900		1,384,340
Cominar Real Estate Investment Trust		94,900		2,077,907
InnVest Real Estate Investment Trust		50,000		216,727
RioCan Real Estate Investment Trust		27,700		748,068

				12,384,744

				12,624,390

Chile 0.9%


Real Estate 0.9%
Parque Arauco S.A.		751,760		2,087,031

China 2.4%


Real Estate 2.4%
Agile Property Holdings Ltd.		294,000		379,178
Beijing Capital Land Ltd., Class H		1,558,000		708,692
China Resources Land Ltd.		692,000		2,019,874
Evergrande Real Estate Group Ltd.		2,047,000		1,007,419
Guangzhou R&F Properties Co., Ltd., Class H		811,700		1,374,301

				5,489,464

Finland 0.5%


Real Estate 0.5%
Sponda Oyj		136,100		668,719
Technopolis Oyj		68,800		365,575

				1,034,294

10 See financial notes

Schwab Global Real Estate Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

France 2.1%


Real Estate 2.1%
Unibail-Rodamco SE		21,337		4,933,492

Germany 1.7%


Real Estate 1.7%
Alstria Office REIT-AG		71,700		838,633
Deutsche Wohnen AG		168,049		3,080,223
Patrizia Immobilien AG *		14,300		121,500

				4,040,356

Hong Kong 12.3%


Real Estate 12.3%
China Overseas Land & Investment Ltd.		854,800		2,590,282
Franshion Properties China Ltd.		1,048,000		370,044
Great Eagle Holdings Ltd.		141,000		559,192
Hang Lung Properties Ltd.		1,086,300		4,210,502
Henderson Land Development Co., Ltd.		212,000		1,473,443
Hongkong Land Holdings Ltd.		330,000		2,545,091
Hysan Development Co., Ltd.		346,000		1,778,927
Kerry Properties Ltd.		514,200		2,640,720
Prosperity REIT		1,129,000		386,981
Sino-Ocean Land Holdings Ltd.		357,500		246,873
Sun Hung Kai Properties Ltd.		334,454		5,175,685
The Link REIT		427,000		2,282,715
The Wharf Holdings Ltd.		346,400		3,025,416
Yuexiu Property Co., Ltd.		1,456,000		502,648
Yuexiu Real Estate Investment Trust		1,486,500		783,930

				28,572,449

India 0.3%


Real Estate 0.3%
DLF Ltd.		147,600		750,931

Indonesia 0.8%


Real Estate 0.8%
PT Ciputra Development Tbk		3,782,000		434,349
PT Pakuwon Jati Tbk		11,900,000		442,932
PT Summarecon Agung Tbk		4,372,400		1,051,507

				1,928,788

Israel 0.7%


Real Estate 0.7%
Azrieli Group		61,700		1,652,672

Japan 9.4%


Real Estate 9.4%
Activia Properties, Inc.		200		1,519,034
Aeon Mall Co., Ltd.		86,000		2,133,001
Daiwa Office Investment Corp.		100		424,952
Global One Real Estate Investment Corp.		100		681,676
Japan Hotel REIT Investment Corp.		4,000		1,343,688
Japan Logistics Fund, Inc.		200		1,900,789
MID REIT, Inc.		200		480,845
Mitsubishi Estate Co., Ltd.		164,900		4,110,822
Mitsui Fudosan Co., Ltd.		231,500		5,888,399
Sumitomo Realty & Development Co., Ltd.		101,900		3,444,985

				21,928,191

Malaysia 0.5%


Real Estate 0.5%
CapitaMalls Malaysia Trust		394,800		240,163
KLCC Property Holdings Bhd		175,700		371,810
SP Setia Bhd		76,600		78,075
Starhill Real Estate Investment Trust		397,900		137,762
Sunway Real Estate Investment Trust		745,000		364,002

				1,191,812

New Zealand 0.1%


Real Estate 0.1%
Kiwi Income Property Trust		349,600		333,811

Philippines 0.9%


Real Estate 0.9%
Robinsons Land Corp.		1,679,200		939,355
SM Prime Holdings, Inc.		2,413,725		1,126,728

				2,066,083

Singapore 4.1%


Real Estate 4.1%
CapitaCommercial Trust		1,164,200		1,559,549
CapitaLand Ltd.		368,000		1,156,091
CapitaMall Trust		374,000		648,137
CDL Hospitality Trusts		575,200		959,780
Global Logistic Properties Ltd.		1,145,300		2,348,959
Keppel REIT		414,200		447,592
Starhill Global REIT		1,645,700		1,163,134
Suntec Real Estate Investment Trust		822,000		1,191,844

				9,475,086

South Africa 0.4%


Real Estate 0.4%
Growthpoint Properties Ltd.		308,300		935,962

Sweden 1.5%


Real Estate 1.5%
Fabege AB		69,100		762,546
Hufvudstaden AB, A Shares		206,000		2,832,873

				3,595,419

See financial notes 11

Schwab Global Real Estate Fund

Portfolio Holdings continued


	Number		Value
Security	of Shares		($)

Thailand 0.1%


Real Estate 0.1%
CPN Retail Growth Leasehold Property Fund		165,600		111,235

United Kingdom 3.5%


Real Estate 3.5%
British Land Co., plc		568,000		4,876,861
Land Securities Group plc		146,588		1,841,054
Segro plc		386,100		1,494,649

				8,212,564

United States 38.6%


Real Estate 38.6%
Alexandria Real Estate Equities, Inc.		55,059		3,916,897
American Assets Trust, Inc.		23,500		710,405
American Campus Communities, Inc.		23,700		1,071,240
American Tower Corp.		27,600		2,141,760
Apartment Investment & Management Co., Class A		47,000		1,392,140
Associated Estates Realty Corp.		132,000		2,307,360
AvalonBay Communities, Inc.		23,524		2,936,501
Boston Properties, Inc.		35,651		3,703,426
Chesapeake Lodging Trust		28,500		613,605
DiamondRock Hospitality Co.		60,700		542,658
Duke Realty Corp.		103,780		1,677,085
EPR Properties		13,900		678,181
Equity Lifestyle Properties, Inc.		3,000		221,070
Equity Residential		58,800		3,236,352
Essex Property Trust, Inc.		37,166		5,537,362
General Growth Properties, Inc.		112,100		2,145,594
HCP, Inc.		82,748		4,044,722
Hospitality Properties Trust		12,800		341,760
Host Hotels & Resorts, Inc.		213,253		3,554,927
Hudson Pacific Properties, Inc.		35,200		794,464
Kilroy Realty Corp.		34,100		1,799,116
LaSalle Hotel Properties		149,608		3,798,547
Mack-Cali Realty Corp.		24,300		689,634
Medical Properties Trust, Inc.		48,700		707,124
Pebblebrook Hotel Trust		25,000		597,750
ProLogis, Inc.		62,271		2,424,833
Public Storage		18,806		2,843,655
Regency Centers Corp.		34,300		1,779,484
Sabra Health Care REIT, Inc.		24,200		639,606
Simon Property Group, Inc.		68,181		10,831,234
SL Green Realty Corp.		73,600		6,007,232
Tanger Factory Outlet Centers, Inc.		47,900		1,690,391
Taubman Centers, Inc.		31,900		2,447,368
The Macerich Co.		86,300		5,187,493
UDR, Inc.		98,703		2,355,054
Ventas, Inc.		57,567		4,074,592
Vornado Realty Trust		6,022		483,025

				89,923,647

Total Common Stock
(Cost $193,020,639)				226,520,222



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

Short-Term Investments 2.6% of net assets

Time Deposits 2.6%
Brown Brothers Harriman
Singapore Dollar
0.01%, 03/01/13		111,684		90,184
JPMorgan Chase
Australian Dollar
1.33%, 03/01/13		356,411		364,057
Societe Generale
US Dollar
0.03%, 03/01/13		5,546,753		5,546,753

				6,000,994

U.S. Treasury Obligations 0.0%
U.S. Treasury Bills
0.02%, 03/14/13 (a)(b)		40,000		40,000
0.03%, 03/14/13 (a)(b)		70,000		69,999

				109,999

Total Short-Term Investments
(Cost $6,110,993)				6,110,993



End of Investments.

At 02/28/13, the tax basis cost of the fund’s investments was $210,140,138 and the unrealized appreciation and depreciation were $24,182,255 and ($1,691,178), respectively, with a net unrealized appreciation of $22,491,077.

As of 02/28/13, the values of certain foreign securities held by the fund aggregating $115,816,178 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the Board of Trustees. (See financial note 2).


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

In addition to the above, the fund held the following at 02/28/13.

Contract

Unrealized

Number of

Value

Gains

Contracts

($)

Futures Contract

S&P 500 Index, e-mini, Long, expires 03/15/13

2,269,950

96,748

12 See financial notes

Schwab Global Real Estate Fund

Portfolio Holdings continued

The following is a summary of the inputs used to value the fund’s investments as of February 28, 2013 (see financial note 2(a) for additional information):


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

Common Stock¹		$—		$94,660,030		$—		$94,660,030
Australia
Real Estate		146,149		17,285,706		—		17,431,855
Brazil¹		5,280,027		—		—		5,280,027
Canada¹		12,624,390		—		—		12,624,390
Finland
Real Estate		365,575		668,719		—		1,034,294
Germany
Real Estate		838,633		3,201,723		—		4,040,356
Malaysia¹		1,191,812		—		—		1,191,812
New Zealand¹		333,811		—		—		333,811
United States¹		89,923,647		—		—		89,923,647
Short-Term Investments¹		—		6,110,993		—		6,110,993

Total		$110,704,044		$121,927,171		$—		$232,631,215

Other Financial Instruments
Futures Contract²		$96,748		$—		$—		$96,748


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

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $1,041,203 from Level 1 to Level 2 for the period ended February 28, 2013. The transfers between Level 1 and Level 2 were primarily due to the use of international fair valuation by the fund. There were no transfers in or out of Level 3 securities during the period.

See financial notes 13

Schwab Global Real Estate Fund

Statement of

Assets and Liabilities

As of February 28, 2013



Assets

Investments, at value (cost $199,131,632)		$232,631,215
Foreign currency, at value (cost $11,310)		11,330
Receivables:
Investments sold		564,260
Dividends		261,983
Fund shares sold		216,048
Foreign tax reclaims		19,244
Prepaid expenses	+	2,191

Total assets		233,706,271

Liabilities

Payables:
Investments bought		344,659
Investment adviser and administrator fees		13,635
Shareholder services fees to affiliate		4,804
Fund shares redeemed		247,763
Foreign capital gains tax		25,723
Due to brokers for futures		3,750
Accrued expenses	+	10,863

Total liabilities		651,197

Net Assets

Total assets		233,706,271
Total liabilities	−	651,197

Net assets		$233,055,074

Net Assets by Source
Capital received from investors		322,003,791
Distributions in excess of net investment income		(4,671,317	)
Net realized capital losses		(117,841,871	)
Net unrealized capital gains		33,564,471

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$233,055,074

33,602,743

$6.94

14 See financial notes

Schwab Global Real Estate Fund

Statement of

Operations

For March 1, 2012 through February 28, 2013



Investment Income

Dividends (net of foreign withholding tax of $289,314 )		$5,754,688
Interest	+	1,348

Total investment income		5,756,036

Expenses

Investment adviser fees		1,608,918
Shareholder service fees		514,068
Professional fees		81,392
Portfolio accounting fees		69,832
Custodian fees		50,308
Shareholder reports		42,978
Registration fees		23,862
Transfer agent fees		19,292
Trustees’ fees		10,034
Interest expense		762
State filing fee reimbursement (Note 4)		(736	)
Other expenses	+	12,117

Total expenses		2,432,827
Expense reduction by CSIM¹	−	237,989

Net expenses	−	2,194,838

Net investment income		3,561,198

Realized and Unrealized Gains (Losses)

Net realized gains on investments		20,372,279
Net realized losses on futures contracts		(16,778	)
Net realized losses on foreign currency transactions	+	(23,736	)

Net realized gains		20,331,765
Net unrealized gains on investments (net of foreign capital gain tax of ($25,723))		8,331,586
Net unrealized gains on futures contracts		96,748
Net unrealized losses on foreign currency translations	+	(9,812	)

Net unrealized gains	+	8,418,522

Net realized and unrealized gains		28,750,287

Increase in net assets resulting from operations		$32,311,485


¹		Expense reduction by CSIM was decreased by a payment to adviser for state registration fees of $736. See financial note 4 for additional information.

See financial notes 15

Schwab Global Real Estate Fund

Statement of

Changes in Net Assets

For the current and prior report periods



Operations


3/1/12-2/28/13				3/1/11-2/29/12
Net investment income		$3,561,198			$3,497,650
Net realized gains		20,331,765			6,679,687
Net unrealized gains (losses)	+	8,418,522			(14,269,735	)

Increase (Decrease) in net assets from operations		32,311,485			(4,092,398	)

Distributions to Shareholders

Distributions from net investment income		($12,846,685	)		($6,901,946	)

Transactions in Fund Shares


		3/1/12-2/28/13					3/1/11-2/29/12
			SHARES		VALUE			SHARES		VALUE
Shares sold			6,313,389		$42,092,531			7,777,566		$47,640,172
Shares reinvested			968,980		6,418,413			584,921		3,654,299
Shares redeemed	+		(4,958,944	)	(32,711,806	)		(7,000,157	)	(42,659,687	)

Net transactions in fund shares			2,323,425		$15,799,138			1,362,330		$8,634,784

Shares Outstanding and Net Assets

		3/1/12-2/28/13					3/1/11-2/29/12
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			31,279,318		$197,791,136			29,916,988		$200,150,696
Total increase or decrease	+		2,323,425		35,263,938			1,362,330		(2,359,560	)

End of period			33,602,743		$233,055,074			31,279,318		$197,791,136


Distributions in excess of net investment income					($4,671,317	)				($2,955,504	)

16 See financial notes

Schwab Global Real Estate Fund

Financial Notes

1. Business Structure of the Fund:

Schwab Global Real Estate Fund is a series of Schwab Investments (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 Investments (organized October 26, 1990)		Schwab GNMA Fund
Schwab Global Real Estate Fund		Schwab Treasury Inflation Protected Securities Fund
Schwab Short-Term Bond Market Fund		Schwab Tax-Free Bond Fund
Schwab Intermediate-Term Bond Fund		Schwab California Tax-Free Bond Fund
(formerly Schwab Premier Income Fund)		Schwab 1000 Index Fund
Schwab Total Bond Market Fund

Schwab Global Real Estate Fund offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 9) 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 accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the 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:


	•	Securities traded on an exchange or over-the-counter: valued at the closing value for the day, or, on days when no closing value has been reported, at halfway between the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the 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. 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. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.

	•	International fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the 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

Schwab Global Real Estate Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		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 net asset value of the fund’s shares, and seeks to help ensure that the prices at which the fund’s shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between the return of the fund and that of its comparative index or benchmark. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board regularly reviews fair value determinations made by the fund pursuant to the valuation procedures.


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

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

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

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts.

	•	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 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. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumption 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

Schwab Global Real Estate Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):


		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 February 28, 2013 are disclosed in the Portfolio Holdings.

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

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

Real Estate Investment Trusts: The fund may own shares of real estate investment trusts (REITs) which report information on the source of their distributions annually. Certain distributions received from U.S. REITs during the year, which are known to be a return of capital or realized gains, are recorded as a reduction to the cost of the individual U.S. REITs or realized gains on investments, respectively.

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).

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

If applicable, the value of the securities on loan as of February 28, 2013 and the value of the related collateral are disclosed in the Portfolio Holdings and the Statement of Assets and Liabilities.

(c) Security Transactions:

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

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 difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations on 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

Schwab Global Real Estate Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):

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 gains to provide for potential non-U.S. taxes payable upon the sale of these securities.

When the fund closes out a futures or forwards position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.

(d) Investment Income:

Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date.

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

(e) Expenses:

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

(f) Distributions to Shareholders:

The fund makes distributions from net investment income quarterly and distributes 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. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to its respective shareholders each year. As long as a 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 payable as of February 28, 2013, 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.

Schwab Global Real Estate Fund

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(k) New Accounting Pronouncements:

In December 2011, Accounting Standards Update (“ASU”) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” was issued and is effective for interim and annual periods beginning after January 1, 2013. The ASU enhances disclosure requirements with respect to an entity’s rights of offset and related arrangements associated with its financial and derivative instruments. Management is currently evaluating the impact the adoption of ASU No. 2011-11 may have on the fund’s financial statement disclosures.

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.

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

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.

Even the larger REITs and other real estate companies may be small- to medium-sized companies in relation to the equity markets as a whole. Historically, mid- and small-cap stocks have been riskier than large-cap stocks. Mid- and small-cap companies themselves may be more vulnerable to adverse business or economic events than larger, more established companies. Stock prices of smaller companies may be based in substantial part on future expectations rather than current achievements and may move sharply, especially during market upturns and downturns. During a period when mid- and small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — the fund’s small- and mid-cap holdings could reduce performance.

Although the fund does not invest directly in real estate, the fund has a policy of concentrating its investments in real estate companies and companies related to the real estate industry. As such, the fund is subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets. 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; default by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

In addition to the risks associated with investing in securities of real estate companies and real estate related companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in the value of the underlying properties owned by the trusts, and mortgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills and may have their investments in relatively few properties, or in 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 to the fund. In addition, REITs have their own expenses, and the fund will bear a proportionate share of those expenses.

The fund may invest in debt securities, including high yield securities (junk bonds) issued or guaranteed by real estate companies or companies related to the real estate industry, such as fixed-, floating- or variable-rate corporate bonds, collateralized debt obligations, fixed-rate capital securities, mortgage pass through certificates, real estate mortgage investment conduit certificates and collateralized mortgage obligations. The fund’s investments in such securities are subject to the risk that interest rates rise and fall over time, which will affect the fund’s yield and share price. The credit quality of a portfolio investment could also cause the fund’s share price to fall. The 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. Debt securities may be paid off earlier or later than expected. Either situation could cause the fund to hold securities paying lower than market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.

The fund’s investments in securities of foreign issuers involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other

Schwab Global Real Estate Fund

Financial Notes (continued)

3. Risk Factors (continued):

conditions, or changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures: and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.

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

The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline, and the credit standing of the issuer. The price of a convertible security will also normally vary in some proportion to changes in the price of the underlying common stock because of the conversion or exercise feature.

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 and could cause the fund to lose more than the principal amount invested. In addition, investments in derivatives may involve leverage. However, these risks are less severe when the fund uses derivatives for hedging rather than to enhance the fund’s returns or as a substitute for a position or security. Certain fund transactions, such as derivatives, short sales and reverse repurchase agreements, may give rise to a form of leverage and may expose the fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of the fund’s portfolio securities which means even a small amount of leverage can have a disproportionately large impact on the fund. The use of leverage may cause the fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations. The fund will incur a loss if the price of the security sold short increases between the time of the short sale and the time the fund replaces the borrowed security.

As an actively managed mutual fund, the fund is subject to the risk that its investment adviser will make poor security selections. The fund’s investment adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results.

When the fund invests in an exchange-traded fund (ETF), it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio securities. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.

A particular investment may be difficult to purchase or sell. The fund may be unable to sell illiquid securities at an advantageous time or price. An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

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

4. Affiliates and Affiliated Transactions:

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

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee equal to 0.77% of the fund’s average daily net assets.

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 service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. Schwab serves as the fund’s paying agent under the Plan for making payments of the shareholder service fee due to the service providers (other than Schwab) under the Plan. All shareholder service fees paid by the fund to Schwab in its capacity as the fund’s paying agent will be passed through to the service providers, and Schwab will not retain any portion of such fees.

Pursuant to the Plan, the fund’s shares are subject to an annual shareholder servicing fee up to 0.25%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab (or, in the case of payments

Schwab Global Real Estate Fund

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

made to Schwab, pursuant to Schwab’s written agreement with the fund), and the 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 providers. Payments under the Plan are made as described above regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payment received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.

Although these agreements specify certain fees for these services, CSIM and its affiliates have made an additional agreement (“expense limitation”) with the fund to limit the total annual fund operating expenses to 1.05%, excluding interest, taxes and certain non-routine expenses, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board.

Certain Schwab Funds may own shares of other Schwab Funds. The table below reflects the percentage of the outstanding shares of the fund owned by other Schwab Funds as of February 28, 2013:


Schwab Target Funds:
Schwab Target 2010 Fund	0.5%
Schwab Target 2015 Fund	0.8%
Schwab Target 2020 Fund	4.3%
Schwab Target 2025 Fund	2.6%
Schwab Target 2030 Fund	8.2%
Schwab Target 2035 Fund	2.5%
Schwab Target 2040 Fund	9.6%
Schwab Target 2045 Fund	0.0%	*
Schwab Target 2050 Fund	0.0%	*
Schwab Target 2055 Fund	0.0%	*

Schwab Monthly Income Funds:
Schwab Monthly Income Fund — Moderate Payout	1.6%
Schwab Monthly Income Fund — Enhanced Payout	2.9%
Schwab Monthly Income Fund — Maximum Payout	1.5%


*		Less than 0.1%.

The fund may engage in direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and/or officers. For the period ended February 28, 2013, the fund had no direct security transactions with other Schwab Funds.

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

During the period, the fund received a payment of $736, related to state filing fees resulting from revised fee calculation methodologies being applied on sales of the fund’s shares in prior periods. This payment is presented in the fund’s Statement of Operations as “State filing fee reimbursement”.

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

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

Schwab Global Real Estate Fund

Financial Notes (continued)

5. Board of Trustees (continued):

limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted in the fund’s Statement of Operations. For information regarding the trustees please refer to Trustees and Officers Table at the end of this report.

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

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

7. Derivatives:

The fund entered into equity index futures contracts (“futures”) during the report period. The fund invested in futures to equitize available cash. The fair value and due to brokers for futures contracts held at February 28, 2013 are presented on the face of the Portfolio Holdings and Statement of Assets and Liabilities, respectively. The net realized/unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the fund’s accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period, the month-end average contract values of futures contracts held by the fund was $464,581 and the month-end average number of contracts held was 6.

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended February 28, 2013, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

9. Redemption Fee:

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

10. Federal Income Taxes:

As of February 28, 2013, the components of distributable earnings on a tax-basis were as follows:


Undistributed ordinary income	$3,804,467
Undistributed long-term capital gains	—
Unrealized appreciation on investments	24,182,255
Unrealized depreciation on investments	(1,691,178	)
Other unrealized appreciation/(depreciation)	(31,860	)

Net unrealized appreciation/(depreciation)	$22,459,217

Schwab Global Real Estate Fund

Financial Notes (continued)

10. Federal Income Taxes (continued):

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

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of February 28, 2013, the fund had capital loss carryforwards available to offset future net capital gains before the expiration dates:


Expiration Date

February 28, 2017			$54,927,360
February 28, 2018			60,285,041

Total			$115,212,401

For tax purposes, realized net capital losses and late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended February 28, 2013, the fund had no capital losses deferred and had capital losses utilized in the amount of $6,006,418.

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


Current period distributions
Ordinary income			$12,846,685
Long-term capital gains			—
Return of capital			—

Prior period distributions
Ordinary income			$6,901,946
Long-term capital gains			—
Return of capital			—

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

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 February 28, 2013, the fund made the following reclassifications:


Capital shares	$—
Undistributed net investment income	7,569,674
Net realized capital gains/(losses)	(7,569,674	)

As of February 28, 2013, 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 period ended February 28, 2013, the fund did not incur any interest or penalties.

11. Subsequent Events:

Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Schwab Global Real Estate Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Global Real Estate Fund (one of the portfolios constituting Schwab Investments, hereafter referred to as the “Fund”) at February 28, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

April 15, 2013

Trustees and Officers

The tables below give information about the trustees and officers of Schwab Investments, which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 94 funds.

The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the funds’ Statement of Additional Information, which is available free by calling 1-800-435-4000.

Independent Trustees


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

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Investments since 2000.)	Chairman of JDN Corporate Advisory LLC.	77	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Investments since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	77	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of Schwab Investments since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	77	Director, TOUSA (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Aviat Networks (2001 – present) Director, Mission West Properties (1998 – 2012) Director, Ditech Networks Corporation (1997 – 2012) Director, Genitope Corporation (2000 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Investments since 2011.)	Private Investor.	77	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Tercica Inc. (2004 – 2008)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Investments since 2011.)	Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – present); Senior Vice President and General Manager of Consumer Group, Intuit, Inc. (June 2007 – Dec. 2008); Senior Vice President and Chief Financial Officer, Intuit, Inc. (Sept. 2005 – Jan. 2008).	77	Director, KLA-Tencor Corporation (2008 – present) Director, BEA Systems, Inc. (2007 – 2008)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Investments since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	77	Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present) Lead Independent Director, Board of Cooper Industries (2002 – 2012)

Independent Trustees (continued)


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

Joseph H. Wender 1944 Trustee (Trustee of Schwab Investments since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present.)	77	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


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

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Investments since 199.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	77	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Investments since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	94	None

Officers of the Trust


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

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Investments since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President and Chief Executive Officer (Dec. 2010 – present) and Chief Investment Officer (Dec. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present); Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


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


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


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


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


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds^® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the Schwab Funds retirement policy also requires any independent trustee of the Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab. In addition to their employment with Schwab, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation, the parent company of Schwab and the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Glossary

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

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

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

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

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

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

cap, capitalization See “market cap.”

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

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

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

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

FTSE EPRA/NAREIT Global Index An index that is designed to provide a diverse representation of publicly traded equity REITs and listed property companies worldwide.

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

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

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

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

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

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

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

real estate investment trust (REIT) Real estate companies that own and commonly operate income producing commercial and/or residential real estate.

real estate operating companies (REOC) Real estate companies that engage in the development, management or financing of real estate.

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

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

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

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

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

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

PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT

A Commitment to Your Privacy

Your Privacy Is Not for Sale

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

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

How We Collect Information About You

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


•	APPLICATION AND REGISTRATION INFORMATION.

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


•	TRANSACTION AND EXPERIENCE INFORMATION.

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


•	WEBSITE USAGE.

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

How We Share and Use Your Information

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


•	to help us process transactions for your account;

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

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

State Laws

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

Safeguarding Your Information — Security Is a Partnership

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

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

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

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

Contact Us

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

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

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

Whether you are an experienced investor or just starting out, Schwab Funds can help you achieve your financial goals. An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any Schwab Fund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.

Proxy Voting Policies, Procedures and Results

A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at http://www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.

Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/prospectus or the SEC’s website at http://www.sec.gov.

The Schwab Funds Family^®

Stock Funds

Schwab Core Equity Fund^tm

Schwab Dividend Equity Fund^tm

Schwab Large-Cap Growth Fund^tm

Schwab Small-Cap Equity Fund^tm

Schwab Hedged Equity Fund^tm

Schwab Financial Services Fund^tm

Schwab Health Care Fund^tm

Schwab^® International Core Equity Fund

Schwab Fundamental US Large Company Index Fund

Schwab Fundamental US Small Company Index Fund

Schwab Fundamental International Large Company Index Fund

Schwab Fundamental International Small Company Index Fund

Schwab Fundamental Emerging Markets Large Company Index Fund

Schwab Global Real Estate Fund^tm

Schwab^® S&P 500 Index Fund

Schwab 1000 Index^® Fund

Schwab Small-Cap Index Fund^®

Schwab Total Stock Market Index Fund^®

Schwab International Index Fund^®

Asset Allocation Funds

Schwab Balanced Fund^tm

Schwab MarketTrack All Equity Portfolio^tm

Schwab MarketTrack Growth Portfolio^tm

Schwab MarketTrack Balanced Portfolio^tm

Schwab MarketTrack Conservative Portfolio^tm

Schwab Target 2010 Fund

Schwab Target 2015 Fund

Schwab Target 2020 Fund

Schwab Target 2025 Fund

Schwab Target 2030 Fund

Schwab Target 2035 Fund

Schwab Target 2040 Fund

Schwab Target 2045 Fund

Schwab Target 2050 Fund

Schwab Target 2055 Fund

Schwab^® Monthly Income Fund – Moderate Payout

Schwab^® Monthly Income Fund – Enhanced Payout

Schwab^® Monthly Income Fund – Maximum Payout

Bond Funds

Schwab Short-Term Bond Market Fund^tm

Schwab Intermediate-Term Bond Fund^tm

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab^® Treasury Inflation Protected Securities Fund

Schwab Tax-Free Bond Fund^tm

Schwab California Tax-Free Bond Fund^tm

Schwab Money Funds

Schwab offers an array of money market funds¹. Choose from taxable or tax-advantaged alternatives. Many can be linked to your eligible Schwab account to “sweep” cash balances automatically, subject to availability, when you’re between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments^®.


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

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 12(a)(1) of Form N-CSR.

Item 3: Audit Committee Financial Expert.

		Registrant’s Board of Trustees has determined that Mariann Byerwalter, William Hasler and Kiran Patel, each currently serving on its audit 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 committee is “independent” under the standards set forth in Item 3 of Form N-CSR.

		The designation of each of Ms. Byerwalter, Mr. Hasler and Mr. Patel 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 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 committee or Board of Trustees.

Item 4: Principal Accountant Fees and Services.

(a) Below are the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of Registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

Audit Fees

2013

$317,610 2012: $293,789

(b) Below are the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of Registrant’s financial statements and are not reported under paragraph (a) above.

Audit-Related Fees

For services rendered to Registrant:

2013

$20,511 2012:: $27,705

Nature of these services: tax provision review.

In each of the last two fiscal years there were no “Audit-Related Fees” required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

(c) Below are the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.

		Tax Fees

		For services rendered to Registrant:

2013

$22,671 2012:: $29,344

Nature of these services: preparation and review of tax returns.

In each of the last two fiscal years there were no “Tax Fees” required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

(d) Below are the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above.

		All Other Fees

		For services rendered to Registrant:

2013

$3,214 2012:: $4,109


Nature of these services:		review of the methodology of allocation of Charles Schwab & Co., Inc. (“Schwab”) expenses for purposes of Section 15(c) of the Investment Company Act of 1940.

In each of the last two fiscal years there were no “All Other Fees” required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

(e)(1) Registrant’s audit 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 committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant’s audit 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.

2013

$46,396 2012:: $61,158

(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 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, Marie Chandoha and Registrant’s Principal Financial Officer, George Pereira, 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 second fiscal quarter of 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: Exhibits.

(a)

(1) Registrant’s code of ethics (that is the subject of the disclosure required by Item 2(a)) is attached

	(2)		Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached.

	(3)		Not applicable.

(b)

A certification for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission.



	By:	/s/ George Pereira
		George Pereira
		Principal Financial Officer