nvcsrs

This wrapper is not part of the shareholder report.

Enhance your portfolio by investing in a real estate securities fund with a global perspective.

The Schwab Global Real Estate Fund^tm is designed to be an effective solution to increase overall portfolio performance and increase diversification. The fund will invest in the REITs (Real Estate Investment Trusts) and operating companies that participate in the management, construction or financing of real estate activities across the globe. Schwab developed the Global Real Estate Fund with our clients in mind, as a cost effective and efficient tool to gain access to the rapidly growing global real estate market. Investing in the fund offers several key benefits to boost overall portfolio performance.


•	High Return Potential — Over the past 10 years, global real estate securities have provided robust total returns from a combination of principal appreciation and dividends.

•	Enhanced Portfolio Diversification — Performance of global real estate securities have experienced negative to low correlations to domestic and foreign fixed income and equities.

•	Expanding Global Market — The opportunity to invest in the global real estate market is expanding as the number of countries adopting a U.S. REIT-like structure is increasing. Total global market capitalization surpassed $1.2 trillion in 2006¹.

•	Benefit from a Global Perspective — Investing with a global view can decrease country and regional specific risk and further enhance diversification benefits, because the performance of real estate securities can vary from one region, or country, to another.

•	Schwab Funds^® Advantage — Benefit from Schwab’s proprietary global real estate rating process and the experience of a professional investment management team.

Invest in the Schwab Global Real Estate Fund today and participate in the expanding growth opportunity that global real estate securities offer.


Schwab Global Real Estate Fund Facts
		Minimum	Expense	Ticker
	Share Class	Initial Investment	Ratios²	Symbol

	Investor Shares	$2,500 ($1,000 for retirement and educational and $100 for custodial accounts)	1.20%	SWAIX


	Select Shares^®	$50,000	1.05%	SWASX

For more information on the Schwab Global Real Estate Fund,
call 1-877-769-8004 or visit www.schwab.com/globalrealestate.

Investors should consider carefully information in the prospectus, including investment objectives, risk, charges and expenses. You can request a prospectus by calling Schwab at 1-877-769-8004. Please read the prospectus carefully before investing. Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

International investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. Risks of the REIT’s are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and credit worthiness of the issuer.

Diversification does not eliminate the risk of investment losses.


¹	Source: FTSE NARIET (0507-5716)
²	Agreed by Charles Schwab & Co., Inc., and the investment adviser through June 30, 2009, excluding interest, taxes and certain non-routine expenses. After June 30, 2009, expenses subject to change.

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.schwab.com/schwabfunds.


Total Return for the Report Period


Schwab Tax-Free YieldPlus Fund^tm

Investor Shares (Ticker Symbol: SWYIX)		1.45%
Select Shares^® (Ticker Symbol: SWYTX)		1.52%
Benchmark: Lehman Brothers 1-Year Municipal Bond Index		1.76%
Fund Category: Morningstar Municipal National Intermediate/Short Bond		1.56%

Performance Details		pages 6-7



Schwab Short/Intermediate Tax-Free Bond Fund^tm (Ticker Symbol: SWITX)		1.51%

Benchmark: Lehman Brothers 3-Year Municipal Bond Index		1.78%
Fund Category: Morningstar Municipal Short Bond		1.56%

Performance Details		pages 8-9



Schwab Long-Term Tax-Free Bond Fund^tm (Ticker Symbol: SWNTX)		2.48%

Benchmark: Lehman Brothers General Municipal Bond Index		2.89%
Fund Category: Morningstar Municipal National Long Bond		2.60%

Performance Details		pages 10-11



Schwab California Tax-Free YieldPlus Fund^tm

Investor Shares (Ticker Symbol: SWYKX)		1.40%
Select Shares^® (Ticker Symbol: SWYCX)		1.58%
Benchmark: Lehman Brothers 1-Year Municipal Bond Index		1.76%
Fund Category: Morningstar Municipal California Intermediate/Short Bond		1.96%

Performance Details		pages 12-13



Schwab California Short/Intermediate Term Tax-Free Bond Fund^tm (Ticker Symbol: SWCSX)		1.60%

Benchmark: Lehman Brothers 3-Year Municipal Bond Index		1.78%
Fund Category: Morningstar Municipal California Intermediate/Short Bond		1.96%

Performance Details		pages 14-15



Schwab California Long-Term Tax-Free Bond Fund^tm (Ticker Symbol: SWCAX)		2.64%

Benchmark: Lehman Brothers General Municipal Bond Index		2.89%
Morningstar Municipal California Long Bond		2.73%

Performance Details		pages 16-17



Minimum Initial Investment¹

Investor Shares ($1,000 for retirement and custodial accounts)		$ 2,500
Select Shares		$ 50,000

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

Expenses may be partially absorbed by fund management. 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.


¹	Please see prospectus for further detail and eligibility requirements.

Schwab Tax-Free Bond Funds 1

From the Chairman

Charles Schwab

Chairman

Dear Shareholder,

I want to thank you for entrusting us with your investments. In my view, fixed income investments, such as bond funds, are critical to a successful investment strategy. While no investment is completely risk-free, bond funds are a good choice for investors who want to generate income and reduce volatility in their portfolio.

To help meet your fixed income investing needs, Schwab Funds^® offers bond funds across a range of maturities that span a variety of investment objectives. For investors in higher tax brackets, our tax-free bond funds can help you retain more of what you earn. Furthermore, the Schwab Tax-Free Bond Funds did not hold any securities whose interest was subject to the Alternative Minimum Tax (AMT) during this report period.

Schwab Funds are managed by Charles Schwab Investment Management, one of the largest mutual fund managers in the U.S. Our portfolio managers share a passion for investment research and analysis. I am proud of their depth of experience, which reflects an average of over 14 years in the investment industry. And, I am impressed by the commitment that our managers bring to the stewardship of the funds, for you, their shareholders.

Once again, I want to thank you for choosing Schwab. We strive every day to warrant the trust you have placed in us.

Sincerely,

Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. Capital gains are not exempt from federal income tax.

2 Schwab Tax-Free Bond Funds

From the President

Evelyn Dilsaver is President and CEO of Charles Schwab Investment Management, Inc. and of each of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab.

Dear Shareholder,

I am pleased to present the semiannual report for Schwab Tax-Free Bond Funds for the period ended February 28, 2007. With competitive expenses, extensive credit oversight, and professional portfolio management, Schwab Tax-Free Bond Funds offer both performance and value to meet your investment needs.

While I am proud of the performance of all of our funds, at this time, I would like to highlight the number one Lipper ranking of the Schwab YieldPlus Fund Select Shares for the five-year period ending February 28, 2007¹. The Schwab Short-Term Bond Market Fund has also produced strong results, ranking in the top 10% of its Lipper fund category for the one-year period². And, at the longer end of the maturity spectrum, Schwab Total Bond Market Fund finished the year in the top 20% of its Lipper fund category³.

Since my previous message to you, we have added to our fund offering with the Schwab Global Real Estate Fund^tm. This new fund will leverage the investment expertise of Global Real Analytics, a leading firm in real estate analytics and commercial real estate index products recently acquired by Charles Schwab Investment Management. The fund’s subscription period is from May 1 through May 30, and will commence operations on May 31, 2007.

In closing, I speak for all of us at Schwab when I say our goal is to give you the financial products, guidance and personal relationship you need to succeed.

Thank you for investing in Schwab Funds^®.

Sincerely,

Lipper, Inc. rankings are based on average annual total returns for the periods indicated. Lipper, a wholly owned subsidiary of Reuters, is an independent ranking organization for the mutual fund industry.


¹	Source: Lipper Ultra Short Funds. Rankings for periods ending 02/28/07; for the one-year period: Select Shares and Investor Shares, #2 and #4, respectively, out of 78 funds; for the 3-year period: #2 and #4, respectively, out of 66 funds; for the 5-year period: #1 and #3, respectively, out of 45 funds.

²	Source: Lipper Short/Intermediate Government Funds. Rankings for periods ending 02/28/07; for the one-year period: #4 out of 72 funds; for the 5-year period: #7 out of 59 funds; for the 10-year period: #11 out of 49 funds.

³	Source: Lipper Intermediate Investment Grade Debt Funds. Rankings for periods ending 02/28/07; for the one-year period: #77 out of 506 funds; for the 5-year period, #95 out of 376 funds; for the 10-year period, #29 out of 170 funds.

Past performance is no guarantee of future results.

Select Shares require a minimum balance of $50,000.

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing.

Schwab Tax-Free Bond Funds 3

The Investment Environment

Kim Daifotis, CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the funds.

While the U.S. economy transitioned towards slower growth, the markets experienced a sharp rise in volatility towards the end of the report period that triggered a market sell off. The speed at which this jump in volatility hit the market undoubtedly took many investors by surprise. However, numerous indications for such a correction had been building, including historically low volatility, the lagged effect of Federal Reserve (the Fed) rate hikes on over-leveraged sub-prime borrowers, and a willingness to tolerate risk caused by excess liquidity. Several key issues continued to weigh on investors, including a cooling housing market, moderating economic growth, Fed policy and inflation.

February served as a reminder that investor sentiment can vacillate just as abruptly as the market. A significantly weaker-than-expected U.S. durable goods order report, in conjunction with a 9% one-day decline in the Chinese stock market, the continuing collapse in the sub-prime mortgage market, comments about increased potential for a recession by former chairman Alan Greenspan, and trading errors at the NYSE all contributed to a market sell-off in late February. Current chairman Ben Bernanke attempted to placate investors’ concerns by stating that the Fed’s outlook on the U.S. economy had not changed and that it continues to see moderate growth at a level that will neither result in inflation nor underemployment.

The U.S. economy had been slowing down significantly, as evidenced by recent GDP revisions. As expected, GDP for the fourth quarter of 2006 was revised downward from a 3.5% annualized advanced estimate to 2.2%. Furthermore, Federal Open Market Committee (FOMC) participants forecasted GDP to grow at a rate of 2.5% to 3.0% over 2007, down from their initial forecast of 3.0% to 3.5%.

In its January 2007 statement, the Fed noted that the economy is likely to expand at a more moderate pace in the near term. Correspondingly, it held the fed funds target rate at 5.25% during the report period, unchanged since its August 2006 meeting. Although inflation continues to be a major concern, the core Personal Consumption Expenditure (PCE) price index cooled to an annualized quarterly rate of 1.9% during the fourth quarter of 2006, down from 2.2% in the third quarter of 2006. While the Fed’s unofficial comfort zone for core inflation remains at 1.0% to 2.0%, recent economic data, as well as the Fed’s statement, suggest that inflation pressures will likely moderate over time.

Yields of Municipal Securities: Effective Yields of Five-Year and 30-Year Municipal Bonds

Yields, or interest rates, represent the cost of borrowing money. Rapid economic growth, waning investor interest in bonds, an increase in the issuance of bonds, or the expectation of higher inflation can drive rates up, while the opposite conditions can push rates down.

Data source: Bloomberg L.P.

4 Schwab Tax-Free Bond Funds

The Investment Environment continued

On the upside, consumer spending, which is the largest component of the economy, increased at an annualized pace of 4.2% in the fourth quarter of 2006, up from a 2.8% increase in the third quarter of 2006. January’s Institute for Supply Management (ISM) Non-Manufacturing Business Activity Index provided some upbeat readings as well, rising 2.3 percentage points to 59.0. Conversely, the ISM Manufacturing Index declined 2.1 percentage points to 49.3. A manufacturing index reading over 42 is generally indicative of economic expansion, whereas a reading over 50 would be indicative of expansion in both the manufacturing and non-manufacturing sectors. Because the manufacturing and non-manufacturing sectors represent a combined 88% of the economy, they will likely continue to bear a great amount of scrutiny.

The housing market remains a significant headwind for the economy and recently has provided some mixed messages. Existing home sales were up 3.0% in January as a result of mild weather during the November-December period, supporting the sentiment that the worst of the housing crisis may have passed. However, new home sales declined in January as cold weather hit the East Coast, and housing starts and new home sales declined 14.3% and 16.6%, respectively. In addition, the recent collapse of the sub-prime mortgage market has caused many lenders to tighten their standards, which could potentially push more sub-prime borrowers into foreclosure, thereby increasing the supply of homes on the market. In a broader perspective, increases in foreclosure and vacancy rates in the near future have the potential to weigh down on the labor market, one of the reasons the housing market has been closely followed.

Against this backdrop of economic data, equity valuations remain solid, and the abundant supply of liquidity in the markets has the potential to support economic growth. However, much concern in the markets remains with regards to the inversion of the yield curve. The extent to which the global savings glut and recessionary fears are each attributable to the downward movement in long-term rates have been debated. In a statement last March, Bernanke commented that monetary policy should consider a broader range of forecast variables. By doing so, investors are less likely to be misled when favored variables, such as the yield curve, behave in an unusual manner. One thing is certain; performance going forward could be dramatically influenced by how the Fed interprets the yield curve. If it interprets the drop in long term rates as a sign of recession, the Fed may cut rates. If it deems the drop more as a function of demand, then it may have less of an inclination to cut rates.

Yield Advantage of Munis over Treasurys: For Five-Year bonds; Tax Brackets Shown are the Highest Applicable

This chart shows how much more the average five-year muni yielded than the average five-year Treasury after federal (or combined California and federal) income tax.

Data source: Bloomberg L.P.

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

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

Schwab Tax-Free Bond Funds 5

Schwab Tax-Free YieldPlus Fund^tm

Kim Daifotis (right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, co-manages the fund.

Joanne Larkin (left), a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

During the report period, the Federal Reserve held the fed funds target rate at 5.25%. As long term rates declined, the tax-exempt municipal yield curve continued to flatten. Additionally, municipal new issuance volume continued to decline from record high levels set in 2005. In this relatively low interest rate environment, higher yielding securities were in greater demand, thus aiding the performance of high yield sectors for the period.

The Schwab Tax-Free YieldPlus Fund Investor Shares returned 1.45% for the report period, underperforming its benchmark, the Lehman Brothers 1-Year Municipal Bond Index, which was up 1.76%. Unlike the index, whose duration is roughly 1.3 years, the fund’s mandate for duration is one year or less, which detracted from performance in this environment. The fund continued to seek out securities with good underlying credit history, which contributed positively to performance. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Revenue Bonds	47.0%


Variable Rate Demand Notes	18.5%


Auction Rate Securities	17.7%


General Obligation Bonds	6.7%


Muni Notes	6.7%


Tax-Exempt Commercial Paper	3.4%

By Credit Quality¹


AAA	30.2%


AA	20.1%


A	20.2%


BBB	6.7%


Short-Term Ratings	16.3%


Unrated Securities	6.5%


Weighted Average Credit Quality	AA

By Maturity


0-6 Months	55.5%


7-18 Months	14.1%


More than 18 Months	30.4%


Weighted Average Maturity	1.2 yrs


Weighted Average Duration	0.5 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

6 Schwab Tax-Free Bond Funds

Schwab Tax-Free YieldPlus Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2,3


Class and Inception Date	6 Months		1 Year		Since Inception


Investor Shares (12/16/2004)		1.45%		2.92%		2.45%
Select Shares (12/16/2004)		1.52%		3.17%		2.57%
Benchmark: Lehman Brothers 1-Year Municipal Bond Index		1.76%		3.43%		2.40%
Fund Category: Morningstar Municipal National Intermediate/Short Bond		1.56%		3.09%		2.14%

Expense Ratios Investor Shares: Gross 0.68%; Net 0.64% / Select Shares: Gross 0.53%; Net 0.49%⁴

Style Assessment⁵

Yields


30-Day SEC Yield^1,3
Investor Shares			3.36%
Select Shares			3.51%

30-Day SEC Yield-No Waiver^1,6
Investor Shares			3.33%
Select Shares			3.48%

Taxable Equivalent Yield⁷
Investor Shares			5.15%
Select Shares			5.38%

12-Month Distribution Yield^1,3
Investor Shares			2.98%
Select Shares			3.23%

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 not annualized.

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁵ Source: Morningstar, Inc. Interest rate sensitivity and credit quality are two main components of bond performance. The assessment reflects the fund’s portfolio as of 2/28/07 and is not a precise indication of risk or performance—past, present or future. Definitions of style assessments: Sensitivity (measured as duration): short, up to 3.5 years; Medium, more than 3.5 years to less than six years; Long, six years or greater. Credit quality: High, AA or better; Medium, A or BBB; Low, BB or lower.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

⁷ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest federal tax bracket (35.00%). Your tax rate may be different.

Schwab Tax-Free Bond Funds 7

Schwab Short/Intermediate Tax-Free Bond Fund^tm

Joanne Larkin, a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

The Schwab Short/Intermediate Tax-Free Bond Fund had a positive return of 1.51%, yet trailed its benchmark, the Lehman Brothers 3-Year Municipal Bond Index, which returned 1.78% for the report period. During the report period, the fund maintained a shorter duration relative to its benchmark, which slightly detracted from returns in this environment. Furthermore, the fund was overweight in higher-quality investments relative to the benchmark, which slightly detracted from overall performance. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Revenue Bonds	66.4%


General Obligation Bonds	29.4%


Variable Rate Demand Notes	2.2%


Auction Rate Securities	2.0%

By Credit Quality¹


AAA	68.0%


AA	17.3%


A	10.1%


BBB	0.6%


Short-Term Ratings	2.1%


Unrated Securities	1.9%


Weighted Average Credit Quality	AAA

By Maturity


0-6 Months	11.3%


7-36 Months	47.1%


37-60 Months	21.6%


More than 60 Months	20.0%


Weighted Average Maturity	3.0 yrs


Weighted Average Duration	2.6 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

8 Schwab Tax-Free Bond Funds

Schwab Short/Intermediate Tax-Free Bond Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab Short/Intermediate Tax-Free Bond Fund^tm		1.51%		2.93%		2.80%		3.70%
Benchmark: Lehman Brothers 3-Year Municipal Bond Index		1.78%		3.43%		2.72%		4.01%
Fund Category: Morningstar Municipal Short Bond		1.56%		3.09%		2.38%		3.44%

Expense Ratios Fund: Gross 0.64%; Net 0.64%⁴

Style Assessment⁵

Yields


30-Day SEC Yield^1,3			3.26%

30-Day SEC Yield-No Waiver^1,6			3.24%

Taxable-Equivalent Yield⁷			5.02%

12-Month Distribution Yield^1,3			3.38%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

⁷ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest federal tax bracket (35.00%). Your tax rate may be different.

Schwab Tax-Free Bond Funds 9

Schwab Long-Term Tax-Free Bond Fund^tm

Joanne Larkin, a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

The Schwab Long-Term Tax-Free Bond Fund returned 2.48% for the report period, yet underperformed its benchmark, the Lehman Brothers General Municipal Bond Index, which returned 2.89%. During the report period, the fund maintained a shorter duration relative to its benchmark, which slightly detracted from returns in this environment. Furthermore, the fund was overweight in higher-quality investments relative to the benchmark, which slightly detracted from overall performance. In this investment environment, we bought premium bonds, which offer downside protection. These bonds trade above par value due to their coupons exceeding market rates. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Revenue Bonds	75.5%


General Obligation Bonds	20.5%


Variable Rate Demand Notes	4.0%

By Credit Quality¹


AAA	78.0%


AA	10.3%


A	5.1%


BBB	2.8%


Short-Term Ratings	3.8%


Weighted Average Credit Quality	AAA

By Maturity


0-1 Year	4.1%


2-10 Years	21.6%


11-20 Years	59.0%


21-30 Years	15.3%


Weighted Average Maturity	10.2 yrs


Weighted Average Duration	6.2 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

10 Schwab Tax-Free Bond Funds

Schwab Long-Term Tax-Free Bond Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab Long-Term Tax-Free Bond Fund^tm		2.48%		4.11%		4.77%		5.31%
Benchmark: Lehman Brothers General Municipal Bond Index		2.89%		4.96%		5.13%		5.75%
Fund Category: Morningstar Municipal National Long Bond		2.60%		4.44%		4.53%		4.89%

Expense Ratios Fund: Gross 0.69%; Net 0.65%⁴

Style Assessment⁵

Yields


30-Day SEC Yield^1,3			3.88%

30-Day SEC Yield-No Waiver^1,6			3.83%

Taxable-Equivalent Yield⁷			5.98%

12-Month Distribution Yield^1,3			5.14%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

⁷ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest federal tax bracket (35.00%). Your tax rate may be different.

Schwab Tax-Free Bond Funds 11

Schwab California Tax-Free YieldPlus Fund^tm

Kim Daifotis (right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, co-manages the Fund.

Joanne Larkin (left), a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

The Schwab California Tax-Free YieldPlus Fund Investor Shares returned 1.40%, while its benchmark, the Lehman Brothers 1-Year Municipal Bond Index, returned 1.76% for the report period. Unlike the index, whose duration is roughly 1.3 years, the fund’s mandate for duration is one year or less, which detracted from performance in this environment. The fund continued to seek out securities with good underlying credit history, which contributed positively to performance. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Variable Rate Demand Notes	36.5%


Revenue Bonds	32.3%


Auction Rate Securities	11.3%


General Obligation Bonds	10.3%


Muni Notes	7.4%


Tax-Exempt Commercial Paper	2.2%

By Credit Quality¹


AAA	34.2%


AA	7.1%


A	24.8%


BBB	4.5%


Short-Term Ratings	29.1%


Unrated Securities	0.3%


Weighted Average Credit Quality	AA

By Maturity


0-6 Months	71.5%


7-18 Months	7.3%


19-30 Months	3.0%


More than 30 Months	18.2%


Weighted Average Maturity	1.3 yrs


Weighted Average Duration	0.4 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

12 Schwab Tax-Free Bond Funds

Schwab California Tax-Free YieldPlus Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2,3


Class and Inception Date	6 Months		1 Year		Since Inception


Investor Shares (12/16/2004)		1.40%		2.91%		2.40%
Select Shares (12/16/2004)		1.58%		3.17%		2.57%
Benchmark: Lehman Brothers 1-Year Municipal Bond Index		1.76%		3.43%		2.40%
Fund Category: Morningstar Municipal California Intermediate/Short Bond		1.96%		3.68%		2.85%

Expense Ratios Investor Shares: Gross 0.61%; Net 0.61% / Select Shares: Gross 0.46%; Net 0.46%⁴

Style Assessment⁵

Yields


30-Day SEC Yield^1,6
Investor Shares			3.29%
Select Shares			3.43%

Taxable-Equivalent Yield⁷
Investor Shares			5.63%
Select Shares			5.88%

12-Month Distribution^1,3
Investor Shares			2.98%
Select Shares			3.23%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁷ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest combined federal and California tax bracket (41.70%).

Schwab Tax-Free Bond Funds 13

Schwab California Short/Intermediate
Tax-Free Bond Fund^tm

Joanne Larkin, a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

The Schwab California Short/Intermediate Tax-Free Bond Fund returned 1.60% for the report period, trailing its benchmark, the Lehman Brothers 3-Year Municipal Bond Index, which returned 1.78%. During the report period, the fund maintained a shorter duration relative to its benchmark, which slightly detracted from returns in this environment. Furthermore, the fund was overweight in higher-quality investments relative to the benchmark, which slightly detracted from overall performance. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Revenue Bonds	64.1%


General Obligation Bonds	35.6%


Variable Rate Demand Notes	0.3%

By Credit Quality¹


AAA	71.8%


AA	7.9%


A	14.8%


BBB	1.9%


Short-Term Ratings	2.3%


Unrated Securities	1.3%


Weighted Average Credit Quality	AAA

By Maturity


0-6 Months	2.3%


7-36 Months	27.2%


37-60 Months	38.5%


More than 60 Months	32.0%


Weighted Average Maturity	3.9 yrs


Weighted Average Duration	3.5 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

14 Schwab Tax-Free Bond Funds

Schwab California Short/Intermediate Tax-Free Bond Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab California Short/Intermediate Tax-Free Bond Fund^tm		1.60%		2.99%		2.67%		3.70%
Benchmark: Lehman Brothers 3-Year Municipal Bond Index		1.78%		3.43%		2.72%		4.01%
Fund Category: Morningstar Municipal California Intermediate/Short Bond		1.96%		3.68%		3.35%		4.23%

Expense Ratios Fund: Gross 0.62%; Net 0.62%⁴

Style Assessment⁵

Yields


30-Day SEC Yield^1,3			3.30%

30-Day SEC Yield-No Waiver^1,6			3.29%

Taxable-Equivalent Yield⁷			5.68%

12-Month Distribution Yield^1,3			3.42%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

⁷ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest combined federal and California tax bracket (41.70%).

Schwab Tax-Free Bond Funds 15

Schwab California Long-Term Tax-Free Bond Fund^tm

Joanne Larkin, a vice president of the investment adviser, has had overall management responsibility for the fund since inception.

The Schwab California Long-Term Tax-Free Bond Fund had a positive return of 2.64% for the report period, yet underperformed its benchmark, the Lehman Brothers General Municipal Bond Index, which returned 2.89%. During the report period, the fund maintained a shorter duration relative to its benchmark, which slightly detracted from returns in this environment. Furthermore, the fund was overweight in higher-quality investments relative to the benchmark, which slightly detracted from overall performance. In this investment environment, we bought premium bonds, which offer downside protection. These bonds trade above par value due to their coupons exceeding market rates. During the report period, the fund did not invest in municipal securities whose interest is subject to the Alternative Minimum Tax (AMT).

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Revenue Bonds	73.8%


General Obligation Bonds	21.0%


Variable Rate Demand Notes	5.2%

By Credit Quality¹


AAA	58.3%


AA	3.8%


A	22.9%


BBB	10.2%


Short-Term Ratings	4.8%


Weighted Average Credit Quality	AA

By Maturity


0-1 Year	4.9%


2-10 Years	3.8%


11-20 Years	49.3%


21-30 Years	39.6%


More than 30 Years	2.4%


Weighted Average Maturity	10.1 yrs


Weighted Average Duration	5.9 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

16 Schwab Tax-Free Bond Funds

Schwab California Long-Term Tax-Free Bond Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab California Long-Term Tax-Free Bond Fund^tm		2.64%		4.45%		4.79%		5.47%
Benchmark: Lehman Brothers General Municipal Bond Index		2.89%		4.96%		5.13%		5.75%
Fund Category: Morningstar Municipal California Long Bond		2.73%		4.55%		4.66%		5.12%

Expense Ratio Fund: 0.60%

Style Assessment⁴

Yields


30-Day SEC Yield^1,3			4.13%

Taxable-Equivalent Yield⁵			7.08%

12-Month Distribution Yield^1,3			4.76%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Source: Morningstar, Inc. Interest rate sensitivity and credit quality are two main components of bond performance. The assessment reflects the fund’s portfolio as of 2/28/07 and is not a precise indication of risk or performance—past, present or future. Definitions of style assessments: Sensitivity (measured as duration): short, up to 3.5 years; Medium, more than 3.5 years to less than six years; Long, six years or greater. Credit quality: High, AA or better; Medium, A or BBB; Low, BB or lower.

⁵ This is the taxable-equivalent 30-day SEC yield for a hypothetical investor in the highest combined federal and California tax bracket (41.70%).

Schwab Tax-Free Bond Funds 17

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

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

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six-months beginning September 1, 2006 and held through February 28, 2007.

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

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

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

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period ²
	(Annualized)		at 9/1/06		at 2/28/07		9/1/06 - 2/28/07



Schwab Tax-Free YieldPlus Fund^tm
Investor Shares
Actual Return		0.64%	$	1,000	$	1,014.45	$	3.20
Hypothetical 5% Return		0.64%	$	1,000	$	1,021.62	$	3.21
Select Shares^®
Actual Return		0.49%	$	1,000	$	1,015.25	$	2.45
Hypothetical 5% Return		0.49%	$	1,000	$	1,022.36	$	2.46


Schwab Short/Intermediate Tax-Free Bond Fund^tm
Actual Return		0.64%	$	1,000	$	1,015.10	$	3.20
Hypothetical 5% Return		0.64%	$	1,000	$	1,021.62	$	3.21


Schwab Long-Term Tax-Free Bond Fund^tm
Actual Return		0.64%	$	1,000	$	1,024.80	$	3.21
Hypothetical 5% Return		0.64%	$	1,000	$	1,021.62	$	3.21


Schwab California Tax-Free YieldPlus Fund^tm
Investor Shares
Actual Return		0.60%	$	1,000	$	1,014.02	$	3.00
Hypothetical 5% Return		0.60%	$	1,000	$	1,021.82	$	3.01
Select Shares
Actual Return		0.45%	$	1,000	$	1,015.79	$	2.25
Hypothetical 5% Return		0.45%	$	1,000	$	1,022.56	$	2.26


Schwab CA Short/Intermediate Tax-Free Bond Fund^tm
Actual Return		0.63%	$	1,000	$	1,016.00	$	3.15
Hypothetical 5% Return		0.63%	$	1,000	$	1,021.67	$	3.16


Schwab CA Long-Term Tax-Free Bond Fund^tm
Actual Return		0.60%	$	1,000	$	1,026.40	$	3.01
Hypothetical 5% Return		0.60%	$	1,000	$	1,021.82	$	3.01


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

²	Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

18 Schwab Tax-Free Bond Funds

Schwab Tax-Free YieldPlus Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			12/16/04¹
Investor Shares	2/28/07*			8/31/06			8/31/05


Per Share Data ($)

Net asset value at beginning of period		9.97			9.97			10.00

Income from investment operations:
Net investment income		0.15			0.26			0.16
Net realized and unrealized gains or losses		(0.01	)		(0.00	)²		(0.03	)

Total income from investment operations		0.14			0.26			0.13
Less distributions:
Dividends from net investment income		(0.15	)		(0.26	)		(0.16	)

Net asset value at end of period		9.96			9.97			9.97

Total return (%)		1.45	³		2.68			1.26	³

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.64	⁴		0.64			0.37	⁴
Gross operating expenses		0.67	⁴		0.68			0.69	⁴
Net investment income		3.11	⁴		2.63			2.25	⁴
Portfolio turnover rate		17	³		55			18	³
Net assets, end of period ($ x 1,000,000)		25			24			30


	9/1/06-			9/1/05-			12/16/04¹
Select Shares	2/28/07*			8/31/06			8/31/05


Per Share Data ($)

Net asset value at beginning of period		9.96			9.97			10.00

Income from investment operations:
Net investment income		0.16			0.28			0.16
Net realized and unrealized gains or losses		(0.00	)²		(0.01	)		(0.03	)

Total income from investment operations		0.16			0.27			0.13
Less distributions:
Dividends from net investment income		(0.16	)		(0.28	)		(0.16	)

Net asset value at end of period		9.96			9.96			9.97

Total return (%)		1.52	³		2.73			1.31	³

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.49	⁴		0.49			0.28	⁴
Gross operating expenses		0.52	⁴		0.53			0.54	⁴
Net investment income		3.26	⁴		2.81			2.33	⁴
Portfolio turnover rate		17	³		55			18	³
Net assets, end of period ($ x 1,000,000)		548			489			435

* Unaudited.

¹ Commencement of operations.

² Less than (0.01).

³ Not annualized.

⁴ Annualized.

See financial notes 19

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

This section shows all the securities in the fund’s portfolio and their value 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 Schwab’s website at www.schwab.com/schwabfunds.

For fixed rate obligations, the rate shown is the interest rate (the rate established when the obligation was issued) and the maturity date shown is the stated legal maturity. For variable-rate obligations, the rate shown is the rate as of the report date, and the maturity date shown is the next interest rate change date.

Cost

Value

Holdings by Category

($ x 1,000)

.7%

Long-Term Investments

204,664

204,578

.6%

Short-Term Investments

358,655

358,094

.3%

Total Investments

563,319

562,672

.7%

Other Assets and Liabilities

9,555

100

.0%

Net Assets

572,227

Issuer

Project

Maturity

Face Amount

Value

Type of Security, Series

Rate

Date

($ x 1,000)

Long-Term Investments 35.7% of net assets

ALABAMA 2.3%

Birmingham Special Care Facilities Financing Auth

RB (Baptist Health System Inc) Series 2005A

5.00%

11/15/09

(e)

1,565

1,598

Health Care Auth for Baptist Health

Bonds Series 2006D

5.00%

11/15/11

(e)

1,600

1,669

Huntsville Health Care Auth

RB Series 2005A

5.00%

03/03/08

(a)(b)(e)

10,000

10,132

13,399

ALASKA 0.7%

Alaska Housing Finance Corp

General Mortgage RB Series 1997A

5.90%

12/01/19

(b)(e)

4,170

4,187

ARKANSAS 1.2%

Fort Smith

Sales and Use Tax Refunding and Improvement Bonds Series 2006

4.00%

09/01/14

(b)

3,310

3,366

Sales and Use Tax Refunding and Improvement Bonds Series 2006

3.95%

09/01/15

(b)

3,630

3,677

7,043

CALIFORNIA 0.2%

Imperial Redevelopment Agency

Subordinate Tax Allocation Notes Series 2006

4.50%

12/01/11

(e)

1,300

1,302

COLORADO 1.5%

E-470 Public Highway Auth

Sr RB Series 1997A

5.25%

09/01/18

(b)(e)

8,245

8,386

20 See financial notes

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

DISTRICT OF COLUMBIA 0.2%

District of Columbia HFA

Capital Program RB (Housing Auth Modernization) Series 2005
5.00% 07/01/08 (b)(e) 1,000 1,018

FLORIDA 4.3%

Citizens Property Insurance Corp

High-Risk Account Sr Secured Refunding Bonds Series 2007A
5.00% 03/01/10 (b) 5,000 5,184

East Homestead Community Development District

Special Assessment RB Series 2006B
5.00% 05/01/11 (e) 880 881

Florida Hurricane Catastrophe Fund Finance Corp

RB Series 2006A
5.00% 07/01/09 (e) 5,000 5,143

Highlands Cnty Health Facilities Auth

Hospital RB (Adventist Health System/Sunbelt Obligated Group) Series 2005I
5.00% 11/15/29 (e) 8,150 8,388

Hospital Refunding RB (Adventist Health System/Sunbelt Obligated Group) Series 2005A
5.00% 11/15/09 (e) 250 257

Hospital Refunding RB (Adventist Health System/Sunbelt Obligated Group) Series 2005B
5.00% 11/15/09 (e) 500 514

Orlando

Capital Improvement Special RB Series 2005B
5.00% 04/01/08 (e) 2,460 2,495

University of Florida Athletic Association

RB Series 2005
3.30% 10/01/08 (b) 1,500 1,493

24,355

ILLINOIS 0.3%

Illinois Development Finance Auth

RB (Resurrection Health Care) Series 2005A
3.75% 07/01/09 (e) 2,000 1,995

INDIANA 0.6%

Indiana Health and Educational Facility Financing Auth

Hospital Refunding RB (Clarion Health Obligated Group) Series 2006B
5.00% 02/15/09 720 736

Seymour

Economic Development Refunding RB (Union Camp Corp) Series 1992
6.25% 07/01/12 (e) 2,670 2,903

3,639

IOWA 0.3%

Iowa Finance Auth

Health Facilities Development Refunding RB (Care Initiatives) Series 2006A
5.25% 07/01/10 1,450 1,491

LOUISIANA 1.1%

Louisiana

GO Match Bonds Series 2006B
5.00% 07/15/11 (b)(e) 2,000 2,104

GO Refunding Bonds Series 1998A
5.25% 04/15/09 (b)(e) 4,000 4,106

6,210

MASSACHUSETTS 0.8%

Massachusetts

GO Bonds Consolidated Loan Series 1992D
6.00% 05/01/08 (e) 2,320 2,376

See financial notes 21

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Massachusetts Health and Educational Facilties Auth

RB (Partners HealthCare System) Series A
5.38% 07/01/17 (b)(e) 2,000 2,029

4,405

MICHIGAN 2.7%

Detroit Sewage Disposal System

Second Lien RB Series 2001D2
5.50% 01/01/12 (b)(e) 5,000 5,378

Sr Lien Refunding RB Series 2006D
4.19% 01/01/12 (b) 5,000 5,017

Kent Hospital Finance Auth

Refunding RB (Spectrum Health) Series 2005B
5.00% 07/15/11 5,000 5,235

15,630

MINNESOTA 0.1%

Minnesota Municipal Power Agency

Electric RB Series 2005
3.50% 10/01/08 (e) 685 681

MISSISSIPPI 0.1%

Mississipi Hospital Equipment & Facilities Auth

RB (Mississippi Baptist Health Systems, Inc) Series 2007A
5.00% 08/15/09 500 512

MISSOURI 1.7%

Bi-State Development Agency of the Missouri-Illinois Metropolitan District

Subordinate Mass Transit Sales Tax Appropriation Bonds (Metrolink Cross Cnty Extension) Series 2005A
3.95% 10/01/09 (b)(e) 3,000 3,018

Kansas City International Airport

General Improvement Refunding RB Series 2005H
5.00% 09/01/08 (e) 6,480 6,604

9,622

NEVADA 1.3%

Clark Cnty Special Improvement District No.121

(Southern Highlands Area) Subordinate Local Improvement Refunding Bonds Series 2006B
4.35% 12/01/09 (e) 470 472

(Southern Highlands Area) Subordinate Local Improvement Refunding Bonds Series 2006B
4.50% 12/01/10 (e) 490 494

(Southern Highlands Area) Subordinate Local Improvement Refunding Bonds Series 2006B
4.60% 12/01/11 (e) 250 253

Henderson

Health Facility RB (Catholic Healthcare West) Series 2005B
5.00% 07/01/08 (e) 3,000 3,044

Henderson Local Improvement District No.T-18

(Inspirada) Limited Obligation Improvement Bonds
4.60% 09/01/11 (e) 2,025 2,050

North Las Vegas Special Improvement District No.60

Subordinate Local Improvement Refunding Bonds (Aliante) Series 2006B
4.15% 12/01/08 (e) 630 633

Subordinate Local Improvement Refunding Bonds (Aliante) Series 2006B
4.35% 12/01/09 (e) 330 332

7,278

NEW JERSEY 0.2%

New Jersey Economic Development Auth

School Facilities Construction Bonds Series 2005O
3.25% 03/01/08 (e) 1,100 1,093

22 See financial notes

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

NEW MEXICO 0.8%

Farmington

Pollution Control Refunding RB (Southern California Edison Co-Four Corners) Series 2005A
3.55% 04/01/10 (b)(e) 4,850 4,823

NEW YORK 4.1%

Metropolitan Transportation Auth

Commuter Facilities Service Contract Bonds Series 1997-3
7.38% 07/01/08 985 1,012

New York City

GO Bonds Fiscal 1997 Series A
6.25% 08/01/08 (e) 2,000 2,034

New York State Dormitory Auth

Mortgage Hospital RB (The New York and Presbyterian Hospital) Series 1998
4.75% 08/01/16 (b)(e) 7,000 7,133

Third General Resolution RB (State University Facilities) Series 2002B
5.25% 05/15/12 (b)(e) 5,000 5,368

Troy Industrial Development Auth

Civic Facility RB (Rensselaer Polytechnic Institute) Series 2002E
4.05% 04/01/37 8,000 8,049

23,596

NORTH DAKOTA 0.3%

Ward Cnty

Health Care Facilities RB (Trinity Obligated Group) Series 2006
5.00% 07/01/09 465 475

Health Care Facilities RB (Trinity Obligated Group) Series 2006
5.00% 07/01/11 1,000 1,039

1,514

PENNSYLVANIA 1.6%

Philadelphia

Water and Wastewater RB Series 1997A
5.00% 08/01/11 (b)(e) 4,000 4,101

Southcentral General Auth

Guaranteed RB Series 2001
4.50% 12/01/08 (b)(e) 5,000 5,073

9,174

TENNESSEE 4.8%

Shelby Cnty Health Education & Housing Facilities Board

RB (Baptist Memorial Health Care) Series 2004A
5.00% 09/01/08 (e) 3,000 3,048

RB (Baptist Memorial Health Care) Series 2004A
5.00% 10/01/08 (a)(e) 19,000 19,324

Tennessee Energy Acquisition Corp

Gas Project RB Series 2006A
5.00% 09/01/09 (e) 5,000 5,145

27,517

TEXAS 2.0%

Corpus Christi Independent SD

Unlimited Tax Refunding Bonds Series 2005
5.00% 08/15/12 (b)(e) 2,110 2,129

North Texas Tollway Auth

Dallas North Tollway System Refunding RB Series 2003B
5.00% 07/01/08 (b)(e) 3,000 3,052

Spring Independent SD

Unlimited Tax Schoolhouse Bonds Series 2005A
5.00% 08/15/08 (b)(c)(e) 5,000 5,095

See financial notes 23

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Tomball Hospital Auth

Refunding RB Series 2005
5.00% 07/01/09 1,205 1,222

11,498

WASHINGTON 2.5%

Energy Northwest

Electric Refunding RB (Project 1) Series 2006A
5.00% 07/01/11 (e) 5,000 5,251

King Cnty

Limited Tax GO Bonds (Baseball Stadium) Series 1997D
5.60% 12/01/09 (e) 6,710 6,934

Washington Higher Education Facilities Auth

Refunding RB (The University of Puget Sound) Series 2006A
5.00% 04/01/08 (b)(e) 2,000 2,025

14,210

Total Long-Term Investments
(Cost $204,664) 204,578

Short-Term Investments 62.6% of net assets

ARIZONA 4.5%

Arizona Educational Loan Marketing Corp

RB Series 1998B
3.75% 03/22/07 (a) 5,500 5,500

Arizona Health Facilities Auth

Hospital RB (Phoenix Children’s Hospital) Series 2007A
4.65% 03/01/07 (a) 15,000 15,239

Maricopa Cnty Industrial Development Auth

M/F Housing RB (AHF Affordable Housing) Series 2003B
4.05% 03/15/07 (a) 4,000 4,000

Pinal Cnty

COP Series 2004
4.00% 12/01/07 1,150 1,150

25,889

CALIFORNIA 5.2%

California

Various Purpose GO Bonds
8.00% 11/01/07 (b)(e) 750 772

California Statewide Communities Development Auth

COP (Eskaton Properties Inc Obligated Group)
3.89% 03/22/07 (a)(b)(e) 8,000 8,000

Santa Clara Valley Transportation Auth

Sales Tax RB (2000 Measure A) Series 2006G
3.65% 08/06/07 (a)(b) 21,000 21,000

29,772

FLORIDA 1.5%

Escambia Cnty Health Facilities Auth

RB (Ascension Health Credit Group) Series 2003A
5.00% 11/15/07 (e) 1,500 1,512

Gulf Breeze

Capital Funding RB Series 1997A
1.81% 03/01/07 (a)(b)(e) 5,095 5,376

Highlands Cnty Health Facilities Auth

Hospital Refunding RB (Adventist Health System/Sunbelt Obligated Group) Series 2005A
5.00% 11/15/07 525 529

Hospital Refunding RB (Adventist Health System/Sunbelt Obligated Group) Series 2005B
5.00% 11/15/07 900 907

8,324

24 See financial notes

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

GEORGIA 1.0%

Atlanta

Water and Wastewater RB Series 2001C
3.66% 03/01/07 (a)(b)(c) 500 500

Burke Cnty Development Auth

Pollution Control RB (Georgia Power Co Plant Vogtle) First Series 1996
3.78% 03/07/07 (a)(e) 5,150 5,150

5,650

ILLINOIS 2.6%

Illinois Development Finance Auth

RB (Resurrection Health Care) Series 2005D
3.79% 03/01/07 (a) 9,525 9,525

RB (Resurrection Health Care) Series 2005E
3.79% 03/01/07 (a) 5,310 5,310

14,835

INDIANA 0.1%

Indiana Health and Educational Facility Financing Auth

Hospital Refunding RB (Clarion Health Obligated Group) Series 2006B
5.00% 02/15/08 725 733

KANSAS 0.7%

Junction City

Temporary Notes Series 2006C
5.00% 08/01/07 2,000 2,011

Temporary Notes Series 2006D
5.00% 08/01/07 2,000 2,011

4,022

KENTUCKY 1.3%

Kentucky Rural Water Finance Corp

Public Projects Construction Notes Series A1
3.63% 04/02/07 (a) 7,225 7,224

LOUISIANA 2.6%

Louisiana Public Facilities Auth

Equipment and Capital Facilities RB (Pooled Loan) Series 2002A
4.15% 03/01/07 (a)(b) 12,090 12,090

RB (Blood Center Properties) Series 2000
3.95% 03/01/07 (a)(b) 2,900 2,900

14,990

MASSACHUSETTS 2.8%

Massachusetts

GO Refunding Bonds Series 2006C
3.43% 03/01/07 (a)(b) 10,395 10,138

Massachusetts Health and Educational Facilties Auth

RB (Caritas Christi Obligated Group) Series A
5.25% 07/01/07 5,960 5,974

16,112

MICHIGAN 1.6%

Detroit Water Supply System

Second Lien RB Series 2006B
3.65% 03/01/07 (a)(b)(c) 1,200 1,200

Michigan Hospital Financing Auth

RB (Ascension Health) Series 1999B4
5.38% 11/15/07 (a)(e) 2,000 2,022

See financial notes 25

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Michigan State Strategic Fund

Limited Obligation Refunding RB (Dow Chemical Co) Series 2003B1
3.62% 03/07/07 (a) 6,100 6,100

9,322

MINNESOTA 0.1%

Minnesota Municipal Power Agency

Electric RB Series 2005
3.50% 10/01/07 445 444

MISSOURI 1.7%

Missouri Health & Educational Facilities Auth

RB (Ascension Health Credit Group) Series 2003C1
3.70% 03/07/07 (a) 10,000 10,000

NEBRASKA 1.8%

Central Plains Energy Project

Gas Project RB (Project No.1)
4.25% 06/01/07 (a) 10,000 10,075

NEW JERSEY 6.7%

Camden

BAN Series 2006A
4.50% 06/25/07 (e) 10,000 10,017

BAN Series 2006B
4.50% 09/04/07 (e) 10,423 10,451

New Jersey Economic Development Auth

Cigarette Tax RB Series 2004
4.05% 03/01/07 (a)(c)(d) 4,795 4,795

School Facilities Construction Bonds Series 2005O
3.80% 03/01/07 (a)(c)(d) 9,995 9,995

Weehawken Township

TAN
4.50% 10/11/07 3,000 3,013

38,271

NEW YORK 12.2%

Gloversville School District

BAN Series 2006
4.50% 06/29/07 10,000 10,022

Metropolitan Transportation Auth

Transportation RB Series 2006A
3.78% 03/01/07 (a)(c)(d) 6,250 6,250

Transportation Refunding RB Series 2002A
3.78% 03/01/07 (a)(c)(d) 2,595 2,595

New York City

GO Bonds Fiscal 2002 Series A6
3.60% 03/01/07 (a)(b)(c) 6,000 6,000

GO Bonds Fiscal 2006 Series J
3.72% 03/01/07 (a)(c)(d) 527 527

New York City Industrial Development Agency

Pilot RB (Yankee Stadium) Series 2006
3.33% 03/01/07 (a)(b) 15,360 15,209

Special RB (NY Stock Exchange) Fiscal 2004 Series A
3.85% 03/01/07 (a)(c)(d) 5,500 5,500

New York City Municipal Water Finance Auth

Water and Sewer System RB Series 1994G
3.62% 03/01/07 (a)(b)(c) 2,300 2,300

Water and Sewer System RB Series 2000C
3.62% 03/01/07 (a)(c) 16,700 16,700

New York City Transitional Finance Auth

Recovery Bonds Fiscal 2003 Series 3B
3.64% 03/01/07 (a)(c) 3,005 3,005

New York State Power Auth

General Purpose Bonds Series W
6.50% 01/01/08 560 573

New York State Urban Development Corp

State Personal Income Tax RB Series 2004A4
4.00% 03/15/07 (e) 1,000 1,000

69,681

26 See financial notes

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

NORTH CAROLINA 2.2%

Fayetteville

Public Works Commission Revenue Notes Series 2005
3.55% 01/15/08 (b)(e) 12,455 12,446

OHIO 0.9%

Ohio Air Quality Development Auth

Refunding RB (Cincinnati Gas & Electric Co) Series 1995A
3.72% 03/07/07 (a) 5,100 5,100

OKLAHOMA 1.0%

Tulsa Cnty Industrial Auth

M/F Housing RB (AHF Affordable Housing) Series 2003B
3.94% 03/22/07 (a) 6,000 6,000

PENNSYLVANIA 0.9%

Lehigh Cnty General Purpose Auth

Hospital RB (Saint Luke’s Hospital of Bethlehem) Series 2007
4.51% 05/15/07 (a) 5,000 5,046

PUERTO RICO 2.3%

Government Development Bank of Puerto Rico

CP Program
4.05% 03/05/07 4,525 4,525

CP Program
4.00% 03/14/07 4,500 4,500

CP Program
4.00% 03/16/07 2,000 2,000

Puerto Rico Public Buildings Auth

Government Facilities Refunding RB Series K
4.50% 07/01/07 (a)(e) 1,900 1,904

12,929

SOUTH CAROLINA 0.2%

Richland Cnty

Environmental Improvement Refunding RB (International Paper Co) Series 2002A
4.25% 10/01/07 1,000 1,001

TEXAS 5.3%

Capital Area Housing Finance Corp

M/F Housing RB (AHF Affordable Housing) Series 2003A
4.00% 03/15/07 (a) 4,315 4,315

Housing Options, Inc.

M/F Housing RB (AHF Affordable Housing) Series 2003A
3.92% 03/22/07 (a) 4,000 4,000

Spring Independent SD

Unlimited Tax Schoolhouse Bonds Series 2005A
3.75% 08/15/07 (a)(b)(c)(e) 5,000 5,000

Texas Municipal Gas Acquisition and Supply Corp I

Gas Supply RB Sr Lien Series 2006B
4.15% 06/15/07 (a) 2,000 2,013

Gas Supply RB Sr Lien Series 2006B
4.30% 06/15/07 (a) 15,000 15,000

30,328

VIRGINIA 1.4%

Louisa Industrial Development Auth

Pollution Control RB (Virginia Electric and Power Co) Series 1984
3.83% 03/12/07 2,000 2,000

Pollution Control RB (Virginia Electric and Power Co) Series 1984
3.85% 03/21/07 2,000 2,000

Pollution Control RB (Virginia Electric and Power Co) Series 1984
3.87% 03/23/07 4,000 4,000

8,000

See financial notes 27

Schwab Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

WASHINGTON 0.2%

Washington Public Power Supply System

Refunding RB (Nuclear Project No.1) Series 1993A
3.80% 07/02/07 (a)(b) 1,400 1,400

WISCONSIN 1.8%

Wisconsin Health & Educational Facilities Auth

RB (Hospital Sisters Services Inc-Obligated Group) Series 2003B
4.50% 12/01/07 (a)(b)(e) 10,440 10,500

Total Short-Term Investments
(Cost $358,655) 358,094

End of Investments.

At 02/28/07 the tax basis cost of the fund’s investments was $563,314 and the unrealized appreciation and depreciation was $707 and ($1,349), respectively, with a net unrealized depreciation of ($642).

In addition to the above, the fund held the following at 02/28/07. All numbers are x 1,000 except number of futures contracts.


	Number of			Contract		Unrealized
	Contracts			Value		Losses





Futures Contracts


2 Years, Short, U.S. Treasury Note, expires 06/29/07		(200	)		40,991		(131	)
5 Years, Short, U.S. Treasury Note, expires 06/29/07		(550	)		58,274		(378	)

					99,265		(509	)


(a)	Variable-rate security.
(b)	Credit-enhanced security.
(c)	Liquidity-enhanced security.
(d)	Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $29,662 or 5.2% of net assets.
(e)	All or a portion of this security is held as collateral for open futures contracts.


BAN		— Bond anticipation note
COP		— Certificate of participation
GO		— General obligation
HFA		— Housing Finance Agency
RB		— Revenue bond
TAN		— Tax anticipation note

28 See financial notes

Schwab Tax-Free YieldPlus Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers are x 1,000 except NAV.




Assets
Investments, at value (cost $563,319)		$562,672
Cash		375
Receivables:
Investments sold		2,070
Interest		5,997
Fund shares sold		3,177
Due from brokers for futures		102
Prepaid expenses	+	2


Total assets		574,395


Liabilities
Payables:
Investments bought		512
Investment adviser and administrator fees		14
Transfer agent and shareholder services fees		5
Fund shares redeemed		1,584
Dividends to shareholders		13
Accrued expenses	+	40


Total liabilities		2,168


Net Assets
Total assets		574,395
Total liabilities	−	2,168


Net assets		$572,227
Net Assets by Source
Capital received from investors		573,768
Net investment income not yet distributed		6
Net realized capital losses		(391	)
Net unrealized capital losses		(1,156	)

Net Asset Value (NAV) by Share Class


			Shares
Share Class	Net Assets	¸	Outstanding	=	NAV

Investor Shares	$24,550		2,465			$9.96
Select Shares	$547,677		55,001			$9.96

See financial notes 29

Schwab Tax-Free YieldPlus Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$9,611


Net Realized Gains and Losses
Net realized losses on investments		(251	)
Net realized gains on futures contracts	+	46


Net realized losses		(205	)


Net Unrealized Gains and Losses
Net unrealized gains on investments		61
Net unrealized losses on futures contracts	+	(224	)


Net unrealized losses		(163	)


Expenses
Investment adviser and administrator fees		892
Transfer agent and shareholder service fees:
Investor Shares		30
Select Shares		244
Registration fees		122
Portfolio accounting fees		21
Professional fees		19
Shareholder reports		10
Custodian fees		8
Trustees’ fees		6
Overdraft expense		1
Other expenses	+	2


Total expenses		1,355
Expense reduction by adviser and Schwab	−	82
Custody credit	−	5


Net expenses		1,268


Increase in Net Assets from Operations
Total investment income		9,611
Net expenses	−	1,268


Net investment income		8,343
Net realized losses		(205	)
Net unrealized losses	+	(163	)


Increase in net assets from operations		$7,975

30 See financial notes

Schwab Tax-Free YieldPlus Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$8,343			$11,549
Net realized losses			(205	)		(239	)
Net unrealized losses	+		(163	)		(4	)


Increase in net assets from operations			7,975			11,306


Distributions Paid
Dividends from Net Investment Income
Investor Shares			373			682
Select Shares	+		7,964			10,853


Total dividends from net investment income			$8,337			$11,535

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares Sold
Investor Shares			760			$7,578			1,677			$16,713
Select Shares	+		30,835			307,291			45,102			449,155


Total shares sold			31,595			$314,869			46,779			$465,868


Shares Reinvested
Investor Shares			31			$305			55			$544
Select Shares	+		613			6,109			857			8,541


Total shares reinvested			644			$6,414			912			$9,085


Shares Redeemed
Investor Shares			(731	)		($7,289	)		(2,322	)		($23,139	)
Select Shares	+		(25,478	)		(253,959	)		(40,513	)		(403,524	)


Total shares redeemed			(26,209	)		($261,248	)		(42,835	)		($426,663	)

Net transactions in fund shares			6,030			$60,035			4,856			$48,290

Shares Outstanding and Net Assets


		9/1/06-2/28/07				9/1/05-8/31/06
		SHARES		NET ASSETS		SHARES		NET ASSETS
Beginning of period			51,436		$512,554		46,580		$464,493
Total increase	+		6,030		59,673		4,856		48,061


End of period			57,466		$572,227		51,436		$512,554


Net investment income not yet distributed					$6				$—

See financial notes 31

Schwab Short/Intermediate Tax-Free Bond Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		10.38			10.50			10.69			10.59			10.63			10.42

Income from investment operations:
Net investment income		0.16			0.30			0.29			0.29			0.30			0.35
Net realized and unrealized gains or losses		—			(0.12	)		(0.19	)		0.10			(0.04	)		0.20

Total income from investment operations		0.16			0.18			0.10			0.39			0.26			0.55
Less distributions:
Dividends from net investment income		(0.16	)		(0.30	)		(0.29	)		(0.29	)		(0.30	)		(0.34	)

Net asset value at end of period		10.38			10.38			10.50			10.69			10.59			10.63

Total return (%)		1.51	¹		1.79			0.94			3.74			2.50			5.37

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.64	^2,3		0.64			0.63			0.63			0.60			0.49
Gross operating expenses		0.67	²		0.65			0.63			0.63			0.63			0.70
Net investment income		3.02	²		2.93			2.73			2.73			2.83			3.29
Portfolio turnover rate		5	¹		8			8			19			11			28
Net assets, end of period ($ x 1,000,000)		105			116			141			161			159			139

* Unaudited.

¹ Not annualized.

² Annualized.

³ The ratio of net operating expenses would have been 0.65% if custody credits had not been included.

32 See financial notes

Schwab Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.8%

Long-Term Investments

71,455

71,897

.1%

Short-Term Investments

31,580

31,490

.9%

Total Investments

103,035

103,387

.1%

Other Assets and Liabilities

1,146

100

.0%

Net Assets

104,533

Issuer

Project

Maturity

Face Amount

Value

Type of Security, Series

Rate

Date

($ x 1,000)

Long-Term Investments 68.8% of net assets

ALABAMA 0.6%

Mobile IDB

Pollution Control Refunding RB (International Paper Co) Series 1994A

4.65%

12/01/11

600

612

CALIFORNIA 1.0%

California Dept of Water Resources

Power Supply RB Series 2002A

5.50%

05/01/10

1,000

1,054

DISTRICT OF COLUMBIA 1.5%

District of Columbia

COP Series 2006

5.00%

01/01/12

(b)

1,500

1,582

GEORGIA 3.6%

Atlanta

Airport General Refunding RB Series 2003A

5.00%

01/01/10

(b)

3,660

3,794

INDIANA 2.0%

Lake Cnty

First Mortgage Lease RB Series 2000

5.25%

08/01/09

(b)

2,040

2,114

KENTUCKY 3.5%

Kentucky Property and Building Commission

RB Project No.71

5.50%

08/01/09

3,500

3,650

MARYLAND 1.0%

Baltimore

Convention Center Hotel RB Sr Series 2006A

5.00%

09/01/13

(b)

1,000

1,076

See financial notes 33

Schwab Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

MASSACHUSETTS 4.6%

Massachusetts

GO Refunding Bonds Series 2001A
5.50% 01/01/11 2,500 2,661

Special Obligation RB Consolidated Loan Series 2002A
5.00% 06/01/10 (b) 2,000 2,082

4,743

MISSOURI 2.0%

St Louis Municipal Finance Corp

Leasehold Refunding RB Series 2003
5.25% 07/15/10 (b) 2,000 2,102

NEVADA 6.0%

Clark Cnty

Airport System Subordinate Lien RB Series 2006A
5.00% 07/01/09 4,625 4,758

Henderson

Sr Limited Obligation Refunding Bonds (Seven Hills) Series 2001A
4.63% 08/01/11 (b) 1,465 1,523

6,281

NEW JERSEY 1.3%

Mercer Cnty

Refunding RB (Regional Sludge) Series 2003
5.00% 12/15/09 (b) 1,300 1,347

NEW YORK 9.1%

New York City

GO Bonds Fiscal 2003 Series A
5.25% 08/01/09 1,825 1,890

GO Bonds Fiscal 2003 Series B
5.25% 08/01/09 1,000 1,036

New York State Dormitory Auth

Lease RB Series 2003B
5.25% 07/01/31 (b) 2,000 2,177

New York State Urban Development Corp

State Facilities Refunding RB Series 1995
5.60% 04/01/15 4,000 4,405

9,508

NORTH CAROLINA 3.0%

North Carolina Municipal Power Agency

RB (Catawba Electric) Series 1999A
5.75% 01/01/09 (b) 3,000 3,109

OHIO 3.0%

Ohio

Higher Education Capital Facilities Bonds Series II-2001A
5.50% 12/01/08 3,000 3,092

PENNSYLVANIA 4.1%

Philadelphia

Water and Wastewater Refunding RB Series 2001B
5.50% 11/01/11 (b) 4,000 4,323

PUERTO RICO 2.0%

Puerto Rico Highway and Transportation Auth

Refunding RB Series H
5.00% 07/01/35 (b) 2,000 2,080

34 See financial notes

Schwab Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

TEXAS 8.1%

Dallas Water and Sewer Utilities

Refunding and Improvement RB Series 2003
5.00% 10/01/10 (b) 5,000 5,228

Denton Utility System

Refunding and Improvement RB Series 2001
5.00% 12/01/12 (b) 2,030 2,120

Fort Worth

General Purpose Improvement and Refunding Bonds Series 2001
5.00% 03/01/10 1,090 1,131

8,479

WASHINGTON 12.4%

North Kitsap SD No.400

Unlimited Tax GO Refunding Bonds Series 2005
5.13% 12/01/16 (b) 4,650 5,108

Snohomish Cnty

Refunding Limited GO Bonds
4.50% 12/01/12 (b) 1,920 1,974

Washington

Refunding COP (Dept of Ecology) Series 2001
4.75% 04/01/12 (b) 1,710 1,762

Washington Public Power Supply System

Refunding RB (Nuclear Project No.2) Series 1993A
5.70% 07/01/08 (b) 4,000 4,107

12,951

Total Long-Term Investments
(Cost $71,455) 71,897

Short-Term Investments 30.1% of net assets

ARIZONA 4.8%

Arizona

Refunding COP Series 2002B
5.00% 09/01/07 (b) 5,000 5,032

CALIFORNIA 2.0%

Alameda Public Financing Auth

RB (1997 RB Refinancing) Series 1999
4.95% 09/02/07 2,065 2,070

COLORADO 1.9%

Adams Cnty SD No.50

GO Refunding Bonds Series 2004
4.00% 12/01/07 (b) 2,000 2,005

GEORGIA 2.8%

Georgia

GO Bonds Series 2000D
6.00% 10/01/07 2,865 2,904

MICHIGAN 2.9%

Detroit

Capital Improvement Bonds Series 2002A
5.00% 04/01/07 (b) 1,000 1,001

Detroit Water Supply System

Second Lien RB Series 2006B
3.65% 03/01/07 (a)(b)(c) 1,000 1,000

University of Michigan Health System

RB Series 2005A
3.64% 03/01/07 (a) 1,000 1,000

3,001

See financial notes 35

Schwab Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

NEW JERSEY 3.4%

New Jersey Transit Corp

COP (Federal Transit Administration Grants) Series 2000B
5.50% 09/15/07 (b) 3,500 3,534

NORTH CAROLINA 2.4%

Charlotte

COP (FY2004 Equipment Acquisition) Series 2004C
4.00% 03/01/07 2,540 2,540

OKLAHOMA 1.9%

Tulsa Cnty Industrial Auth

M/F Housing RB (AHF Affordable Housing) Series 2003B
3.94% 03/22/07 (a) 2,000 2,000

OREGON 1.6%

Oregon

Refunding COP (Dept of Administrative Services) Series 2002C
5.00% 11/01/07 (b) 1,705 1,719

PENNSYLVANIA 1.0%

Pennsylvania IDA

Economic Development RB Series 1994
7.00% 07/01/07 (b) 1,000 1,011

SOUTH CAROLINA 2.9%

Charleston Cnty

RB (Care Alliance Health Services) Series 1999A
4.25% 08/15/07 (b) 3,000 3,008

TENNESSEE 0.1%

Clarksville Public Build Auth

Pooled Financing RB (Tennessee Municipal Bond Fund) Series 2001
3.65% 03/01/07 (a)(b) 150 150

WISCONSIN 2.4%

Wisconsin

Master Lease COP Series 2002D
5.00% 09/01/07 (b) 2,500 2,516

Total Short-Term Investments
(Cost $31,580) 31,490

End of Investments.

At 02/28/07 the tax basis cost of the fund’s investments was $103,035 and the unrealized appreciation and depreciation were $663 and ($311), respectively, with a net unrealized appreciation of $352.


(a)	Variable-rate security.
(b)	Credit-enhanced security.
(c)	Liquidity-enhanced security.


COP		— Certificate of participation
GO		— General obligation
IDA		— Industrial development authority
IDB		— Industrial development board
RB		— Revenue bond
TRAN		— Tax and revenue anticipation note

36 See financial notes

Schwab Short/Intermediate Tax-Free Bond Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$1,671			$3,761
Net realized losses			(56	)		(20	)
Net unrealized gains or losses	+		153			(1,665	)


Increase in net assets from operations			1,768			2,076


Distributions Paid
Dividends from net investment income			$1,671			$3,761

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			870			$9,031			2,796			$29,044
Shares reinvested			108			1,123			256			2,659
Shares redeemed	+		(2,076	)		(21,553	)		(5,341	)		(55,414	)


Net transactions in fund shares			(1,098	)		($11,399	)		(2,289	)		($23,711	)

Shares Outstanding and Net Assets


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			NET ASSETS			SHARES			NET ASSETS
Beginning of period			11,164			$115,835			13,453			$141,231
Total decrease	+		(1,098	)		(11,302	)		(2,289	)		(25,396	)


End of period			10,066			$104,533			11,164			$115,835


Net investment income not yet distributed						$11						$11

See financial notes 39

Schwab Long-Term Tax-Free Bond Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		11.10			11.25			11.33			11.04			11.05			10.87

Income from investment operations:
Net investment income		0.22			0.44			0.45			0.45			0.45			0.49
Net realized and unrealized gains or losses		0.05			(0.15	)		(0.08	)		0.29			(0.01	)		0.17

Total income from investment operations		0.27			0.29			0.37			0.74			0.44			0.66
Less distributions:
Dividends from net investment income		(0.22	)		(0.44	)		(0.45	)		(0.45	)		(0.45	)		(0.48	)

Net asset value at end of period		11.15			11.10			11.25			11.33			11.04			11.05

Total return (%)		2.48	¹		2.70			3.29			6.77			4.01			6.24

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.64	^2,3		0.65			0.65			0.65			0.62			0.49
Gross operating expenses		0.69	²		0.69			0.66			0.66			0.65			0.74
Net investment income		4.04	²		4.01			3.98			4.00			4.06			4.49
Portfolio turnover rate		10	¹		23			1			10			22			25
Net assets, end of period ($ x 1,000,000)		95			92			93			83			81			85

* Unaudited.

¹ Not annualized.

² Annualized.

³ The ratio of net operating expenses would have been 0.65% if custody credits had not been included.

40 See financial notes

Schwab Long-Term Tax-Free Bond Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.2%

Long-Term Investments

86,939

90,202

.8%

Short-Term Investments

3,550

.0%

Total Investments

90,489

93,752

.0%

Other Assets and Liabilities

970

100

.0%

Net Assets

94,722

Issuer

Project

Maturity

Face Amount

Value

Type of Security, Series

Rate

Date

($ x 1,000)

Long-Term Investments 95.2% of net assets

CALIFORNIA 11.3%

California Public Works Board

Lease Refunding RB (Dept of Health Services) Series 2005K

5.00%

11/01/24

2,000

2,131

Golden State Tobacco Securitization Corp

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A

5.00%

06/01/38

(b)

4,000

4,247

Los Angeles Municipal Improvement Corp

Lease RB (Police Headquarters Facilities) Series 2006A

4.75%

01/01/31

(b)

2,000

2,089

Oak Valley Hospital District

GO Bonds (Election of 2004) Series 2005

5.00%

07/01/29

(b)

2,065

2,204

10,671

COLORADO 4.6%

Colorado Dept of Transportation

RAN Series 2002B

5.50%

06/15/15

(b)

2,000

2,256

Denver Convention Center Hotel Auth

Sr Refunding RB Series 2006

5.00%

12/01/30

(b)

2,000

2,141

4,397

DISTRICT OF COLUMBIA 2.3%

District of Columbia

COP Series 2003

5.50%

01/01/17

(b)

2,000

2,199

GEORGIA 1.4%

Fulton Cnty Development Auth

RB (Tuff Morehouse) Series 2002A

5.50%

02/01/22

(b)

1,180

1,284

ILLINOIS 2.3%

Chicago

O’Hare International Airport General Airport Third Lien RB Series 2005A

5.00%

01/01/29

(b)

2,000

2,141

See financial notes 41

Schwab Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

INDIANA 1.1%

Marion Cnty Convention and Recreational Facilities Auth

Excise Taxes Lease Refunding Sr RB Series 2001A
5.00% 06/01/21 (b) 1,000 1,046

KENTUCKY 1.1%

Jefferson Cnty

Health Facilities RB (University Medical Center) Series 1997
5.25% 07/01/22 (b) 1,000 1,014

LOUISIANA 2.3%

Louisiana Citizens Property Insurance Corp

Assessment RB Series 2006B
5.00% 06/01/23 (b) 2,000 2,163

MARYLAND 1.4%

Baltimore

Convention Center Hotel RB Sr Series 2006A
5.25% 09/01/23 (b) 1,000 1,110

Maryland Housing and Community Development Dept

RB Series 1996A
5.88% 07/01/16 225 230

1,340

MASSACHUSETTS 2.5%

Massachusetts Bay Transportation Auth

Sr Sales Tax Bonds Series 2005B
5.50% 07/01/23 (b) 2,000 2,378

MICHIGAN 8.7%

Delta Cnty Economic Development Corp

Environmental Improvement Refunding RB (MeadWestvaco-Escanaba Paper Co) Series 2002
6.25% 04/15/27 1,000 1,117

Detroit

Water Supply System Refunding Sr Lien RB Series 2003C
5.25% 07/01/16 (b) 2,620 2,846

Detroit SD

School Building and Site Improvement Bonds Series 2005A
5.00% 05/01/17 (b) 3,000 3,246

Wayne Cnty Community College

Improvement Bonds Series 1999
5.50% 07/01/19 (b) 1,000 1,049

8,258

MISSISSIPPI 2.3%

Mississippi Hospital Equipment and Facilities Auth

Refunding RB (Mississippi Baptist Medical Center) Series 1995
6.00% 05/01/13 (b) 2,150 2,158

NEVADA 4.6%

Nevada

Highway Improvement (Motor Vehicle Fuel Tax) RB Series 2004
5.50% 12/01/18 (b) 2,000 2,236

Nevada Dept of Business and Industry

RB (Las Vegas Monorail) First Tier Series 2000
5.63% 01/01/32 (b) 2,000 2,131

4,367

NEW JERSEY 1.7%

Washington Board of Education

Refunding School Bonds
5.25% 01/01/27 (b) 1,400 1,642

42 See financial notes

Schwab Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

NEW YORK 6.8%

Hudson Yards Infrastructure Corp

Sr RB Fiscal 2007 Series A
5.00% 02/15/47 (b) 2,000 2,144

Metropolitan Transportation Auth

Refunding RB Series 2002A
5.50% 11/15/18 (b) 2,000 2,185

New York City

GO Bonds Fiscal 2002 Series G
5.75% 08/01/16 965 1,060

GO Bonds Fiscal 2005 Series B
5.25% 08/01/15 1,000 1,093

6,482

NORTH CAROLINA 3.2%

North Carolina Medical Care Commission

Health System RB (Mission Health Combined Group) Series 2007
4.50% 10/01/26 3,000 3,038

OREGON 3.9%

Columbia River Peoples’ Utility District

Electric System RB Series 2000B
5.50% 12/01/19 (b) 1,180 1,257

Morrow Cnty SD

GO Bonds Series 2001
5.63% 06/15/16 (b) 2,235 2,410

3,667

PENNSYLVANIA 1.6%

Seneca Valley Unified SD

GO Refunding Bonds Series 1998AA
5.15% 02/15/20 (b) 1,500 1,519

RHODE ISLAND 0.0%

Rhode Island Housing and Mortgage Finance Corp

Homeownership Opportunity Bonds Series 10A
6.50% 10/01/22 20 20

TEXAS 10.0%

Austin Combined Utilities

Refunding RB Series 1997
5.13% 11/15/16 (b) 3,000 3,029

Brazos River Auth

Refunding RB (Houston Industries) Series 1998A
5.13% 05/01/19 (b) 1,750 1,810

Harris Cnty

Permanent Improvement Refunding Bonds Series 2004A
5.00% 10/01/18 1,885 2,025

Harris Cnty Hospital District

Refunding RB Series 2000
6.00% 02/15/16 (b) 1,000 1,069

Texas Public Finance Auth

Refunding RB (Texas Southern Univ) Series 1998A1
4.75% 11/01/17 (b) 1,545 1,575

9,508

VERMONT 3.9%

Vermont Education and Health Buildings Financing Agency

Hospital RB (Fletcher Allen Health Care) Series 2007A
4.75% 12/01/36 1,500 1,519

Hospital RB (Fletcher Allen Health Care) Series 2000A
6.00% 12/01/23 (b) 2,000 2,160

3,679

See financial notes 43

Schwab Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

WASHINGTON 13.6%

Grant County Public Utility District No.2

Refunding RB (Wanapum Hydroelectric) Series 2005A
5.00% 01/01/22 (b) 1,765 1,891

Kent SD No.415

Unlimited Tax GO Refunding Bonds Series 1993A
5.55% 12/01/11 500 539

King Cnty

Lease RB (King Street Center) Series 1997
5.13% 06/01/17 (b) 1,000 1,014

North Kitsap SD No.400

Unlimited Tax GO Refunding Bonds Series 2005
5.13% 12/01/18 (b) 1,850 2,023

Ocean Shores

Water and Sewer RB Series 2001
5.50% 12/01/21 (b) 2,000 2,146

Washington Health Care Facilities

RB (Catholic Health Initiatives) Series A
6.00% 12/01/20 (b) 3,000 3,232

RB (Swedish Health System) Series 1998
5.13% 11/15/18 (b) 2,000 2,066

12,911

WISCONSIN 4.6%

Wisconsin

GO Bonds Series 2005D
5.00% 05/01/21 4,000 4,320

Total Long-Term Investments
(Cost $86,939) 90,202

Short-Term Investments 3.8% of net assets

NEW YORK 3.2%

New York City Municipal Water Finance Auth

Water and Sewer System RB Series 1994G
3.62% 03/01/07 (a)(b)(c) 1,000 1,000

New York City Transitional Finance Auth

Recovery Bonds Fiscal 2003 Series 3B
3.64% 03/01/07 (a)(c) 2,000 2,000

3,000

TENNESSEE 0.6%

Clarksville Public Build Auth

Pooled Financing RB (Tennessee Municipal Bond Fund) Series 2001
3.65% 03/01/07 (a)(b) 550 550

Total Short-Term Investments
(Cost $3,550) 3,550

End of Investments.

At 2/28/07, the tax basis cost of the fund’s investments was $90,486 and the unrealized appreciation and depreciation was $3,277 and ($11), respectively, with a net appreciation of $3,266.


(a)	Variable-rate security.
(b)	Credit-enhanced security.
(c)	Liquidity-enhanced security.

44 See financial notes

Schwab Long-Term Tax-Free Bond Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$1,857			$3,705
Net realized gains			568			638
Net unrealized losses	+		(173	)		(1,947	)


Increase in net assets from operations			2,252			2,396


Distributions Paid
Dividends from net investment income			$1,856			$3,703

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			1,016			$11,288			2,417			$26,801
Shares reinvested			111			1,245			238			2,626
Shares redeemed	+		(917	)		(10,198	)		(2,615	)		(28,923	)


Net transactions in fund shares			210			$2,335			40			$504

Shares Outstanding and Net Assets

9/1/06-2/28/07

9/1/05-8/31/06

NET ASSETS

Beginning of period

8,285

$91,991

8,245

$92,794

Total increase or decrease

210

2,731

(803

)

End of period

8,495

$94,722

8,285

$91,991

Net investment income not yet distributed

$146

$145

48 See financial notes

Schwab California Tax-Free YieldPlus Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			12/16/04¹
Investor Shares	2/28/07*			8/31/06			8/31/05


Per Share Data ($)

Net asset value at beginning of period		9.98			9.95			10.00

Income from investment operations:
Net investment income		0.15			0.26			0.15
Net realized and unrealized gains or losses		(0.01	)		0.03			(0.05	)

Total income from investment operations		0.14			0.29			0.10
Less distributions:
Dividends from net investment income		(0.15	)		(0.26	)		(0.15	)

Net asset value at end of period		9.97			9.98			9.95

Total return (%)		1.40	²		2.90			0.98	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.60	³		0.61			0.40	³
Gross operating expenses		0.60	³		0.62			0.66	³
Net investment income		3.03	³		2.53			2.12	³
Portfolio turnover rate		9	²		70			52	²
Net assets, end of period ($ x 1,000,000)		17			15			19


	9/1/06-			9/1/05-			12/16/04¹
Select Shares	2/28/07*			8/31/06			8/31/05


Per Share Data ($)

Net asset value at beginning of period		9.98			9.95			10.00

Income from investment operations:
Net investment income		0.16			0.27			0.15
Net realized and unrealized gains or losses		0.00			0.03			(0.05	)

Total income from investment operations		0.16			0.30			0.10
Less distributions:
Dividends from net investment income		(0.16	)		(0.27	)		(0.15	)

Net asset value at end of period		9.98			9.98			9.95

Total return (%)		1.58	²		3.06			1.03	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.45	³		0.46			0.28	³
Gross operating expenses		0.45	³		0.46			0.51	³
Net investment income		3.19	³		2.74			2.21	³
Portfolio turnover rate		9	²		70			52	²
Net assets, end of period ($ x 1,000,000)		933			768			516

* Unaudited.

¹ Commencement of operations.

² Not annualized.

³ Annualized.

See financial notes 49

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.9%

Long-Term Investments

282,419

283,723

.5%

Short-Term Investments

735,886

736,145

107

.4%

Total Investments

1,018,305

1,019,868

.4)%

Other Assets and Liabilities

(69,910

)

100

.0%

Net Assets

949,958


Issuer
Project			Maturity			Face Amount		Value
Type of Security, Series	Rate		Date			($ x 1,000)		($ x 1,000)





Long-Term Investments 29.9% of net assets




CALIFORNIA 27.0%

Bay Area Toll Auth
San Francisco Bay Area Toll Bridge RB Series 2006F		5.00%		04/01/09	(e)		5,815		5,987
California
Economic Recovery Bonds Series 2004A		5.25%		07/01/13	(e)		35,000		38,155
GO Refunding Bonds Series 2005		5.00%		05/01/12	(e)		7,065		7,499
Various Purpose GO Refunding Bonds Series 2004		5.25%		12/01/12	(b)(e)		7,035		7,639
California Dept of Water Resources
Power Supply RB Series 2002A		5.50%		05/01/08	(e)		20,845		21,310
Power Supply RB Series 2002A		5.50%		05/01/09	(e)		2,000		2,076
California Health Facilities Finance Auth
RB (Catholic Healthcare West) Series 2005G		5.00%		07/01/09	(e)		1,755		1,801
RB (Catholic Healthcare West) Series 2005G		5.00%		07/01/10	(e)		2,000		2,071
Refunding RB (Cedars-Sinai Medical Center) Series 2005		5.00%		11/15/08	(e)		1,000		1,022
Refunding RB (Cedars-Sinai Medical Center) Series 2005		5.00%		11/15/10	(e)		2,035		2,119
California Public Works Board
Lease RB (Butterfield State Office Complex) Series 2005A		5.00%		06/01/08	(e)		4,515		4,590
Lease RB (Butterfield State Office Complex) Series 2005A		5.00%		06/01/09	(e)		1,940		1,996
Lease RB (Dept of Corrections-California State Prison-Kern Cnty at Delano II) Series 2003C		5.00%		06/01/12	(e)		5,000		5,299
California State University Channel Islands Financing Auth
RB (Rental Housing) Series 2001		3.15%		08/01/08	(a)(b)(e)		5,105		5,061
California State University Trustees
Trustees Systemwide RB Series 2005C		4.00%		11/01/08	(e)		2,050		2,062
Trustees Systemwide RB Series 2005C		4.00%		11/01/09	(e)		3,015		3,044

50 See financial notes

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

California Statewide Communities Development Auth

Pollution Control Refunding RB (Southern California Edison Co) Series A
4.10% 04/01/13 (a)(b)(e) 2,000 2,038

RB (Daughters of Charity Health System) Series 2005F
5.00% 07/01/08 (e) 1,240 1,256

RB (Daughters of Charity Health System) Series 2005F
5.00% 07/01/09 (e) 3,065 3,132

RB (Daughters of Charity Health System) Series 2005F
5.00% 07/01/10 (e) 2,455 2,534

RB (Daughters of Charity Health System) Series 2005G
5.25% 07/01/11 (e) 950 998

RB (Huntington Memorial Hospital) Series 2005
5.00% 07/01/09 (e) 3,250 3,339

RB (Kaiser Permanente) Series 2002E
4.70% 06/01/09 (a)(e) 5,355 5,443

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/08 400 408

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/09 660 683

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/10 (e) 900 943

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/11 (e) 1,160 1,229

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/12 (e) 1,450 1,551

Chula Vista Public Financing Auth

Refunding RB Series 2005A
4.00% 09/01/12 (b)(e) 2,980 3,049

Del Mar Race Track Auth

RB Series 2005
5.00% 08/15/08 550 558

RB Series 2005
5.00% 08/15/09 500 513

Golden State Tobacco Securitization Corp

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2003B
5.50% 06/01/13 (e) 15,675 17,261

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2003B
5.63% 06/01/13 (e) 27,415 30,378

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
5.00% 06/01/16 585 589

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
5.00% 06/01/17 (e) 5,500 5,517

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
5.00% 06/01/18 (e) 4,190 4,245

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
5.00% 06/01/19 5,000 5,099

Imperial Redevelopment Agency

Subordinate Tax Allocation Notes Series 2006
4.50% 12/01/11 (e) 2,000 2,003

Indio Public Financing Auth

Lease RB Series 2007B
3.80% 11/01/12 (a)(b)(c) 5,000 5,030

Los Angeles Cnty Metropolitan Transportation Auth

Sales Tax RB (Prop C) Second Sr Series 2004A
5.00% 07/01/10 (b)(e) 3,390 3,551

Sales Tax Refunding RB (Prop A) First Tier Sr Series 2003A
5.00% 07/01/10 (b)(e) 1,180 1,236

Sales Tax Refunding RB (Prop C) Second Sr Series 1998A
5.50% 07/01/10 (b)(e) 2,485 2,642

Los Angeles Cnty Public Works Financing Auth

Lease Refunding RB (2005 Master Refunding) Series A
5.00% 12/01/08 (b)(e) 1,000 1,025

Natomas Union SD

COP Series B
5.00% 02/01/10 (a)(b) 14,575 15,104

Orange Cnty Public Financing Auth

Lease Refunding RB Series 2005
5.00% 07/01/10 (b)(e) 7,155 7,484

Perris Public Financing Auth

2006 Tax Allocation RB
4.40% 10/01/10 (e) 480 483

2006 Tax Allocation RB
4.55% 10/01/11 (e) 520 525

2006 Tax Allocation RB
4.65% 10/01/12 (e) 545 552

See financial notes 51

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Roseville Natural Gas Financing Auth

RB Series 2007
4.00% 02/15/09 1,500 1,511

RB Series 2007
5.00% 02/15/11 1,000 1,048

Sacramento Municipal Utility District

Electric Refunding RB Series 1997L
5.00% 07/01/11 (b)(e) 2,500 2,561

San Diego Cnty

COP (Burnham Institute for Medical Research) Series 2006
5.00% 09/01/09 (e) 1,085 1,113

COP (Burnham Institute for Medical Research) Series 2006
5.00% 09/01/10 (e) 1,000 1,032

Santa Barbara Redevelopment Agency

Tax Allocation Refunding Bonds (Central City Redevelopment) Sr Series 1995A
6.00% 03/01/08 (b) 1,535 1,558

Santa Clara

Insurance Funding Bonds Series 1987
3.00% 04/01/08 (a)(b)(e) 5,000 4,972

255,924

PUERTO RICO 2.9%

Puerto Rico

Public Improvement Refunding Bonds Series 2003C
5.00% 07/01/08 (a) 4,800 4,874

Public Improvement Refunding Bonds Series 2003C
5.00% 07/01/08 (a)(b)(e) 19,250 19,619

Public Improvement Refunding GO Bonds Series 2003C
4.25% 07/01/08 (a)(b) 3,275 3,306

27,799

Total Long-Term Investments
(Cost $282,419) 283,723

Short-Term Investments 77.5% of net assets

CALIFORNIA 50.7%

Association of Bay Area Governments

RB (Georgiana Bruce Kirby Preparatory School) Series 2007
3.85% 08/01/07 (a)(b) 4,000 4,000

California

Economic Recovery Bonds Series 2004B2
5.00% 07/01/07 (a)(e) 8,250 8,290

Economic Recovery Bonds Series 2004B4
3.00% 07/01/07 (a)(e) 1,000 999

Economic Recovery Bonds Series 2004C6
3.58% 03/01/07 (a)(b) 1,000 1,000

Federal Highway Grant Anticipation Bonds Series 2004A
5.00% 02/01/08 (b)(e) 1,360 1,378

GO Bonds
3.75% 03/01/07 (a)(c)(d)(e) 14,860 14,860

GO Bonds
3.75% 03/01/07 (a)(c)(d)(e) 23,350 23,350

GO Bonds
3.75% 03/01/07 (a)(c)(d) 28,960 28,960

GO Bonds Series 2003D
3.49% 04/12/07 (a) 5,000 5,000

GO Refunding Bonds
3.75% 03/01/07 (a)(c)(d) 10,000 10,000

California Dept of Water Resources

Power Supply RB Series 2002B2
3.55% 03/01/07 (a)(b) 7,500 7,500

Power Supply RB Series 2002B3
3.50% 03/01/07 (a)(b) 10,000 10,000

Power Supply RB Series 2002C7
3.55% 03/01/07 (a)(b)(c) 7,870 7,870

Power Supply RB Series 2002C9
3.58% 03/01/07 (a)(b) 9,000 9,000

California Health Facilities Finance Auth

Insured Health Facility RB (Catholic Healthcare West) Series 2004E
3.30% 03/06/07 (a)(b) 34,425 34,425

California Infrastructure & Economic Development Bank

RB (J. David Gladstone Institutes) Series 2001
4.00% 10/01/07 (e) 2,000 2,001

RB (J. Paul Getty Trust) Series 2003D
3.51% 03/01/07 (a) 5,500 5,500

52 See financial notes

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

California Public Works Board

Lease RB (Butterfield State Office) Series 2005A
5.00% 06/01/07 (e) 3,285 3,296

Lease Refunding RB (Dept of Corrections) Series 2004D
4.50% 12/01/07 (b)(e) 3,550 3,576

California Statewide Communities Development Auth

COP (Eskaton Properties Inc Obligated Group)
3.89% 03/22/07 (a)(b) 14,700 14,700

RB (Kaiser Permanente) Series 2004G
2.30% 05/01/07 (a) 2,425 2,420

RB (Kaiser Permanente) Series 2007B
4.37% 04/01/07 (a) 25,000 25,120

Student Housing RB (CHF-Irvine LLC-UCI East Campus Apts, Phase II) Series 2004
5.50% 05/15/07 360 361

Chula Vista

Industrial Development Refunding RB (San Diego Gas & Electric Co) Series 2006A
3.30% 03/06/07 (a)(b) 12,900 12,900

Contra Costa Water District

Refunding RB Series N
3.64% 03/01/07 (a)(b)(c)(d) 10,210 10,210

Del Mar Race Track Auth

RB Series 2005
5.00% 08/15/07 250 251

Diamond Bar Public Financing Auth

Lease RB (Community/Senior Center) Series 2002A
3.55% 03/07/07 (a)(b) 3,890 3,890

East Bay Municipal Utility District

Wastewater System Subordinated Refunding RB Series 2003B
3.40% 03/07/07 (a)(b)(c) 6,655 6,655

Golden State Tobacco Securitization Corp

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
3.65% 03/01/07 (a)(b)(c)(d) 16,600 16,600

Irvine Assessment District # 05-21

Limited Obligation Improvement Bonds Series A
3.51% 03/01/07 (a)(b) 2,000 2,000

Irvine Ranch Water District

1986 Capital Improvement Project
3.37% 03/01/07 (a)(b) 3,500 3,500

GO Consolidated Series 1995
3.56% 03/01/07 (a)(b) 2,000 2,000

Los Angeles Cnty Metropolitan Transportation Auth

Second Subordinate Sales Tax Revenue CP Series A
3.48% 03/07/07 (b) 8,000 8,000

Orange Cnty Sanitation District

Refunding COP Series 2000A
3.54% 03/01/07 (a)(c) 6,630 6,630

Refunding COP Series 2000B
3.54% 03/01/07 (a)(c) 1,500 1,500

Roseville Natural Gas Financing Auth

Gas RB Series 2007
3.62% 08/15/07 (a)(c)(d) 16,035 16,035

Sacramento Cnty Sanitation District Financing Auth

Refunding RB (Sacramento Regional Cnty Sanitation District) Series 2007B
4.12% 03/01/07 (a)(b) 20,000 20,000

San Diego Unified SD

2006-2007 TRAN Series A
4.50% 07/24/07 25,000 25,086

San Mateo Community College District

GO Bonds (Election of 2005) Series 2006B
3.64% 03/01/07 (a)(c)(d) 16,170 16,170

Santa Clara Valley Transportation Auth

Sales Tax RB (2000 Measure A) Series 2006F
3.65% 08/07/07 (a)(b) 20,000 20,000

Sales Tax RB (2000 Measure A) Series 2006G
3.65% 08/06/07 (a)(b) 4,000 4,000

Sonoma County Junior College District

GO Bonds (Election of 2002) Series B
3.58% 03/01/07 (a)(b)(c)(d) 4,970 4,970

Southern California Public Power Auth

Transmission Project RB (Subordinate Refunding) Series 1991
3.42% 03/07/07 (a)(b) 8,600 8,600

Temecula Valley Unified SD

GO Refunding Bonds Series 2004
6.00% 08/01/07 (b)(e) 1,000 1,010

See financial notes 53

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

University of California

General RB Series 2007J
3.64% 03/01/07 (a)(b)(c)(d) 21,720 21,720

Medical Center Pooled RB Series 2007B1
3.55% 03/01/07 (a)(c) 20,500 20,500

Ventura Cnty

2006-07 TRAN
4.50% 07/02/07 20,000 20,058

Western Placer USD, California

COP (School Facilities) Series 2006B
3.63% 07/01/07 (a)(b)(c) 6,000 5,994

481,885

PUERTO RICO 26.8%

Government Development Bank of Puerto Rico

CP Program
4.05% 03/05/07 741 741

CP Program
4.00% 03/07/07 2,620 2,620

CP Program
4.00% 03/09/07 3,680 3,680

CP Program
4.00% 03/14/07 4,000 4,000

CP Program
4.00% 03/15/07 3,402 3,402

Puerto Rico

Public Improvement and Refunding Bonds Series 2000
3.68% 03/01/07 (a)(b)(c)(d) 1,135 1,135

Public Improvement Bonds Series 1996
3.64% 07/02/07 (a)(b) 12,900 12,900

Public Improvement Bonds Series 2000
3.64% 03/01/07 (a)(b)(c)(d) 930 930

Public Improvement Bonds Series 2001A
3.65% 03/01/07 (a)(b)(c)(d)(e) 4,135 4,135

Public Improvement GO Refunding Bonds Series 2006A
3.68% 03/01/07 (a)(b)(c)(d) 740 740

Public Improvement Refunding Bonds Series 2002A
3.70% 03/01/07 (a)(b)(c)(d) 4,000 4,000

TRAN Series 2007
4.50% 07/30/07 (b) 30,000 30,111

Puerto Rico Aqueduct & Sewer Auth

BAN Series 2006A
3.70% 03/01/07 (a)(b)(c)(d) 54,000 54,000

Refunding Bonds Series 1995
3.70% 07/02/07 (a)(b) 10,000 10,000

Puerto Rico Electric Power Co

RB Series NN
3.64% 03/01/07 (a)(b)(c)(d) 16,235 16,235

Puerto Rico Highway & Transportation Auth

Subordinated RB Series 2003
3.64% 03/01/07 (a)(b)(c)(d) 3,300 3,300

Transportation RB Series L
3.64% 03/01/07 (a)(b)(c)(d) 5,000 5,000

Transportation Refunding RB Series L
3.65% 03/01/07 (a)(b)(c)(d) 10,770 10,770

Transportation Refunding RB Series N
4.11% 07/01/07 (a)(b) 60,000 60,000

Puerto Rico Public Buildings Auth

Government Facilities RB Series B
3.65% 03/01/07 (a)(b)(c)(d) 3,900 3,900

Government Facilities Refunding RB Series J
5.00% 07/01/07 (a)(b) 11,000 11,696

Government Facilities Refunding RB Series K
4.50% 07/01/07 (a)(e) 6,950 6,965

Refunding RB Series L
3.65% 03/01/07 (a)(b)(c)(d) 4,000 4,000

254,260

Total Short-Term Investments
(Cost $735,886) 736,145

End of Investments.

At 02/28/07 the tax basis cost of the fund’s investments was $1,018,333 and the unrealized appreciation and depreciation were $2,145 and ($610), respectively, with a net unrealized appreciation of $1,535.

54 See financial notes

Schwab California Tax-Free YieldPlus Fund

Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at 02/28/07. All numbers are x1,000 except number of futures contracts.


	Number of			Contract		Unrealized
	Contracts			Value		Gains





Futures Contracts


10 Years, Short, U.S. Treasury Note, expires 06/20/07		(500	)		54,297		(484	)
2 Years, Short, U.S. Treasury Note, expires 06/29/07		(150	)		30,743		(98	)
5 Years, Short, U.S. Treasury Note, expires 06/29/07		(505	)		53,506		(347	)

							(929	)


(a)	Variable-rate security.
(b)	Credit-enhanced security.
(c)	Liquidity-enhanced security.
(d)	Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $271,020 or 28.5% of net assets.
(e)	All or a portion of this security is held as collateral for futures contracts and delayed delivery security.


BAN		— Bond anticipation note
COP		— Certificate of participation
GO		— General obligation
RB		— Revenue bond
TRAN		— Tax and revenue anticipation note

See financial notes 55

Schwab California Tax-Free YieldPlus Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers are x 1,000 except NAV.




Assets
Investments, at value (cost $1,018,305)		$1,019,868
Cash		917
Receivables:
Investments sold		1,307
Interest		8,523
Fund shares sold		2,126
Due from brokers for futures		215
Prepaid expenses	+	3


Total assets		1,032,959


Liabilities
Payables:
Investments bought		81,000
Investment adviser and administrator fees		26
Transfer agent and shareholder services fees		8
Fund shares redeemed		1,957
Accrued expenses	+	10


Total liabilities		83,001


Net Assets
Total assets		1,032,959
Total liabilities	−	83,001


Net assets		$949,958
Net Assets by Source
Capital received from investors		950,606
Net investment income not yet distributed		70
Net realized capital losses		(1,352	)
Net unrealized capital gains		634

Net Asset Value (NAV) by Share Class

Shares

Share Class

Net Assets

Outstanding

NAV

Investor Shares

$16,875

1,691

$9.97

Select Shares

$933,083

93,521

$9.98


*	Due to rounding, net assets divided by shares outstanding does not equal the net asset value per share.

56 See financial notes

Schwab California Tax-Free YieldPlus Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$15,707


Net Realized Gains and Losses
Net realized losses on investments		(155	)
Net realized losses on futures contracts	+	(367	)


Net realized losses		(522	)


Net Unrealized Gains and Losses
Net unrealized gains on investments		557
Net unrealized losses on futures contracts	+	(411	)


Net unrealized gains		146


Expenses
Investment adviser and administrator fees		1,422
Transfer agent and shareholder service fees:
Investor Shares		20
Select Shares		425
Professional fees		20
Portfolio accounting fees		17
Registration fees		16
Shareholder reports		12
Custodian fees		8
Trustees’ fees		7
Other expenses	+	2


Total expenses		1,949
Custody credits	−	9


Net expenses		1,940


Increase in Net Assets from Operations
Total investment income		15,707
Net expenses	−	1,940


Net investment income		13,767
Net realized losses		(522	)
Net unrealized gains	+	146


Increase in net assets from operations		$13,391

See financial notes 57

Schwab California Tax-Free YieldPlus Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$13,767			$15,729
Net realized losses			(522	)		(379	)
Net unrealized gains	+		146			1,999


Increase in net assets from operations			13,391			17,349


Distributions Paid
Dividends from Net Investment Income
Investor Shares			239			413
Select Shares	+		13,468			15,312


Total dividends from net investment income			$13,707			$15,725

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares Sold
Investor Shares			711			$7,095			1,073			$10,694
Select Shares	+		41,037			409,589			64,137			639,292


Total shares sold			41,748			$416,684			65,210			$649,986


Shares Reinvested
Investor Shares			19			$188			30			$300
Select Shares	+		1,073			10,709			1,236			12,321


Total shares reinvested			1,092			$10,897			1,266			$12,621


Shares Redeemed
Investor Shares			(523	)		($5,216	)		(1,535	)		($15,280	)
Select Shares	+		(25,539	)		(254,900	)		(40,309	)		(401,658	)


Total shares redeemed			(26,062	)		($260,116	)		(41,844	)		($416,938	)

Net transactions in fund shares			16,778			$167,465			24,632			$245,669

Shares Outstanding and Net Assets

9/1/06-2/28/07

9/1/05-8/31/06

NET ASSETS

Beginning of period

78,434

$782,809

53,802

$535,516

Total increase

16,778

167,149

24,632

247,293

End of period

95,212

$949,958

78,434

$782,809

Net investment income not yet distributed

$70

$10

58 See financial notes

Schwab California Short/Intermediate Tax-Free
Bond Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		10.28			10.43			10.63			10.57			10.66			10.51

Income from investment operations:
Net investment income		0.17			0.34			0.33			0.31			0.32			0.34
Net realized and unrealized gains or losses		(0.01	)		(0.15	)		(0.20	)		0.06			(0.09	)		0.15

Total income from investment operations		0.16			0.19			0.13			0.37			0.23			0.49
Less distributions:
Dividends from net investment income		(0.17	)		(0.34	)		(0.33	)		(0.31	)		(0.32	)		(0.34	)

Net asset value at end of period		10.27			10.28			10.43			10.63			10.57			10.66

Total return (%)		1.60	¹		1.85			1.21			3.59			2.15			4.66

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.63	^2,3		0.62			0.61			0.61			0.58			0.49
Gross operating expenses		0.64	²		0.62			0.61			0.61			0.60			0.66
Net investment income		3.35	²		3.28			3.10			2.97			2.96			3.29
Portfolio turnover rate		7	¹		6			6			17			11			17
Net assets, end of period ($ x 1,000,000)		102			110			136			164			174			184

* Unaudited.

¹ Not annualized.

² Annualized.

³ The ratio of net operating expenses would have been 0.64% if custody credits had not been included.

See financial notes 59

Schwab California Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.1%

Long-Term Investments

93,758

94,658

.0%

Short-Term Investments

5,115

5,141

.1%

Total Investments

98,873

99,799

.9%

Other Assets and Liabilities

1,886

100

.0%

Net Assets

101,685


Issuer
Project			Maturity			Face Amount		Value
Type of Security, Series	Rate		Date			($ x 1,000)		($ x 1,000)





Long-Term Investments 93.1% of net assets




CALIFORNIA 90.1%

Alameda Cnty
Refunding COP Series 2001A		5.38%		12/01/09	(b)		5,000		5,241
California
Economic Recovery Bonds Series 2004A		5.25%		07/01/14	(b)		3,000		3,310
GO Bonds Series 1998		5.50%		12/01/11	(b)		1,665		1,806
GO Bonds Series 2002		5.25%		02/01/11			3,500		3,703
GO Refunding Bonds Series 2002		5.00%		02/01/12	(b)		4,000		4,253
California Dept of Water Resources
Power Supply RB Series 2002A		5.50%		05/01/10			1,315		1,386
California Health Facilities Finance Auth
RB (Kaiser Permanente) Series 1998B		5.00%		10/01/08			2,500		2,558
Refunding RB (Cedars-Sinai Medical Center) Series 2005		5.00%		11/15/16			2,000		2,142
California Public Works Board
Lease RB (UCLA Replacement Hospitals) Series 2002A		4.75%		10/01/09	(b)		3,005		3,090
California Statewide Communities Development Auth
Pollution Control Refunding RB (Southern California Edison Co) Series C		4.25%		11/01/33	(b)		1,500		1,555
Fremont Union High SD
GO Bonds (Election of 1998) Series 2000B		5.75%		09/01/08	(b)		1,520		1,570
Golden State Tobacco Securitization Corp
Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A		5.00%		06/01/19			4,500		4,589
Intermodal Container Transfer Facility Joint Powers Auth
Refunding RB Series 1999A		5.00%		11/01/08	(b)		1,210		1,239
Refunding RB Series 1999A		5.00%		11/01/09	(b)		1,375		1,426
Los Angeles Cnty Metropolitan Transportation Auth
Capital Grant Receipts RB (Gold Line Eastside Extension) Series 2005A		5.00%		10/01/11	(b)		4,000		4,201

60 See financial notes

Schwab California Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Los Angeles Community Redevelopment Agency

Lease RB (Vermont Manchester Social Services) Series 2005
5.00% 09/01/14 (b) 1,995 2,166

Subordinate Lien Tax Allocation Bonds (Bunker Hill) Series 2004
4.00% 03/01/10 1,950 1,925

Los Angeles State Building Auth

Lease Refunding RB (Dept of General Services) Series 1993A
5.63% 05/01/11 (b) 3,500 3,684

Los Angeles Unified SD

GO Bonds (Election of 1997) Series 2000D
5.50% 07/01/10 4,000 4,240

GO Refunding Bonds Series 2006B
5.00% 07/01/16 (b) 2,000 2,203

Marina Joint Powers Financing Authority

M/F Housing RB (Abrams B Apts) Series 2006
3.90% 11/15/36 (b) 5,000 5,024

Natomas Union SD

COP Series B
5.00% 02/01/35 (b) 1,865 1,933

Oakland

Refunding COP (Oakland Museum) Series 2002A
5.00% 04/01/10 (b) 2,015 2,101

Refunding COP (Oakland Museum) Series 2002A
5.00% 04/01/11 (b) 1,460 1,540

Oceanside Community Development Commission

M/F Rental Housing Refunding RB (Vista Del Oro Apts) Series 2001A
4.45% 04/01/31 (b) 1,250 1,277

Orange Cnty

Recovery COP Series 1996A
6.00% 07/01/08 (b) 3,000 3,097

Redding Joint Powers Financing Auth

Electric System RB Series 1996A
5.50% 06/01/11 (b) 2,000 2,028

Riverside

COP (Capital Improvements) Series 2003
5.00% 09/01/14 (b) 1,470 1,590

COP (Capital Improvements) Series 2003
5.00% 09/01/15 (b) 1,545 1,662

Riverside Cnty Asset Lease Corp

Leasehold RB (Riverside Cnty Hospital) Series 2003A
5.00% 06/01/09 (b) 2,555 2,628

San Bernardino Cnty

M/F Housing Refunding RB Series 2001A
4.45% 05/01/31 (b) 1,300 1,336

San Diego Unified SD

GO Bonds (Election of 1998) Series 2004F
5.00% 07/01/15 (b) 1,095 1,189

San Francisco State University

Student Housing RB (Auxiliary Organization) Series 1999
5.00% 07/01/08 400 404

San Jose Redevelopment Agency

Tax Allocation Bonds (Merged Area) Series 2002
4.00% 08/01/10 (b) 5,000 5,076

Santa Clara Cnty Financing Auth

Lease RB (VMC Facility) Series 1994A
7.75% 11/15/10 (b) 1,000 1,142

Vernon

Electric System RB (Malburg Generating Station) Series 2003C
5.00% 04/01/11 (b) 1,320 1,341

Electric System RB (Malburg Generating Station) Series 2003C
5.25% 04/01/15 (b) 1,905 1,940

91,595

PUERTO RICO 3.0%

Puerto Rico Electric Power Auth

Refunding RB Series CC
5.50% 07/01/08 (b) 3,000 3,063

Total Long-Term Investments
(Cost $93,758) 94,658

See financial notes 61

Schwab California Short/Intermediate Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Short-Term Investments 5.0% of net assets

CALIFORNIA 5.0%

California Public Works Board

Lease Refunding RB (Univ of California) Series 1998A
5.25% 12/01/07 2,000 2,025

California Statewide Communities Development Auth

RB (Kaiser Permanente) Series 2002D
4.35% 03/01/07 (a) 2,000 2,000

Irvine Ranch Water District

GO Consolidated Series 1995
3.56% 03/01/07 (a)(b) 300 300

Los Angeles Community Redevelopment Agency

Pooled Financing Refunding Bonds Series F
5.00% 09/01/07 (b) 810 816

5,141

Total Short-Term Investments
(Cost $5,115) 5,141

End of Investments.

At 02/28/07, the tax basis cost of the fund’s investments was $98,872 and the unrealized appreciation and depreciation was $1,188 and ($261), respectively, with a net appreciation of $927.


(a)	Variable-rate security.


(b)	Credit-enhanced security.


COP		— Certificate of participation
GO		— General obligation
RB		— Revenue bond

62 See financial notes

Schwab California Short/Intermediate Tax-Free Bond Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$1,749			$4,024
Net realized gains			−			61
Net unrealized losses	+		(100	)		(1,983	)


Increase in net assets from operations			1,649			2,102


Distributions Paid
Dividends from net investment income			1,749			4,023
Dividends from net realized gains	+		20			−


Total dividends and distributions paid			$1,769			$4,023

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			904			$9,283			2,061			$21,233
Shares reinvested			121			1,247			284			2,917
Shares redeemed	+		(1,810	)		(18,601	)		(4,679	)		(48,144	)


Net transactions in fund shares			(785	)		($8,071	)		(2,334	)		($23,994	)


Shares Outstanding and Net Assets


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			NET ASSETS			SHARES			NET ASSETS
Beginning of period			10,684			$109,876			13,018			$135,791
Total decrease	+		(785	)		(8,191	)		(2,334	)		(25,915	)


End of period			9,899			$101,685			10,684			$109,876


Net investment income not yet distributed						$9						$9

See financial notes 65

Schwab California Long-Term Tax-Free Bond Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per—Share Data ($)

Net asset value at beginning of period		11.66			11.84			11.78			11.45			11.69			11.63

Income from investment operations:
Net investment income		0.24			0.49			0.51			0.50			0.49			0.53
Net realized and unrealized gains or losses		0.07			(0.17	)		0.10			0.33			(0.24	)		0.05

Total income from investment operations		0.31			0.32			0.61			0.83			0.25			0.58
Less distributions:
Dividends from net investment income		(0.24	)		(0.49	)		(0.50	)		(0.50	)		(0.49	)		(0.52	)
Distributions from net realized gains		(0.07	)		(0.01	)		(0.05	)		—			—			—

Total Distributions		(0.31	)		(0.50	)		(0.55	)		(0.50	)		(0.49	)		(0.52	)

Net asset value at end of period		11.66			11.66			11.84			11.78			11.45			11.69

Total return (%)		2.64	¹		2.78			5.24			7.36			2.14			5.14

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.60	²		0.60			0.61			0.61			0.58			0.49
Gross operating expenses		0.60	²		0.60			0.61			0.61			0.60			0.64
Net investment income		4.14	²		4.19			4.27			4.30			4.16			4.58
Portfolio turnover rate		8	¹		19			8			15			29			34
Net assets, end of period ($ x 1,000,000)		214			205			199			180			194			238

* Unaudited.

¹ Not Annualized.

² Annualized.

66 See financial notes

Schwab California Long-Term Tax-Free Bond Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.9%

Long-Term Investments

192,583

201,175

.9%

Short-Term Investments

10,340

.8%

Total Investments

202,923

211,515

.2%

Other Assets and Liabilities

2,670

100

.0%

Net Assets

214,185


Issuer
Project			Maturity			Face Amount		Value
Type of Security, Series	Rate		Date			($ x 1,000)		($ x 1,000)





Long-Term Investments 93.9% of net assets




CALIFORNIA 93.9%

Alameda Cnty
COP (Alameda Cnty Medical Center) Series 1998		5.38%		06/01/18	(b)		3,400		3,504
Alameda Corridor Transportation Auth
Sr Lien RB Series 1999A		5.13%		10/01/16	(b)		1,170		1,226
Anaheim Public Financing Auth
Sr Lease RB Series 1997A		6.00%		09/01/24	(b)		5,000		6,115
Association of Bay Area Governments
RB (Schools of the Sacred Heart-San Francisco) Series 2000A		6.45%		06/01/30			1,500		1,610
Revenue COP (Lytton Gardens, Inc) Series 1999		6.00%		02/15/30			3,000		3,094
Tax Allocation RB (California Redevelopment Agency Pool) Series 1997A6		5.25%		12/15/17	(b)		1,200		1,239
Bay Area Toll Auth
San Francisco Bay Area Toll Bridge RB Series 2006F		5.00%		04/01/31			2,000		2,148
Brea Olinda Unified SD
GO Bonds Series 1999A		5.60%		08/01/20	(b)		1,000		1,064
Burbank Public Finance Auth
RB (Golden State Redevelopment) Series 2003A		5.25%		12/01/17	(b)		2,825		3,091
RB (Golden State Redevelopment) Series 2003A		5.25%		12/01/18	(b)		2,175		2,374
California
Dept of Veterans Affairs Home Purchase RB Series 2002A		5.30%		12/01/21	(b)		5,000		5,335
GO Bonds		5.25%		11/01/17			3,000		3,259
GO Bonds		5.63%		05/01/18			455		487
GO Bonds		5.00%		03/01/31			7,440		7,933
GO Bonds Series 2000		5.63%		05/01/18			400		428
Prerefunded GO Bonds Series 2006		5.63%		05/01/18			145		155
California Dept of Water Resources
Power Supply RB Series 2002A		5.75%		05/01/17			3,000		3,335
California Educational Facilities Auth
RB (California College of Arts and Crafts) Series 2001		5.75%		06/01/25			1,800		1,907
RB (Pepperdine University) Series 2000		5.75%		09/15/30	(b)		3,000		3,128

See financial notes 67

Schwab California Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

California Health Facilities Financing Auth

Refunding RB (Cedars-Sinai Medical Center) Series 2005
5.00% 11/15/27 4,000 4,204

California Infrastructure and Economic Development Bank

RB (The J. David Gladstone Institutes) Series 2001
5.50% 10/01/19 1,250 1,345

California Public Works Board

Lease RB (Dept of Corrections) Series 2003
5.50% 06/01/17 6,970 7,703

Lease Refunding RB (Dept of Health Services) Series 2005K
5.00% 11/01/24 3,000 3,197

California Statewide Communities Development Auth

Collateralized RB Series 2001A
7.00% 04/20/36 (b) 4,000 4,605

COP (Internext Group) Series 1999
5.38% 04/01/17 4,720 4,832

RB (Huntington Memorial Hospital) Series 2005
5.00% 07/01/18 6,190 6,561

Cloverdale Community Development Agency

Tax Allocation Refunding Bonds (Cloverdale) Series 2006
5.00% 08/01/31 (b) 2,330 2,490

Tax Allocation Refunding Bonds (Cloverdale) Series 2006
5.00% 08/01/36 (b) 3,520 3,751

Colton Public Finance Auth

Special Tax RB Series 1996
5.45% 09/01/19 (b) 3,020 3,076

Contra Costa Cnty Public Financing Auth

Tax Allocation RB Series 2003A
5.63% 08/01/33 5,000 5,330

East Bay Municipal Utility District

Water System Subordinated RB Series 1998
5.25% 06/01/19 2,600 2,680

Escondido

Revenue COP Series 2000A
6.00% 09/01/31 (b) 1,885 2,042

Fontana Redevelopment Agency

Tax Allocation Refunding Bonds (Jurupa Hills) Series 1997A
5.50% 10/01/19 3,500 3,600

Foothill-Eastern Transportation Corridor Agency

Toll Road Refunding RB Series 1999
5.13% 01/15/19 (b) 5,000 5,242

Golden State Tobacco Securitization Corp

Enhanced Tobacco Settlement Asset-Backed Bonds Series 2005A
5.00% 06/01/19 2,500 2,550

Hollister Joint Power Financing Auth

Wastewater RB (Refinancing and Improvement) Series 2006
5.00% 06/01/32 (b) 2,960 3,170

Huntington Beach

Lease RB (Capital Improvement Financing) Series 2000A
5.50% 09/01/20 (b) 1,500 1,592

Inglewood Redevelopment Agency

Tax Allocation Refunding Bonds (Merged Redevelopment) Series 1998A
5.25% 05/01/16 (b) 1,000 1,118

Lancaster Redevelopment Agency

Combined Project Areas (Housing) Sub Tax Allocation Refunding Bonds Series 2003
4.75% 08/01/33 (b) 2,000 2,090

Los Angeles Community Redevelopment Agency

Lease RB (Vermont Manchester Social Services) Series 2005
5.00% 09/01/17 (b) 2,310 2,508

Los Angeles Dept of Water & Power

Power System RB Series 2005A
5.00% 07/01/35 (b) 4,000 4,284

Water System RB Series 2006A2
5.00% 07/01/35 (b) 3,000 3,234

Los Angeles USD

Bond Series 2007A1
4.50% 01/01/28 (b) 2,000 2,038

GO Bonds (Election of 2004) Series F
4.75% 07/01/27 (b) 4,000 4,203

GO Bonds (Election of 2005) Series C
5.00% 07/01/26 (b) 2,000 2,159

Lynwood Public Financing Auth

Lease Refunding RB Series 2003
5.00% 09/01/18 (b) 1,000 1,069

Montclair Financing Auth

Lease RB (Public Facilities) Series 2005
4.60% 10/01/25 (b) 2,000 2,068

68 See financial notes

Schwab California Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

Oakland Joint Power Financing Auth

Reassessment RB Series 1999
5.50% 09/02/24 990 1,043

Oakland Redevelopment Agency

Subordinated Tax Allocation Bonds (Central District) Series 2003
5.50% 09/01/14 (b) 1,615 1,776

Riverside Cnty Public Financing Auth

Tax Allocation RB Series 2006A
4.75% 10/01/35 (b) 4,000 4,165

Sacramento Finance Auth

Capital Improvement RB Series 1999
5.88% 12/01/29 (b) 3,000 3,239

Lease RB (Cal EPA Building) Series 1998A
5.25% 05/01/19 (b) 1,575 1,631

Tax Allocation RB Series 2005A
5.00% 12/01/34 (b) 2,615 2,788

San Diego Cnty

COP (Burnham Institute for Medical Research) Series 2006
5.00% 09/01/34 5,000 5,124

San Diego Redevelopment Agency

Subordinate Tax Allocation Bonds (Horton Plaza) Series 2000
5.80% 11/01/21 2,500 2,657

San Francisco Airports Commission

Second Series Refunding RB Series 30
5.00% 05/01/17 (b) 3,680 3,944

San Francisco Bay Area Rapid Transit

Sales Tax RB Series 1999
5.50% 07/01/26 (b) 1,000 1,053

Sales Tax RB Series 1999
5.50% 07/01/34 (b) 2,500 2,634

San Francisco State University

Student Housing RB (Auxiliary) Series 1999
5.20% 07/01/19 1,150 1,189

San Luis Obispo Cnty Finance Auth

RB (Lopez Dam) Series 2000A
5.38% 08/01/24 (b) 1,000 1,053

Santa Ana Unified SD

GO Bonds (Election of 1999) Series 2000
5.70% 08/01/29 (b) 6,000 6,465

Santa Clara Cnty Financing Auth

Lease RB (VMC Facility) Series 1994A
7.75% 11/15/10 (b) 1,460 1,667

Santa Clara Redevelopment Agency

Tax Allocation Refunding RB (Bayshore North)
7.00% 07/01/10 (b) 1,240 1,318

South Orange Cnty Public Financing Auth

Special Tax RB Series 1999A
5.25% 08/15/18 (b) 3,095 3,240

Taft City Elementary SD

GO Bonds Series 2001A
4.90% 08/01/20 (b) 1,080 1,146

Tri-City Hospital District

Refunding RB Series 1996A
5.63% 02/15/17 (b) 1,000 1,012

Truckee Public Financing Auth

Lease RB Series 2000A
5.88% 11/01/25 (b) 1,490 1,575

University of California

Bond Series 2007A
4.50% 05/15/37 (b) 5,000 5,056

West Basin Water District

COP Refunding RB (1992 Projects) Series 1997A
5.50% 08/01/22 (b) 1,000 1,017

Whittier

RB (Presbyterian Intercommunity Hospital) Series 2002
5.60% 06/01/22 2,000 2,210

Total Long-Term Investments
(Cost $192,583) 201,175

Short-Term Investments 4.9% of net assets

CALIFORNIA 4.9%

California

Economic Recovery Bonds Series 2004C3
3.56% 03/01/07 (a)(c) 1,000 1,000

See financial notes 69

Schwab California Long-Term Tax-Free Bond Fund

Portfolio Holdings (Unaudited) continued

Issuer

Project
Maturity
Face Amount
Value

Type of Security, Series Rate Date ($ x 1,000) ($ x 1,000)

California Dept of Water Resources

Power Supply RB Series 2002B2
3.55% 03/01/07 (a)(b) 950 950

Power Supply RB Series 2005F5
3.55% 03/01/07 (a)(b) 100 100

Irvine Ranch Water District

GO Consolidated Series 1995
3.56% 03/01/07 (a)(b) 500 500

Orange Cnty Sanitation District

Refunding COP Series 2000A
3.54% 03/01/07 (a)(c) 3,500 3,500

Refunding COP Series 2000B
3.54% 03/01/07 (a)(c) 3,490 3,490

Southern California Metropolitan Water District

Water RB Series 2000B3
3.56% 03/01/07 (a)(c) 800 800

Total Short-Term Investments
(Cost $10,340) 10,340

End of Investments.

At 02/28/07, the tax basis cost of the fund’s investment was $202,921 and the unrealized appreciation and depreciation were $8,609 and ($15), respectively, with a net appreciation of $8,594.


(a)	Variable-rate security.
(b)	Credit-enhanced security.
(c)	Liquidity-enhanced security.


COP		— Certificate of participation
GO		— General obligation
RB		— Revenue bond

70 See financial notes

Schwab California Long-Term Tax-Free Bond Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07		9/1/05-8/31/06
Net investment income			$4,249		$8,363
Net realized gains			387		1,068
Net unrealized gains or losses	+		863		(4,027	)


Increase in net assets from operations			5,499		5,404


Distributions Paid
Dividends from net investment income			4,245		8,343
Dividends from net realized gains	+		1,172		192


Total distributions			$5,417		$8,535

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			2,206			$25,713			4,022			$46,808
Shares reinvested			276			3,220			459			5,335
Shares redeemed	+		(1,706	)		(19,905	)		(3,738	)		(43,410	)


Net transactions in fund shares			776			$9,028			743			$8,733

Shares Outstanding and Net Assets

9/1/06-2/28/07

9/1/05-8/31/06

NET ASSETS

Beginning of period

17,587

$205,075

16,844

$199,473

Total increase

776

9,110

743

5,602

End of period

18,363

$214,185

17,587

$205,075

Net investment income not yet distributed

$227

$223

See financial notes 73

Schwab Tax-Free Bond Funds

Financial Notes, unaudited

1. Business Structure of the Funds:

Each of the funds discussed in this report is a series of Schwab Investments, a no-load, open-end management investment company. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The list below shows all the funds in the trust including the funds discussed in this report, which are highlighted:



Schwab Investments (organized October 26, 1990) Schwab Tax-Free YieldPlus Fund Schwab Short/Intermediate Tax-Free Bond Fund Schwab Long-Term Tax-Free Bond Fund Schwab California Tax-Free YieldPlus Fund Schwab California Short/Intermediate Tax-Free Bond Fund Schwab California Long-Term Tax-Free Bond Fund		Schwab 1000 Index Fund Schwab YieldPlus Fund Schwab Short-Term Bond Market Fund Schwab Total Bond Market Fund Schwab GNMA Fund Schwab Inflation Protected Fund

Both Schwab Tax-Free YieldPlus Fund and Schwab California Tax-Free YieldPlus Fund offer two share classes: Investor Shares and Select Shares^®. Shares of each class represent interests in the same portfolio, but each class has different expenses and investment minimums. Schwab Short/Intermediate Tax-Free Bond Fund, Schwab Long-Term Tax-Free Bond Fund, Schwab California Short/Intermediate Tax-Free Bond Fund, and Schwab California Long-Term Tax-Free Bond Fund each offers one share class.

Shares are bought and sold at net asset value, or NAV, which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trustees may issue as many shares as necessary.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the funds use in the preparation of financial statements. The accounting policies are in conformity with the principles generally accepted in the United States of America.

(a) Security Valuation:

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

Bonds and notes: valued at halfway between the most recent bid and asked quotes or, if such quotes are unavailable, at prices for securities of comparable maturity, credit quality and type. Valuations for bonds and notes are provided by an independent bond-pricing service.

Securities for which no quoted value is available: valued at fair value, as determined in good faith by the fund’s investment adviser using guidelines adopted by the fund’s Board of Trustees. In the determination of a fair valuation the guidelines include, but are not limited to, the use of analytical data, business conditions, recent trades, general and/or specific market trends and any emergency or significant events that would have a material impact on the value of the security.

Futures: open contracts are valued at their settlement prices as of the close of their exchanges. When a fund closes out a futures position, it calculates the difference between the value of the position at the beginning and at the end, and records a realized gain or loss accordingly.

Short-term securities (60 days or less to maturity): valued at amortized cost.

(b) Portfolio Investments:

Futures Contract: The funds may invest in futures contracts. Futures contracts involve certain risks because they can be very sensitive to market movements.

One risk is that the price of a futures contract may not move in perfect correlation with the price of the underlying securities. Another risk is that, at certain times, it may be impossible for a fund to close out a position in a futures contract, due to a difference in trading hours or to market conditions that may reduce the liquidity for a futures contract or its underlying securities.

Schwab Tax-Free Bond Funds

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

Because futures carry inherent risks, a fund must give the broker a deposit of cash and/or securities (the “initial margin”) whenever it enters into the futures contract. The amount of the deposit may vary from one contract to another, but it is generally a percentage of the contract amount.

Futures are traded publicly on exchanges, and their market value changes daily. A fund records the change in market value of futures, and also the change in the amount of margin deposit required (“variation margin”).

Delayed-delivery: The funds may buy securities on a delayed-delivery basis. In these transactions, a fund agrees to buy a security for a stated price, with settlement generally occurring within two weeks. If the security’s value falls before settlement occurs, a fund could end up paying more for the security than its market value at the time of settlement. The funds have set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis.

(c) Security Transactions:

(d) Investment Income:

Interest income is recorded as it accrues. If a fund buys a debt security at a discount (that is, for less than its face value) or a premium (more than face value), it amortizes the discount or premium from the current date up to maturity. The fund then increases (in the case of discounts) or reduces (in the case of premiums) the income it records from the security. If the security is callable (meaning that the issuer has the option to pay it off before its maturity date), then the fund amortizes the premium to the security’s call date and price, rather than the maturity date and price.

(e) Expenses:

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

For funds offering multiple share classes, the net investment income, other than class specific expenses and the realized and unrealized gains or losses are allocated daily to each class in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The funds declare dividends every day they are open for business. These dividends, which are substantially equal to a fund’s net investment income for that day, are paid out to shareholders once a month. The funds may make distributions from any net realized capital gains once a year.

(g) Custody Credit:

Each fund has an arrangement with its custodian bank under which the fund receives a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts (if any) are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.

(h) Accounting Estimates:

The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.

Each fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund also keeps certain assets in segregated accounts, as required by securities law.

Schwab Tax-Free Bond Funds

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(i) Federal Income Taxes:

The funds intend to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the funds distribute substantially all of their net investment income and realized net capital gains (if any) to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(j) Indemnification:

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

(k) New Accounting Standards:

Financial Accounting Standards Board Interpretation (FIN) No. 48 — Accounting for Uncertainty in Income Taxes — an Interpretation of SFAS No. 109, was issued in July 2006 and is effective for fiscal years beginning after December 15, 2006. A fund with a fiscal year ending December 31 will implement FIN 48 no later than June 29, 2007, and it will apply to all open tax years. This Interpretation provides new requirements for the recognition, measurement, and disclosure in the financial statements of a tax position taken or expected to be taken in a tax return when there is uncertainty about whether that tax position will ultimately be sustained. We have not yet completed our evaluation of the impact, if any, of adopting FIN 48 on the funds’ financial statements.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of SFAS No. 157 will have on the funds’ financial statement disclosures.


3.	Affiliates and Affiliated Transactions:

(All dollar amounts are x 1,000)

Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the funds’ investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc. (“Schwab”) is an affiliate of the investment adviser and is the trust’s shareholder services agent and transfer agent.

For its advisory and administrative services to each fund, the investment adviser is entitled to receive an annual fee payable monthly based on each funds’ average daily net assets described as follows:

California

Short/

California

Short/

California

Tax-Free

Intermediate

Long-Term

Tax-Free

Intermediate

Long-Term

YieldPlus

Tax-Free

YieldPlus

Tax-Free

Average daily net assets

Fund

Bond Fund

Fund

Bond Fund

First $500 million

0.35%

0.30%

0.35%

0.30%

Over $500 million

0.30%

0.22%

0.30%

0.22%

For its transfer agent and shareholder services, Schwab is entitled to receive an annual fee payable monthly based on the funds’ average daily net assets described as follows:


	Transfer Agent Fees		Shareholder Service Fees

Investor Shares		0.05%		0.20%
Select Shares*		0.05%		0.05%

Schwab Tax-Free Bond Funds

Financial Notes, unaudited (continued)

3. Affiliates and Affiliated Transactions (continued):

Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the funds to limit the total expenses charged, excluding interest, taxes and certain non-routine expenses, through November 14, 2007, as follows:

California

Short/

California

Short/

California

Tax-Free

Intermediate

Long-Term

Tax-Free

Intermediate

Long-Term

YieldPlus

Tax-Free

YieldPlus

Tax-Free

Fund

Bond Fund

Fund

Bond Fund

Investor Shares

0.64%

0.65%

0.64%

0.65%

n/a

Select Shares*

0.49%

n/a

0.49%

n/a

* Select Shares are only offered by Tax-Free YieldPlus Fund and California Tax-Free YieldPlus Fund.

The funds may make 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 officers. As of February 28, 2007, the fund’s total security transactions with other Schwab Funds were as follows:


Tax-Free YieldPlus Fund			$191,376
Short/Intermediate Tax-Free Bond Fund			18,900
Long-Term Tax-Free Bond Fund			10,636
California Tax-Free YieldPlus Fund			366,120
California Short/Intermediate Tax-Free Bond Fund			19,900
California Long-Term Tax-Free Bond Fund			30,905

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

Trustees

Trustees may include people who are officers and/or directors of the investment adviser or Schwab. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

4. Borrowing:

The funds may borrow money from banks and custodians. The funds may obtain temporary bank loans through the trust to which they belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The trust has custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with State Street Corporation, and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. There were no borrowings from the line of credit for the funds during the period.

Schwab Tax-Free Bond Funds

Financial Notes, unaudited (continued)

5. Purchases and Sales of Investment Securities:

(All dollar amounts are x 1,000)

For the period ended February 28, 2007, purchases and sales of securities (excluding short-term obligations and securities sold short) were as follows:


	Purchases of Securities		Sales/Maturities of Securities

Tax-Free YieldPlus Fund		$49,801		$68,800
Short/Intermediate Tax-Free Bond Fund		4,778		16,232
Long-Term Tax-Free Bond Fund		10,662		9,351
California Tax-Free YieldPlus Fund		33,551		68,271
California Short/Intermediate Tax-Free Bond Fund		7,189		7,370
California Long-Term Tax-Free Bond Fund		22,019		14,836


6.	Federal Income Taxes:

(All dollar amounts are x 1,000)

As of August 31, 2006, the funds had capital loss carry forwards available to offset net capital gains before the expiration dates:


									California
			Short/				California		Short/		California
	Tax-Free		Intermediate		Long-Term		Tax-Free		Intermediate		Long-Term
	YieldPlus		Tax-Free		Tax-Free		YieldPlus		Tax-Free		Tax-Free
Expires	Fund		Bond Fund		Bond Fund		Fund		Bond Fund		Bond Fund


2008		$—		$—		$—		$—		$—		$—
2009		—		120		1,092		—		—		—
2010		—		32		—		—		—		—
2012		—		—		—		—		—		—
2013		—		—		—		—		10		—
2014		159		248		—		476		—		—


Total		$159		$400		$1,092		$476		$10		$—

For tax purposes, realized capital losses, occurring after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2006, the funds had aggregate deferred realized capital losses as follows:

California

Short/

California

Short/

California

Tax-Free

Intermediate

Long-Term

Tax-Free

Intermediate

Long-Term

YieldPlus

Tax-Free

YieldPlus

Tax-Free

Fund

Bond Fund

Fund

Bond Fund

Deferred capital losses

$315

—

$874

—

Capital losses utilized

—

$663

—

$50

—

Trustees and Officers

The tables below gives information about the trustees and officers for 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, Laudus Trust, Excelsior Funds, Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. As of February 28, 2007, the Fund Complex included 95 funds.

The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.


Independent Trustees
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term 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. From 1996 to 2001, Vice President for Business Affairs and Chief Financial Officer of Stanford University, and in 2001, Special Advisor to the President of Stanford University.		95	Board 1—Director, Redwood Trust, Inc. Board 2—Director, PMI Group, Inc.


Donald F. Dorward 1931 Trustee (Trustee of Schwab Investments since 1989.)	Chief Executive Officer, Dorward & Associates (corporate management, marketing and communications consulting firm). From 1996-1999, Executive Vice President and Managing Director, Grey Advertising. Prior to 1996, President and Chief Executive Officer, Allen & Dorward Advertising.		57	None.


William A. Hasler 1941 Trustee (Trustee of Schwab Investments since 2000.)	Retired. Dean Emeritus, Haas School of Business, University of California, Berkeley. Until February 2004, Co-Chief Executive Officer, Aphton Corp. (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of Business, University of California, Berkeley (higher education).		95	Board 1—Director, Mission West Properties Board 2—Director, TOUSA Board 3—Director, Harris-Stratex Networks Board 4—Director, Genitope Corp. Board 5—Director & Non-Executive Chairman, Solectron Corp. Board 6—Director, Ditech Networks


Robert G. Holmes 1931 Trustee (Trustee of Schwab Investments since 1989.)	Chairman, Chief Executive Officer and Director, Semloh Financial, Inc. (international financial services and investment advisory firm)		57	None.


Gerald B. Smith 1950 Trustee (Trustee of Schwab Investments since 2000.)	Chairman and Chief Executive Officer and founder of Smith Graham & Co. (investment advisors).		57	Board 1—Board of Cooper Industries Board 2—Chairman of the Audit Committee of Oneok Partners LP.


Independent Trustees continued
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term of		Fund Complex
Office, and Length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee		Other Directorships


Donald R. Stephens 1938 Trustee (Trustee of Schwab Investments since 1989.)	Managing Partner, D.R. Stephens & Company (investments). Prior to 1996, Chairman and Chief Executive Officer of North American Trust (real estate investment trust).		57	None.


Michael W. Wilsey 1943 Trustee (Trustee of Schwab Investments since 1989.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).		57	None.


Interested Trustees
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term of		Fund Complex
Office, and Length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee		Other Directorships


Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Investments since 1989.)	Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc.; Chairman and Director, 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 and Director, Schwab Holdings, Inc.; Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until May 2003, Co-Chief Executive Officer, The Charles Schwab Corporation.		57	None.


Randall W. Merk²1954 Trustee (Trustee of Schwab Investments since 2005.)	Executive Vice President and President, Schwab Financial Products, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC. From September 2002 to July 2004, Chief Executive Officer and President, Charles Schwab Investment Management, Inc. and Executive Vice President, Charles Schwab & Co., Inc. Prior to September 2002, President and Chief Investment Officer, American Century Investment Management, and Director, American Century Companies, Inc.		95	None.


Officers of the Trust
Name, Year of Birth, and Position(s)
with the Trust; (Term of Office, and
Length of Time Served³)		Principal Occupations During the Past Five Years


Evelyn Dilsaver 1955 President and Chief Executive Officer (Officer of Schwab Investments since 2004.)		President, Chief Executive Officer, and Director, Charles Schwab Investment Management, Inc.; Executive Vice President, Charles Schwab & Co., Inc; President and Chief Executive Officer, Laudus Trust and Laudus Variable Insurance Trust; President, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust; President, Mutual Fund Division, UST Advisers, Inc. From June 2003 to July 2004, Senior Vice President, Asset Management Products and Services, Charles Schwab & Co., Inc. Prior to June 2003, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, U.S. Trust, a subsidiary of The Charles Schwab Corporation.


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc.; Chief Financial Officer, Laudus Trust and Laudus Variable Insurance Trust; Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust; Chief Financial Officer, Mutual Fund Division, UST Advisors, Inc. Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited. From December 1999 to November 2004, Sr. Vice President, Financial Reporting, Charles Schwab & Co., Inc.


Kimon Daifotis 1959 Senior Vice President and Chief Investment Officer—Fixed Income (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Investment Officer—Fixed Income, Charles Schwab Investment Management, Inc. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc.


Jeffrey Mortimer 1963 Senior Vice President and Chief Investment Officer—Equities (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Investment Officer—Equities, Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer, Laudus Trust and Laudus Variable Insurance Trust. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc.


Randall Fillmore 1960 Chief Compliance Officer and AML Officer (Officer of Schwab Investments since 2002.)		Senior Vice President and Chief Compliance Officer, Charles Schwab Investment Management, Inc.; Senior Vice President Charles Schwab & Co., Inc.; Chief Compliance Officer, Laudus Trust and Laudus Variable Insurance Trust; Chief Compliance Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. From 2002 to 2003, Vice President, Charles Schwab & Co., Inc., and Charles Schwab Investment Management, Inc. From 2000 to 2002, Vice President, Internal Audit, Charles Schwab & Co., Inc.


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Investments since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc.; Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc.; Chief Legal Officer, Laudus Trust and Laudus Variable Insurance Trust; Chief Legal Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. Prior to June 1998, Branch Chief in Enforcement at U.S. Securities and Exchange Commission in San Francisco.


Catherine MacGregor 1964 Vice President (Officer of Schwab Investments since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Variable Insurance Trust; since 2006, Chief Counsel, Laudus Trust and Laudus Variable Insurance Trust. Until July 2005, Senior Associate, Paul Hastings Janofsky & Walker LLP.


Cathy Sabo 1964 Vice President (Officer of Schwab Investments since 2005.)		Vice President, Compliance, Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Variable Insurance Trust. Until 2004, Vice President, Client, Sales & Services Controls, Charles Schwab & Co., Inc.


Officers of the Trust continued
Name, Year of Birth, and Position(s)
with the Trust; (Term of Office, and
Length of Time Served³)		Principal Occupations During the Past Five Years


Michael Haydel 1972 Vice President (Officer of Schwab Investments since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President and AML Officer, Laudus Trust and Laudus Variable Insurance Trust. Until March 2004, Director Charles Schwab & Co., Inc.


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 of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010.

²	In addition to their employment with the investment adviser and the distributor, Messrs. Schwab and Merk also own stock of The Charles Schwab Corporation. Mr. Schwab and Mr. Merk are Interested Trustees because they are employees of Schwab and/or the 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 other officer serves at the pleasure of the Board.

Glossary

Alternative Minimum Tax (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT.

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

asset-backed securities Bond or other debt securities that represent ownership in a pool of assets such as credit card debt.

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

average rate The average rate of interest paid annually by the fixed-income securities in a fund or portfolio.

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

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

bond fund A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund’s net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed.

call An early repayment of a bond’s principal by the issuer, usually done because the issuer is able to refinance its bond debt at a lower rate.

call protection A term used in reference to a bond that cannot be called by the issuer before maturity, or at least for many years from the present date. A bond that offers call protection can more reliably be expected to provide a given yield over a given number of years than a bond that could be called (assuming both bonds are of the same credit quality).

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.

certificate of participation A municipal bond that is repaid from an annual budget appropriation rather than being backed by the full faith and credit of the issuer.

coupon, coupon rate The annual rate of interest paid until maturity by the issuer of a debt security.

credit-enhanced securities Securities that are backed by the credit of an entity other than the issuer (such as a financial institution). Credit enhancements, which can equal up to 100% of the security’s value, are designed to help lower the risk of default on a security and may also make the security more liquid.

credit quality The capacity of an issuer to make its interest and principal payments. See chart below.

credit risk The risk that a bond issuer may be unable to pay interest or principal to its bondholders.

discount rate The implied rate on a debt security that does not pay interest but is bought at a discount and redeemed at face value when it matures.

dividend Money from earnings that is distributed to shareholders as a given amount per share.

duration A measure of a bond’s sensitivity to interest rates. Calculations of duration generally take into account the investment’s yield, interest payments, maturity date and call features. Like maturity, duration is expressed in years, but is more accurate than maturity in determining the effect of interest rate movements on a bond investment’s price. The duration of a portfolio equals the market value weighted average of the duration of the bonds held in the portfolio.

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.

Credit Ratings

Most major bond issuers arrange with a recognized independent rating organization, such as Standard & Poor’s (S&P) or Moody’s Investors Service, to rate the creditworthiness of their bonds. The spectrum of these ratings is divided into two major categories: investment grade and below investment grade (sometimes called “junk bonds”). Bonds rated below investment grade range from those that are considered to have some vulnerability to default to those that appear on the brink of default or are in default.

general obligation bonds Municipal bonds that are secured by the issuer’s full faith and credit, which typically is backed by the power of the issuer to levy taxes.

interest Payments to bondholders (usually made twice a year) as compensation for loaning the bond principal to the issuer.

interest rate risk The risk that a bond’s value will fluctuate if market interest rates change or are expected to change. Bond prices tend to move in the opposite direction of interest rates: when interest rates rise, bond prices tend to fall.

liquidity-enhanced security A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity.

market risk Those elements of risk that are common to all securities in an asset class, and therefore cannot be significantly reduced by diversification within the asset class. Also known as “systematic risk.”

maturity The date a bond is scheduled to be “retired” and its principal amount returned to the bondholder.

mortgage-backed securities Bond or other debt securities that represent ownership in a pool of mortgage loans.

muni, municipal bonds, municipal securities Debt securities issued by a state, its counties, municipalities, authorities and other subdivisions, or the territories and possessions of the United States and the District of Columbia, including their subdivisions, agencies and instrumentalities and corporations. These securities may be issued to obtain money for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, public utilities, schools, streets, and water and sewer works.

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.

prepayment risk The risk that a mortgage-backed security may be paid off early, typically because interest rates have fallen and the homeowners who hold the underlying mortgages have refinanced those mortgages at lower rates. In this type of situation, the investor who held the mortgage-backed security will usually have to settle for a lower rate when reinvesting the principal.

restricted securities Securities that are subject to contractual restrictions on resale. These securities are often purchased in private placement transactions.

revenue bonds Municipal bonds that are issued to finance public works projects and are secured by revenue generated by the project (such as water and sewer fees) rather than the full faith and credit of the issuer.

section 4(2)/144A securities Securities exempt from registration under Section 4(2) of the Securities Act of 1933. These securities may be sold only to qualified institutional buyers under Securities Act Rule 144A.

taxable-equivalent yield The yield an investor would need to get from a taxable investment in order to match the yield paid by a given tax-exempt investment, once the effect of all applicable taxes is taken into account. For example, if your tax rate were 25%, a tax-exempt investment paying 4.5% would have a taxable-equivalent yield for you of 6.0% (4.5% ¸ [1 – 0.25%] = 6.0%).

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.

weighted average maturity For mutual funds, the maturity of all the bonds in its portfolio, calculated as a weighted average. As a rule, the longer a fund’s weighted average maturity, the greater its interest rate risk.

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

yield to maturity The annualized rate of return a bondholder could expect if the bond were held to maturity. In addition to interest payments, yield to maturity also factors in any difference between a bond’s current price and its principal amount, or face value.

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’re 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, and 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.schwab.com/schwabfunds, 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 Schwab’s website at www.schwab.com/schwabfunds or the SEC’s website at http://www.sec.gov.

The Schwab Funds Family^®

Stock Funds

Schwab Premier Equity Fund^tm

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 Technology Fund^tm

Schwab Institutional Select^® S&P 500 Fund

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 Viewpoints 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 2020 Fund

Schwab Target 2030 Fund

Schwab Target 2040 Fund

Schwab Retirement Income Fund

Bond Funds

Schwab YieldPlus Fund^®

Schwab Short-Term Bond Market Fund^tm

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab Inflation Protected Fund^tm

Schwab Tax-Free YieldPlus Fund^tm

Schwab Short/Intermediate Tax-Free Bond Fund^tm

Schwab Long-Term Tax-Free Bond Fund^tm

Schwab California Tax-Free YieldPlus Fund^tm

Schwab California Short/Intermediate

Tax-Free Bond Fund^tm

Schwab California Long-Term Tax-Free Bond Fund^tm

Schwab Money Funds

Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity.¹ 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.

This wrapper is not part of the shareholder report.

Enhance your portfolio by investing in a real estate securities fund with a global perspective.


•	High Return Potential — Over the past 10 years, global real estate securities have provided robust total returns from a combination of principal appreciation and dividends.

•	Enhanced Portfolio Diversification — Performance of global real estate securities have experienced negative to low correlations to domestic and foreign fixed income and equities.

•	Expanding Global Market — The opportunity to invest in the global real estate market is expanding as the number of countries adopting a U.S. REIT-like structure is increasing. Total global market capitalization surpassed $1.2 trillion in 2006¹.

•	Benefit from a Global Perspective — Investing with a global view can decrease country and regional specific risk and further enhance diversification benefits, because the performance of real estate securities can vary from one region, or country, to another.

•	Schwab Funds^® Advantage — Benefit from Schwab’s proprietary global real estate rating process and the experience of a professional investment management team.

Invest in the Schwab Global Real Estate Fund today and participate in the expanding growth opportunity that global real estate securities offer.


Schwab Global Real Estate Fund Facts
		Minimum	Expense	Ticker
	Share Class	Initial Investment	Ratios²	Symbol

	Investor Shares	$2,500 ($1,000 for retirement and educational and $100 for custodial accounts)	1.20%	SWAIX


	Select Shares^®	$50,000	1.05%	SWASX

For more information on the Schwab Global Real Estate Fund,
call 1-877-769-8004 or visit www.schwab.com/globalrealestate.

Diversification does not eliminate the risk of investment losses.


¹	Source: FTSE NARIET (0507-5716)
²	Agreed by Charles Schwab & Co., Inc., and the investment adviser through June 30, 2009, excluding interest, taxes and certain non-routine expenses. After June 30, 2009, expenses subject to change.

Performance at a Glance


Total Return for the Report Period


Schwab YieldPlus Fund^®

Investor Shares (Ticker Symbol: SWYPX)		2.87%
Select Shares^® (Ticker Symbol: SWYSX)		2.95%
Benchmark: Lehman Brothers U.S. Short Treasury: 9-12 Months Index¹		2.45%
Fund Category: Morningstar Ultrashort Bond		2.55%

Performance Details		pages 6-7



Schwab Short-Term Bond Market Fund^tm (Ticker Symbol: SWBDX)		3.07%

Benchmark: Lehman Brothers Mutual Fund Short (1-5 Year) U.S. Government/Credit Index		2.88%
Fund Category: Morningstar Short-Term Bond		2.68%

Performance Details		pages 8-9



Schwab Total Bond Market Fund^tm (Ticker Symbol: SWLBX)		4.17%

Benchmark: Lehman Brothers U.S. Aggregate Bond Index		3.66%
Fund Category: Morningstar Intermediate-Term Bond		3.65%

Performance Details		pages 10-11



Schwab GNMA Fund^tm

Investor Shares (Ticker Symbol: SWGIX)		3.36%
Select Shares^® (Ticker Symbol: SWGSX)		3.57%
Benchmark: Lehman Brothers GNMA Index		3.37%
Fund Category: Morningstar Intermediate Government		3.00%

Performance Details		pages 12-13



Schwab Inflation Protected Fund^tm

Investor Shares (Ticker Symbol: SWRIX)		1.28%
Select Shares^® (Ticker Symbol: SWRSX)		1.30%
Benchmark: Lehman Brothers TIPS Index		1.11%
Fund Category: Morningstar Inflation Protected Bond		0.78%

Performance Details		pages 14-15



Minimum Initial Investment²

Investor Shares ($1,000 for retirement and custodial accounts)		$ 2,500
Select Shares		$ 50,000

Source for category information: Morningstar, Inc.


¹	While the fund may invest in debt instruments that are subject to credit risk (please see the discussion of credit risk in the principal risk section of the prospectus), the Lehman Brothers Short 9-12 Month U.S. Treasury Index includes only U.S. Treasury securities. U.S. Treasury securities are direct obligations of the U.S. government and are backed by the full faith and credit of the United States and are, therefore, considered free of credit risk.

²	Please see prospectus for further detail and eligibility requirements.

Schwab Bond Funds 1

From the Chairman

Charles Schwab

Chairman

Dear Shareholder,

Once again, I want to thank you for choosing Schwab. We strive every day to warrant the trust you have placed in us.

Sincerely,

Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. Capital gains are not exempt from federal income tax.

2 Schwab Bond Funds

From the President

Dear Shareholder,

I am pleased to present the semiannual report for Schwab Bond Funds for the period ended February 28, 2007. With competitive expenses, extensive credit oversight, and professional portfolio management, Schwab Bond Funds offer both performance and value to meet your investment needs.

In closing, I speak for all of us at Schwab when I say our goal is to give you the financial products, guidance and personal relationship you need to succeed.

Thank you for investing in Schwab Funds^®.

Sincerely,


¹	Source: Lipper Ultra Short Funds. Rankings for periods ending 02/28/07; for the one-year period: Select Shares and Investor Shares, #2 and #4, respectively, out of 78 funds; for the 3-year period: #2 and #4, respectively, out of 66 funds; for the 5-year period: #1 and #3, respectively, out of 45 funds.

²	Source: Lipper Short/Intermediate Government Funds. Rankings for periods ending 02/28/07; for the one-year period: #4 out of 72 funds; for the 5-year period: #7 out of 59 funds; for the 10-year period: #11 out of 49 funds.

³	Source: Lipper Intermediate Investment Grade Debt Funds. Rankings for periods ending 02/28/07; for the one-year period: #77 out of 506 funds; for the 5-year period, #95 out of 376 funds; for the 10-year period, #29 out of 170 funds.

Past performance is no guarantee of future results.

Select Shares require a minimum balance of $50,000.

Schwab Bond Funds 3

The Investment Environment

Kim Daifotis, CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the funds.

Yield Curve: Average Yields of AAA Securities of Seven Maturities.

This chart shows where yields stood at the beginning of the report period and at the end of the period. For debt securities of comparable quality, those with longer maturities typically pay higher interest rates, in part because they are presumed to carry higher risk.

Data source: Bloomberg L.P.

4 Schwab Bond Funds

The Investment Environment continued

Yields of U.S. Treasury Securities: Effective Yields of Three-Month, Two-Year and Ten-Year Treasuries.

Data source: Bloomberg L.P.

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

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

Schwab Bond Funds 5

Schwab YieldPlus Fund^®

Kim Daifotis (upper right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the fund.

Matthew Hastings (lower left), CFA, a vice president and senior portfolio manager, has day-to-day co-management responsibility for the fund.

Andrew Tikofsky, PhD (lower right), a director and portfolio manager of the investment advisor, has day-to-day co-responsibility for the management of the fund.

Steven Hung (upper left), a director and portfolio manager of the investment adviser, has day-to-day co-responsibility for the management of the fund.

During the report period, the Federal Reserve (the Fed) held the fed funds target rate at 5.25%. While short-term rates remained elevated, long-term rates generally declined, sustaining the inversion of the yield curve. The fine line between slowing economic growth and rising inflation kept the Fed on hold and the markets stable for the majority of the report period. However, the market correction in global equity prices that occurred at the end of February had a significant impact on overall gains for the report period. Consequently, interest rates were the beneficiary of a flight to safety to quality trade, as evidenced by significantly lower long-term rates at the end of the period.

The Schwab YieldPlus Fund Investor Shares returned 2.87%, beating its benchmark, the Lehman Brothers U.S. Short Treasury: 9-12 months, which was up 2.45% for the report period. During the period, the fund increased its exposure to higher-quality mortgage-backed securities, while reducing its exposure to the sub-prime mortgage market. The fund also invested in short maturity, lower-quality corporate debt, which offered better risk-adjusted returns relative to longer maturity, higher-quality securities. At the close of the reporting period, the market experienced an increase in volatility driven by the strong correlation in global assets and sub-prime mortgage headlines. The fund used the re-pricing of risk premium as an opportunity to add exposure in credits and securities with strong fundamentals. Despite the significant increase in interest rate volatility and credit spread widening, the fund outperformed its benchmark.

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Corporate Bonds	43.0%


Mortgage-Backed Securities	39.4%


Asset-Backed Obligations	12.7%


Commercial Paper & Other Corporate Obligations	3.9%


Preferred Stock	1.0%

By Credit Quality¹


AAA	40.8%


AA	8.5%


A	15.3%


BBB	15.6%


BB	5.7%


B	2.1%


Short-Term Ratings	3.8%


Unrated Securities	8.2%


Weighted Average Credit Quality	AA

By Maturity


0-6 Months	41.8%


7-18 Months	3.9%


19-30 Months	3.1%


More than 30 Months	51.2%


Weighted Average Maturity	2.9 yrs


Weighted Average Duration	0.4 yrs

Portfolio holdings may have changed since the report date.

¹ Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

6 Schwab Bond Funds

Schwab YieldPlus Fund^®

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2,3


Class and Inception Date	6 Months		1 Year		5 Years		Since Inception


Investor Shares (10/1/1999)		2.87%		5.60%		3.41%		4.12%
Select Shares (10/1/1999)		2.95%		5.76%		3.56%		4.27%
Benchmark: Lehman Brothers U.S. Short Treasury: 9-12 Months Index⁴		2.45%		4.76%		2.55%		3.67%
Fund Category: Morningstar Ultrashort Bond		2.55%		4.89%		2.62%		3.65%

Expense Ratios Investor Shares: 0.58%/ Select Shares: 0.43%

Style Assessment⁵

Yields^1,3


30-Day SEC Yield
Investor Shares			5.42%
Select Shares			5.57%

12-Month Distribution Yield
Investor Shares			5.47%
Select Shares			5.61%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ While the fund may invest in debt instruments that are subject to credit risk (please see the discussion of credit risk in the principal risk section of the prospectus), the Lehman Brothers Short 9-12 Month U.S. Treasury Index includes only U.S. Treasury securities. U.S. Treasury securities are direct obligations of the U.S. government and are backed by the full faith and credit of the United States and are, therefore, considered free of credit risk.

Schwab Bond Funds 7

Schwab Short-Term Bond Market Fund^tm

Kim Daifotis (upper right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the fund.

Matthew Hastings (lower left), CFA, a vice president and senior portfolio manager, has day-to-day co-management responsibility for the fund.

Andrew Tikofsky, PhD (lower right), a director and portfolio manager of the investment advisor, has day-to-day co-responsibility for the management of the fund.

Steven Hung (upper left), a director and portfolio manager of the investment adviser, has day-to-day co-responsibility for the management of the fund.

The Schwab Short-Term Bond Market Fund returned 3.07%, beating its benchmark, the Lehman Brothers Mutual Fund Short (1-5 yrs) U.S. Government/Credit Index, which was up 2.88% for the report period. During the period, the fund reduced exposure to Agency Bonds and added higher-quality mortgage-backed securities, as they offered better risk-adjusted returns. Additionally, the fund’s duration was adjusted closer to the benchmark, which benefited performance. Furthermore, the fund shifted exposure from higher-quality corporate securities in the industrial sector to financials in order to reduce leverage buyouts (LBO) risk. At the close of the reporting period, the market experienced an increase in volatility driven by the strong correlation in global assets and sub-prime mortgage headlines. The fund used the re-pricing of risk premium as an opportunity to add exposure in credits and securities with strong fundamentals. Despite the significant increase in interest rate volatility and credit spread widening, the fund outperformed its benchmark.

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


U.S. Government Securities	34.0%


Corporate Bonds	31.1%


Mortgage-Backed Securities	26.5%


Commercial Paper & Other Corporate Obligations	4.4%


Asset-Backed Obligations	3.5%


Preferred Stock	0.5%

By Credit Quality¹


AAA	62.4%


AA	2.2%


A	9.1%


BBB	12.5%


BB	4.3%


B	1.6%


Short-Term Ratings	4.4%


Unrated Securities	3.5%


Weighted Average Credit Quality	AA

By Maturity


0-6 Months	27.3%


7-18 Months	23.2%


19-30 Months	16.8%


More than 30 Months	32.7%


Weighted Average Maturity	2.4 yrs


Weighted Average Duration	2.4 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

8 Schwab Bond Funds

Schwab Short-Term Bond Market Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab Short-Term Bond Market Fund^tm (11/5/1991)		3.07%		5.44%		3.73%		5.04%
Benchmark-Current: Lehman Brothers Mutual Fund Short (1-5 Year) U.S. Government/Credit Index		2.88%		5.29%		3.81%		5.39%
Benchmark-Blended: Lehman Brothers Short (1-3 Year) U.S. Government Bond Index and Lehman Brothers Mutual Fund Short (1-5 Year) U.S. Government/Credit Index		2.88%		5.29%		3.81%		5.34%
Fund Category: Morningstar Short-Term Bond		2.68%		4.69%		3.19%		4.61%

Expense Ratios Fund: Gross 0.57%; Net 0.55%⁴

Style Assessment⁵

Yields¹


30-Day SEC Yield³			5.06%

30-Day SEC Yield-No Waiver⁶			5.03%

12-Month Distribution Yield³			5.73%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

Schwab Bond Funds 9

Schwab Total Bond Market Fund^tm

Kim Daifotis (upper right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the fund.

Matthew Hastings (lower left), CFA, a vice president and senior portfolio manager, has day-to-day co-management responsibility for the fund.

Andrew Tikofsky, PhD (lower right), a director and portfolio manager of the investment advisor, has day-to-day co-responsibility for the management of the fund.

Steven Hung (upper left), a director and portfolio manager of the investment adviser, has day-to-day co-responsibility for the management of the fund.

The Schwab Total Bond Market Fund returned 4.17%, beating its benchmark, the Lehman Brothers U.S. Aggregate Bond Index, which returned 3.66% for the report period. The fund is designed to give investors exposure to the overall U.S. bond market. During the period, the fund reduced exposure to Agency Bonds and added higher-quality mortgage-backed securities, as they offered better risk-adjusted returns. Additionally, the fund’s duration was adjusted closer to the benchmark, which benefited performance. Furthermore, the fund shifted exposure from higher-quality corporate securities in the industrials sector to financials in order to reduce leverage buyouts (LBO) risk. At the close of the reporting period, the market experienced an increase in volatility driven by the strong correlation in global assets and sub-prime mortgage headlines. The fund used the re-pricing of risk premium as an opportunity to add exposure in credits and securities with strong fundamentals. Despite the significant increase in interest rate volatility and credit spread widening, the fund outperformed its benchmark.

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Mortgage-Backed Securities	49.3%


Corporate Bonds	25.1%


U.S. Government Securities	16.4%


Commercial Paper & Other Corporate Obligations	4.5%


Asset-Backed Obligations	3.5%


Preferred Stock	1.2%

By Credit Quality¹


AAA	65.1%


AA	2.1%


A	6.9%


BBB	11.2%


BB	5.2%


B	1.4%


Short-Term Ratings	4.6%


Unrated Securities	3.5%


Weighted Average Credit Quality	AA

By Maturity


0-1 Year	20.8%


2-10 Years	35.9%


11-20 Years	22.6%


21-30 Years	20.7%


Weighted Average Maturity	6.6 yrs


Weighted Average Duration	4.7 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

10 Schwab Bond Funds

Schwab Total Bond Market Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2,3


	6 Months		1 Year		5 Years		10 Years


Fund: Schwab Total Bond Market Fund^tm (3/5/1993)		4.17%		5.88%		4.99%		6.24%
Benchmark-Current: Lehman Brothers U.S. Aggregate Bond Index		3.66%		5.54%		5.00%		6.33%
Benchmark-Blended: Lehman Brothers General U.S. Government Bond Index and Lehman Brothers U.S. Aggregate Bond Index		3.66%		5.54%		5.00%		6.36%
Fund Category: Morningstar Intermediate-Term Bond		3.65%		5.29%		4.64%		5.62%

Expense Ratios Fund: Gross 0.53%; Net 0.53%⁴

Style Assessment⁵

Yields^1,3


30-Day SEC Yield			5.09%

12-Month Distribution Yield			7.09%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

Schwab Bond Funds 11

Schwab GNMA Fund^tm

Kim Daifotis (upper right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the fund.

Matthew Hastings (lower left), CFA, a vice president and senior portfolio manager, has day-to-day co-management responsibility for the fund.

Andrew Tikofsky, PhD (lower right), a director and portfolio manager of the investment advisor, has day-to-day co-responsibility for the management of the fund.

Steven Hung (upper left), a director and portfolio manager of the investment adviser, has day-to-day co-responsibility for the management of the fund.

The Schwab GNMA Fund Investor Shares returned 3.36%, closely tracking its benchmark, the Lehman Brothers GNMA Index, which was up 3.37% for the period. By nature, GNMA securities are more expensive than other mortgage-backed securities, such as Freddie Mac and Fannie Mae, because they are guaranteed by the U.S. government. GNMA securities thus represent a means to participate in the mortgage market with the benefit of government sponsorship. In addition to GNMA securities, the fund may also invest a portion of its portfolio in non-GNMA securities. During the report period, the fund took advantage of this flexibility and invested in high-quality AAA mortgage-backed securities, which benefited the fund’s performance.

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


Mortgage-Backed Securities	99.2%


Commercial Paper & Other Corporate Obligations	0.7%


Asset-Backed Obligations	0.1%

By Credit Quality¹


AAA	99.3%


A	0.1%


Short-Term Ratings	0.6%


Weighted Average Credit Quality	AAA

By Maturity


0-6 Months	0.8%


7-18 Months	0.2%


19-30 Months	0.0%


More than 30 Months	99.0%


Weighted Average Maturity	5.0 yrs


Weighted Average Duration	3.5 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

12 Schwab Bond Funds

Schwab GNMA Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2,3


Class and Inception Date	6 Months		1 Year		3 Years		Since Inception


Investor Shares (3/3/2003)		3.36%		4.45%		3.21%		2.95%
Select Shares (3/3/2003)		3.57%		4.76%		3.43%		3.12%
Benchmark: Lehman Brothers GNMA Index		3.37%		5.32%		4.07%		3.87%
Fund Category: Morningstar Intermediate Government		3.00%		4.42%		2.68%		2.59%

Expense Ratios Investor Shares: Gross 0.98%; Net 0.74% / Select Shares: Gross 0.84%; Net 0.55%⁴

Style Assessment⁵

Yields¹


30-Day SEC Yield³
Investor Shares			4.92%
Select Shares			5.09%

30-Day SEC Yield-No Waiver⁶
Investor Shares			4.55%
Select Shares			4.69%

12-Month Distribution Yield³
Investor Shares			5.62%
Select Shares			5.92%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

Schwab Bond Funds 13

Schwab Inflation Protected Fund^tm

Kim Daifotis (upper right), CFA, a senior vice president and chief investment officer, fixed income, of the investment adviser, has overall responsibility for management of the fund.

Matthew Hastings (lower left), CFA, a vice president and senior portfolio manager, has day-to-day co-management responsibility for the fund.

Andrew Tikofsky, PhD (lower right), a director and portfolio manager of the investment advisor, has day-to-day co-responsibility for the management of the fund.

Steven Hung (upper left), a director and portfolio manager of the investment adviser, has day-to-day co-responsibility for the management of the fund.

The Schwab Inflation Protected Fund Investor Shares returned 1.28%, outperforming its benchmark, the Lehman Brothers U.S. TIPS (Treasury Inflation-Protected Securities), which returned 1.11% for the report period. The fund is designed for investors who are near or in retirement and seek to protect their principal from rising inflation. It typically invests at least 80% of its net assets in inflation protected fixed income securities, which are primarily TIPS. Within the fund’s inflation protected securities allocation, the fund was slightly underweight in TIPS due to adding corporate exposure. This strategy benefited the fund as corporate securities performed well and TIPS generally lost value towards the end of the period. The fund also extended duration closer to the benchmark in response to elevated readings of inflation.

As of 2/28/07:

Portfolio Composition % of Investments

These tables show three different views of the fund’s portfolio: by type of security, credit quality of the security and remaining maturity.

By Security Type


U.S. Government Securities	92.2%


Corporate Bonds	5.9%


Commercial Paper & Other Corporate Obligations	1.2%


Preferred Stock	0.7%

By Credit Quality¹


AAA	92.3%


A	0.7%


BBB	3.0%


BB	2.0%


Short-Term Ratings	1.1%


Unrated Securities	0.9%


Weighted Average Credit Quality	AAA

By Maturity


0-1 Year	2.4%


2-10 Years	69.0%


11-20 Years	16.3%


21-30 Years	12.3%


Weighted Average Maturity	9.9 yrs


Weighted Average Duration	6.4 yrs

Portfolio holdings may have changed since the report date.


¹	Based on ratings from Moody’s. Where Moody’s ratings are not available, Standard & Poor’s ratings are used. The fund may use different ratings provided by other ratings agencies for purposes of determining compliance with the fund’s investment policies.

14 Schwab Bond Funds

Schwab Inflation Protected Fund^tm

Performance Summary as of 2/28/07

Performance of a Hypothetical
$10,000 Investment in Investor Shares¹

Performance of a Hypothetical
$50,000 Investment in Select Shares¹

Average Annual Total Returns^1,2,3


Class and Inception Date	6 Months		Since Inception


Investor Shares (3/31/2006)		1.28%		4.39%
Select Shares (3/31/2006)		1.30%		4.46%
Benchmark: Lehman Brothers TIPS Index		1.11%		5.13%
Fund Category: Morningstar Inflation Protected Bond		0.78%		4.28%

Expense Ratios Investor Shares: Gross 0.92%; Net 0.65% / Select Shares: Gross 0.76%; Net 0.50%⁴

Style Assessment⁵

Yields¹


30-Day SEC Yield³
Investor Shares			3.31%
Select Shares			3.48%

30-Day SEC Yield-No Waiver⁶
Investor Shares			3.13%
Select Shares			3.29%

¹ 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 Fund expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the total return may have been lower.

⁴ Net Expense: Expenses with contractual fee waiver to be charged to shareholders through at least 11/14/07. Gross Expense: Actual expenses as stated in the prospectus.

⁶ Yield if fund expenses had not been partially absorbed by CSIM and Schwab.

Schwab Bond Funds 15

Fund Expenses (Unaudited)

Examples for a $1,000 Investment


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 9/1/06		at 2/28/07		9/1/06 - 2/28/07



Schwab YieldPlus Fund^®
Investor Shares
Actual Return		0.57%	$	1,000	$	1,028.71	$	2.87
Hypothetical 5% Return		0.57%	$	1,000	$	1,021.97	$	2.86
Select Shares^®
Actual Return		0.42%	$	1,000	$	1,029.48	$	2.11
Hypothetical 5% Return		0.42%	$	1,000	$	1,022.71	$	2.11


Schwab Short-Term Bond Market Fund^tm
Actual Return		0.55%	$	1,000	$	1,030.70	$	2.77
Hypothetical 5% Return		0.55%	$	1,000	$	1,022.07	$	2.76


Schwab Total Bond Market Fund^tm
Actual Return		0.53%	$	1,000	$	1,041.70	$	2.68
Hypothetical 5% Return		0.53%	$	1,000	$	1,022.17	$	2.66


Schwab GNMA Fund^®
Investor Shares
Actual Return		0.74%	$	1,000	$	1,033.61	$	3.73
Hypothetical 5% Return		0.74%	$	1,000	$	1,021.12	$	3.71
Select Shares
Actual Return		0.55%	$	1,000	$	1,035.66	$	2.78
Hypothetical 5% Return		0.55%	$	1,000	$	1,022.07	$	2.76


Schwab Inflation Protected Fund^®
Investor Shares
Actual Return		0.65%	$	1,000	$	1,012.80	$	3.24
Hypothetical 5% Return		0.65%	$	1,000	$	1,021.57	$	3.26
Select Shares
Actual Return		0.51%	$	1,000	$	1,013.00	$	2.55
Hypothetical 5% Return		0.51%	$	1,000	$	1,022.27	$	2.56


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

²	Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

16 Schwab Bond Funds

Schwab YieldPlus Fund^®

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
Investor Shares	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		9.67			9.68			9.71			9.70			9.75			10.00

Income from investment operations:
Net investment income		0.25			0.45			0.29			0.24			0.30			0.42
Net realized and unrealized gains or losses		0.02			(0.01	)		(0.02	)		0.01			(0.02	)		(0.23	)

Total income from investment operations		0.27			0.44			0.27			0.25			0.28			0.19
Less distributions:
Dividends from net investment income		(0.25	)		(0.45	)		(0.30	)		(0.24	)		(0.33	)		(0.44	)

Net asset value at end of period		9.69			9.67			9.68			9.71			9.70			9.75

Total return (%)		2.87	¹		4.64			2.82			2.63			2.95			1.89

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.57	²		0.58			0.59			0.59			0.59			0.55
Gross operating expenses		0.57	²		0.58			0.59			0.59			0.59			0.62
Net investment income		5.29	²		4.62			3.00			2.43			3.08			4.36
Portfolio turnover rate		57	¹		54			76			89			109			42
Net assets, end of period ($ x 1,000,000)		1,123			886			741			639			410			392


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
Select Shares	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		9.66			(0.32	)		(0.30	)		(0.30	)		(0.25	)		0.00

Income from investment operations:
Net investment income		0.26			0.46			0.30			0.25			0.32			0.44
Net realized and unrealized gains or losses		0.03			(0.02	)		(0.01	)		0.01			(0.02	)		(0.24	)

Total income from investment operations		0.29			0.44			0.29			0.26			0.30			0.20
Less distributions:
Dividends from net investment income		(0.26	)		(0.46	)		(0.31	)		(0.26	)		(0.35	)		(0.45	)

Net asset value at end of period		9.69			(0.34	)		(0.32	)		(0.30	)		(0.30	)		(0.25	)

Total return (%)		2.95	¹		4.69			3.08			2.67			3.10			2.04

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.42	²		0.43			0.44			0.45			0.44			0.40
Gross operating expenses		0.42	²		0.43			0.44			0.45			0.44			0.47
Net investment income		5.45	²		4.80			3.18			2.57			3.23			4.52
Portfolio turnover rate		57	¹		54			76			89			109			42
Net assets, end of period ($ x 1,000,000)		10,429			7,319			5,091			3,030			1,476			1,443

* Unaudited.

¹ Not annualized.

² Annualized.

See financial notes 17

Schwab YieldPlus Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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


				Cost			Value
Holdings by Category				($ x 1,000)			($ x 1,000)


	46	.3%	Corporate Bonds		5,329,909			5,348,939
	13	.7%	Asset-Backed Obligations		1,577,318			1,578,836
	42	.4%	Mortgage-Backed Securities		4,882,143			4,900,542
	1	.1%	Preferred Stock		129,086			129,603
	4	.2%	Short-Term Investments		479,728			479,728

	107	.7%	Total Investments		12,398,184			12,437,648
	(1	.9)%	Short Sales		(219,122	)		(219,403	)
	(5	.8)%	Other Assets and Liabilities					(665,685	)

	100	.0%	Net Assets					11,552,560


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)





Corporate Bonds 46.3% of net assets




Finance 26.1%


Banking 12.0%
Abbey National plc
6.70%, 06/15/08 (a)(b)(d)		2,655		2,699
Allied Irish Banks
6.24%, 04/16/07 (a)(b)(c)(d)		17,575		17,637
ANZ Capital Trust I
4.48%, 01/29/49 (b)(c)(d)		15,000		14,671
Artesia Overseas, Ltd.
6.12%, 10/14/10 (a)		10,000		10,013
BankBoston Capital Trust III
6.11%, 03/15/07 (a)(b)(d)		22,175		22,252
Banknorth Capital Trust I
10.52%, 05/01/27 (b)(d)		1,600		1,693
Bayerische Landesbank Girozentrale
4.72%, 05/16/07 (a)(d)		19,000		18,986
4.82%, 03/01/07 (a)(d)		15,000		14,911
BNP US Funding LLC
7.74%, 12/05/07 (a)(b)(c)(d)		7,007		7,112
BTM Curacao Holdings N.V.
5.68%, 03/19/07 (a)(b)(d)		50,000		49,883
Capital One Capital III
7.69%, 08/15/36		7,000		7,925
Chase Capital II
5.86%, 05/01/07 (a)(b)		12,500		12,240
Citibank Korea, Inc.
4.68%, 06/18/13		3,500		3,541
5.64%, 09/26/12		25,300		25,324
Danske Bank A/S
5.91%, 06/16/14 (a)(b)(c)(d)		24,100		24,757
7.40%, 06/15/07 (a)(b)(c)(d)		17,350		17,448
DBS Capital Funding Corp.
7.66%, 03/15/11 (a)(b)(c)(d)		37,500		40,715
Deutsche Bank Capital Funding Trust I
7.87%, 07/15/07 (a)(b)(c)(d)		13,485		14,234
Deutsche Bank Capital Trust
7.16%, 03/30/07 (a)		48,400		50,698
Deutsche Bank Luxembourg
6.06%, 12/28/07 (a)(c)(d)		5,000		5,025
Dime Capital Trust I
9.33%, 05/06/27 (b)(d)		9,028		9,501
First Union Capital I
7.94%, 01/15/27 (b)(d)		30,000		31,243
First Union Institutional Capital I
8.04%, 12/01/26 (b)		13,750		14,311
Fleet Capital Trust II
7.92%, 12/11/26 (b)		7,580		7,881
Fleet Capital Trust V
6.36%, 03/19/07 (a)(b)(d)		42,600		42,851
Glitnir Banki HF
5.52%, 04/16/07 (a)(c)(d)		45,690		45,636
5.83%, 04/18/07 (a)		15,000		14,976
Greenpoint Capital Trust I
9.10%, 06/01/27 (b)(d)		3,000		3,152
HSBC Capital Funding LP
9.55%, 06/30/10 (a)(b)(c)(d)		43,936		49,515
HUBCO Capital Trust I, Series B
8.98%, 02/01/08 (b)(d)		1,200		1,256
ING Capital Funding Trust III
8.44%, 12/31/10 (a)(b)		5,914		6,565
Intesa Bank Overseas Ltd.
6.21%, 04/02/07 (a)		31,000		31,186
JP Morgan Chase & Co.
5.44%, 03/14/07 (a)		15,200		15,208
JP Morgan Chase Capital XXI
6.31%, 05/02/07 (a)(b)(d)		4,000		4,050
Lehman Brothers Custodial Receipts - JP Morgan, Series II
5.36%, 05/04/07 (a)		20,000		21,081
Lloyds TSB Bank plc
6.90%, 11/22/07		7,000		7,036
MBNA Capital B
6.16%, 05/01/07 (a)(b)		8,000		7,991
Mizuho Financial Group Cayman Ltd.
8.38%, 04/27/09		44,960		47,622
Mizuho Preferred Capital Co., LLC
8.79%, 06/30/08 (a)(b)(c)(d)		42,347		44,196
Natexis Ambs Co., LLC
8.44%, 06/30/08 (a)(b)(c)(d)		53,370		55,482
North Fork Capital Trust I
8.70%, 12/15/26 (b)		2,000		2,085
RBS Capital Trust IV
6.16%, 03/30/07 (a)(b)(d)		165,765		167,919

18 See financial notes

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Republic New York Corp.

5.69%, 07/31/07 (a)(b)(d)
44,700 44,593

Royal Bank of Scotland plc

5.41%, 04/23/07 (a)(c)(d)
40,000 40,041

Santander Issuances S.A Unipersonal

5.73%, 03/20/07 (a)(b)(c)
12,000 12,023

SB Treasury Co., LLC

9.40%, 06/30/08 (a)(b)(c)
14,470 15,186

SocGen Real Estate Co., LLC

7.64%, 09/30/07 (a)(b)(c)(d)
30,865 31,270

Sovereign Bancorp

9.88%, 03/01/27 (b)
1,350 1,426

Sovereign Bank

4.38%, 08/01/08 (b)
2,750 2,718

Sovereign Capital Trust I

9.00%, 04/01/27 (b)
14,690 15,292

Svenska Handelsbanken AB

7.13%, 03/07/07 (a)(b)(c)(d)
18,210 18,232

Tokai Preferred Capital Co., LLC

9.98%, 06/29/07 (a)(b)(c)(d)
60,050 63,452

UBS Preferred Funding Trust I

8.62%, 10/01/10 (a)(b)(d)
10,250 11,390

Unicredito Italiano Capital Trust II

9.20%, 10/05/10 (a)(b)(c)(d)
28,086 31,646

Wachovia Corp.

5.44%, 04/23/07 (a)(d)
31,000 31,020

Washington Mutual Bank/Seattle WA

5.46%, 05/25/07 (a)(d)
45,850 45,918

Washington Mutual Capital I

8.38%, 06/01/27 (b)(d)
8,490 8,877

Webster Capital Trust I

9.36%, 01/29/27 (b)(c)(d)
7,400 7,766

Wells Fargo & Co.

5.43%, 03/23/07 (a)(d)
8,450 8,451

1,381,808

Brokerage 2.0%

Credit Suisse (USA), Inc.

5.48%, 03/09/07 (a)(d)
18,700 18,744

Credit Suisse FB London

7.90%, 05/01/07 (a)(b)(d)
50,040 50,224

Goldman Sachs Group, Inc.

5.46%, 03/22/07 (a)(d)
30,000 30,055

Lehman Brothers Holdings E-Capital Trust I

6.14%, 05/21/07 (a)(b)
58,000 58,860

Merrill Lynch & Co., Inc.

5.45%, 04/27/07 (a)
10,000 10,017

5.45%, 04/30/07 (a)
20,000 20,035

Morgan Stanley

5.47%, 05/09/07 (a)(d)
40,000 40,091

5.49%, 04/27/07 (a)
6,940 6,945

234,971

Finance Company 6.9%

American General Finance Corp.

5.50%, 03/27/07 (a)(d)
30,000 30,060

Capital One Financial Corp.

5.63%, 03/12/07 (a)(d)
60,000 60,226

Countrywide Financial Corp.

5.44%, 05/08/07 (a)(d)
100,000 99,991

5.64%, 03/19/07 (a)(d)
6,000 6,020

General Electric Capital Corp.

5.41%, 04/26/07 (a)(d)
195,000 195,150

General Motors Acceptance Corp.

6.52%, 03/23/07 (a)(d)
45,000 45,190

HSBC Finance Corp.

5.42%, 04/23/07 (a)(d)
70,000 70,081

ILFC E-Capital Trust I

5.90%, 12/21/10 (a)(b)(c)(d)
65,000 66,009

iStar Financial, Inc.

5.70%, 09/15/09 (a)(c)(d)
50,000 50,087

5.76%, 03/03/07 (a)
33,000 33,088

Residential Capital LLC

6.38%, 06/30/10 (b)(d)
40,000 40,379

6.46%, 04/17/07 (a)(d)
32,650 32,787

7.19%, 04/17/07 (a)(b)(c)(d)
51,530 51,472

SLM Corp.

5.52%, 04/25/07 (a)(d)
15,000 15,015

795,555

Insurance 4.4%

AXA SA

5.97%, 03/05/07 (a)
64,600 64,750

Mantis Reef Ltd.

4.69%, 11/14/08 (b)(c)(d)
53,970 53,511

Marsh & McLennan Cos., Inc.

5.50%, 04/13/07 (a)(d)
31,800 31,805

Oil Insurance Ltd.

7.56%, 06/30/11 (a)(b)(c)(d)
62,000 65,814

Stoneheath RE

6.87%, 04/15/07 (a)
27,000 27,282

Sun Life Canada US Capital Trust

8.53%, 05/06/07 (b)(c)(d)
61,416 64,289

XL Financial Assurance Ltd. - Twin Reefs Pass-Through

6.32%, 03/10/07 (a)(b)(c)
4,336 4,351

Xlliac Global Funding

5.57%, 03/02/07 (a)(d)
22,500 22,544

ZFS Finance USA Trust I

6.15%, 12/15/10 (b)(c)
16,000 16,377

ZFS Finance USA Trust III

6.51%, 03/15/07 (a)(b)(c)(d)
67,500 68,862

Zurich Capital Trust I

8.38%, 06/01/37 (b)(c)(d)
90,676 94,785

514,370

Real Estate Investment Trust 0.8%

Health Care Property Investors, Inc.

5.81%, 03/15/07 (a)(b)(d)
47,000 46,994

HRPT Properties Trust

5.96%, 03/16/07 (a)(b)(d)
18,600 18,632

Westfield Capital Corp., Ltd.

5.66%, 05/02/07 (a)(c)(d)
23,500 23,552

89,178

3,015,882

Industrial 18.1%

Basic Industry 0.6%

Abitibi-Consolidated, Inc.

6.95%, 04/01/08 (d)
15,000 15,037

Equistar Chemicals LP/Equistar Funding Corp.

10.63%, 05/01/11 (b)
3,715 3,947

Lyondell Chemical Co.

10.88%, 05/01/09 (b)
7,500 7,631

11.13%, 07/15/12 (b)
6,900 7,417

MacDermid, Inc.

9.13%, 07/15/11 (b)
9,749 10,249

See financial notes 19

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Millennium America, Inc.

9.25%, 06/15/08 (b)
8,902 9,303

Xstrata Finance Dubai Ltd.

5.71%, 05/14/07 (a)(b)(c)(d)
17,000 17,023

70,607

Capital Goods 0.1%

Case New Holland, Inc.

9.25%, 08/01/11 (b)(d)
14,010 14,850

Communications 5.3%

Alamosa Delaware, Inc.

8.50%, 01/31/12 (b)(d)
28,168 29,816

11.00%, 07/31/10 (b)(d)
31,409 33,691

America Movil SA de CV

5.47%, 03/27/07 (a)(c)(d)
100,000 99,875

5.99%, 04/27/07 (a)(d)
31,500 31,579

Comcast Corp.

5.66%, 04/16/07 (a)(b)(d)
30,000 30,095

Cox Communications, Inc.

5.91%, 03/14/07 (a)(d)
25,000 25,097

Deutsche Telekom International Finance B.V.

5.55%, 03/23/07 (a)(d)
35,000 35,082

GTE Corp.

7.90%, 02/01/27 (b)
20,000 20,815

LCI International, Inc.

7.25%, 06/15/07 (b)
29,775 29,998

Nextel Partners, Inc.

8.13%, 07/01/11 (b)(d)
49,250 51,383

Rogers Wireless Communications, Inc.

8.00%, 12/15/12 (b)
9,000 9,641

8.49%, 03/15/07 (a)(b)(d)
43,633 44,615

SBC Communications, Inc.

5.57%, 05/14/07 (a)(d)
25,000 25,087

TCI Communications Financing III

9.65%, 03/31/27 (b)(d)
26,603 27,940

Telecom Italia Capital S.A.

5.84%, 05/01/07 (a)(d)
21,340 21,350

Telefonica Emisones SAU

5.67%, 03/20/07 (a)(b)(d)
45,000 45,137

Ubiquitel Operating Co.

9.88%, 03/01/11 (b)(d)
23,500 25,290

US Unwired, Inc.

10.00%, 06/15/12 (b)(d)
21,230 23,234

609,725

Consumer Cyclical 7.5%

Centex Corp.

5.61%, 05/01/07 (a)(d)
22,379 22,397

D.R. Horton, Inc.

8.50%, 04/15/12 (b)(d)
90,093 94,144

Daimler-Chrysler N.A. Holdings

5.79%, 03/13/07 (a)(d)
25,000 25,098

5.83%, 03/12/07 (a)(d)
90,158 90,332

Ford Motor Credit Co.

4.95%, 01/15/08
9,000 8,907

6.19%, 03/28/07 (a)
4,023 4,024

6.32%, 03/21/07 (a)
8,400 8,400

6.63%, 06/16/08 (d)
31,000 31,090

6.75%, 08/15/08
4,350 4,319

6.93%, 04/15/07 (a)
3,000 2,987

7.20%, 06/15/07 (d)
25,452 25,453

8.36%, 05/02/07 (a)(d)
25,520 25,851

Global Cash Access LLC/Global Cash Finance Corp.

8.75%, 03/15/12 (b)(d)
7,500 7,913

Harrah’s Operating Co., Inc.

7.13%, 06/01/07 (b)
7,015 7,042

Hyatt Equities LLC

6.88%, 06/15/07 (b)(c)(d)
1,295 1,298

JC Penney Co., Inc.

8.13%, 04/01/27 (b)(d)
23,135 23,807

KB Home

7.75%, 02/01/10 (b)
28,260 29,002

9.50%, 02/15/11 (b)(d)
61,186 63,251

Lennar Corp.

6.12%, 03/19/07 (a)(b)(d)
23,005 23,033

Mandalay Resort Group

9.50%, 08/01/08 (b)
5,245 5,514

10.25%, 08/01/07 (b)
14,330 14,652

MGM Mirage, Inc.

6.00%, 10/01/09 (b)
11,300 11,342

6.75%, 08/01/07 (b)
6,000 6,045

6.75%, 02/01/08 (b)
300 303

9.75%, 06/01/07 (b)
17,980 18,227

Royal Caribbean Cruises Ltd.

6.75%, 03/15/08 (d)
4,255 4,327

7.00%, 10/15/07
13,040 13,237

Seminole Tribe of Florida

5.80%, 10/01/13 (c)
6,290 6,252

Time Warner, Inc.

5.59%, 05/14/07 (a)(d)
68,000 68,176

6.15%, 05/01/07 (b)(d)
3,400 3,402

Toll Corp.

8.25%, 02/01/11 (b)(d)
90,490 93,092

8.25%, 12/01/11 (b)(d)
71,190 74,216

Viacom, Inc.

5.71%, 03/16/07 (a)(d)
50,000 50,206

867,339

Consumer Non-Cyclical 0.7%

Biovail Corp.

7.88%, 04/01/10 (b)(d)
48,015 49,201

Dean Foods Co.

8.15%, 08/01/07 (b)(d)
7,115 7,177

Stater Brothers Holdings, Inc.

8.86%, 03/15/07 (a)(b)(d)
21,000 21,315

77,693

Energy 2.4%

Anadarko Petroleum Corp.

5.76%, 03/15/07 (a)(b)(d)
50,037 50,171

BJ Services Co.

5.54%, 03/01/07 (a)(b)(d)
43,825 43,866

Delek & Avner-Yam Tethys Ltd.

6.46%, 05/01/07 (a)(b)(c)(d)
32,471 32,425

Husky Oil Ltd.

8.90%, 08/15/08 (b)(d)
34,082 35,729

Premcor Refining Group, Inc.

9.50%, 02/01/13 (b)(d)
47,910 51,540

Transocean, Inc.

5.57%, 03/05/07 (a)(b)(d)
61,750 61,836

275,567

Technology 0.6%

Seagate Technology HDD Holdings

6.20%, 04/01/07 (a)(d)
10,000 10,075

Xerox Capital Trust I

8.00%, 02/01/08 (a)(b)(d)
60,702 62,295

72,370

20 See financial notes

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Transportation 0.9%

ERAC USA Finance Co.

5.61%, 04/30/07 (a)(c)(d)
7,000 7,019

5.61%, 05/29/07 (a)
13,000 13,036

FedEx Corp.

5.44%, 05/08/07 (a)(d)
35,000 35,039

Yellow Roadway Corp.

6.74%, 05/15/07 (a)(b)(d)
42,000 42,067

97,161

2,085,312

Utilities 2.1%

Electric 1.4%

Dominion Resources, Inc.

5.54%, 05/14/07 (a)(b)(d)
20,000 20,020

5.66%, 03/28/07 (a)(b)(d)
29,600 29,616

Entergy Gulf States, Inc.

5.77%, 03/01/07 (a)(b)(d)
34,275 34,248

6.10%, 03/08/07 (a)(b)(c)(d)
7,000 7,020

Nevada Power Co.

9.00%, 08/15/13 (b)
2,060 2,238

Southern California Edison

5.42%, 03/13/07 (a)(b)(d)
51,470 51,490

Teco Energy, Inc.

7.36%, 05/01/07 (a)(b)(d)
20,965 21,542

166,174

Natural Gas 0.7%

Atmos Energy Corp.

5.74%, 04/15/07 (a)(b)(d)
15,000 15,012

Energen Corp.

5.71%, 05/15/07 (a)(b)(d)
9,900 9,909

Enterprise Products Operating LP

4.00%, 10/15/07 (b)
10,746 10,659

Kinder Morgan, Inc.

6.80%, 03/01/08 (b)
27,000 27,383

Williams Cos., Inc.

7.36%, 04/02/07 (a)(c)(d)
18,000 18,608

81,571

247,745

Total Corporate Bonds
(Cost $5,329,909) 5,348,939

Asset-Backed Obligations 13.7% of net assets

ABSC NIMS Trust

Series 2004-HE8 Class A1

5.00%, 12/25/34 (c)(d)
1,479 1,462

Series 2004-HE7 Class A1

5.00%, 10/27/34 (c)(d)
1,158 1,148

Series 2004-HE5 Class A1

5.00%, 08/27/34 (c)(d)
482 477

Series 2004-HE5 Class A2

7.00%, 08/27/34 (c)(d)
2,000 1,995

Series 2004-HE3 Class A1

5.00%, 06/25/34 (c)(d)
262 261

Series 2004-HE2 Class A1

6.75%, 04/25/34 (c)(d)
101 101

ACE Securities Corp.

Series 2004-FM1 Class M1

5.92%, 03/25/07 (a)(b)(d)
9,166 9,176

Series 2002-HE1 Class M2

7.12%, 03/25/07 (a)(b)(d)
784 791

Series 2002-HE3 Class M2

7.52%, 03/25/07 (a)(b)(d)
5,694 5,405

Series 2003-HS1 Class M3

7.82%, 03/25/07 (a)(b)(d)
4,081 4,136

Aegis Asset Backed Securities Trust

Series 2004-5N

5.00%, 12/25/34 (c)(d)
1,595 1,583

Ameriquest Mortgage Securities, Inc.

Series 2003-IA1 Class M2

5.52%, 03/30/07 (a)(b)(d)
2,022 2,111

Series 2004-R10 Class M1

6.02%, 03/26/07 (a)(b)(d)
10,550 10,601

Series 2004-6 Class M2

7.17%, 03/26/07 (a)(b)(d)
5,000 5,068

Series 2003-AR3 Class M2

7.37%, 03/26/07 (a)(b)(d)
4,255 4,266

Series 2003-AR2 Class M2

7.54%, 03/26/07 (a)(b)(d)
2,709 2,716

Amortizing Residential Collateral Trust

Series 2002-BC1 Class M2

6.42%, 03/26/07 (a)(b)
1,669 1,671

Series 2002-BC1 Class B

7.37%, 03/26/07 (a)(b)
32 32

Series 2002-BC9 Class M2

8.70%, 03/26/07 (a)(b)
9,304 9,323

Argent Securities, Inc.

Series 2003-W9 Class M2

7.04%, 03/26/07 (a)(b)(d)
19,695 19,883

Series 2003-W7 Class M2

7.07%, 03/26/07 (a)(b)(d)
15,750 15,874

Aria CDO I (Jersey) Ltd.

Series 1A-3 Class B1U5

6.46%, 04/09/07 (a)(b)(c)(d)
53,600 53,603

Asset Backed Funding Certificates

Series 2004-OPT2 Class M1

5.87%, 03/26/07 (a)(b)(d)
16,969 17,024

Series 2003-WMC1 Class M1

5.97%, 03/26/07 (a)(b)(d)
1,625 1,628

Series 2003-AHL1 Class M1

6.17%, 03/26/07 (a)(b)(d)
7,500 7,544

Series 2004-OPT2 Class M2

6.32%, 03/26/07 (a)(b)(d)
11,676 11,745

Series 2004-HE1 Class M2

6.47%, 03/26/07 (a)(b)(d)
13,000 13,160

Series 2003-OPT1 Class M2

6.87%, 03/26/07 (a)(b)(d)
3,833 3,845

Series 2004-HE1 M8

8.82%, 03/26/07 (a)(b)(d)
4,022 3,973

Asset Backed Securities Corp. Home Equity

Series 2003-HE7 Class M1

5.97%, 03/15/07 (a)(b)(d)
6,606 6,636

Series 2001-HE3 Class M2

6.90%, 03/15/07 (a)(b)(d)
375 375

Series 2003-HE2 Class M2

7.22%, 03/15/07 (a)(b)(d)
1,647 1,649

Series 2002-H3 Class M2

7.56%, 03/15/07 (a)(b)(d)
4,594 4,600

See financial notes 21

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Series 2003-HE2 Class M3

7.57%, 03/15/07 (a)(b)(d)
1,369 1,371

Series 2003-HE1 Class M2

7.67%, 03/15/07 (a)(b)(d)
15,000 15,030

Bear Stearns Asset Backed Securities, Inc.

Series 2004-HE6 Class M1

5.89%, 03/26/07 (a)(b)(d)
8,466 8,476

Series 2003-2 Class M2

7.32%, 03/26/07 (a)(b)(d)
4,113 4,176

Capital One Multi-Asset Execution Trust

Series 2003-B6 Class B6

5.85%, 03/15/07 (a)(b)(d)
20,000 20,142

Series 2003-C1 Class C1

7.87%, 03/15/07 (a)(b)(d)
3,500 3,591

CARSS Finance Ltd. Partnership

Series 2004-A Class B2

6.27%, 03/15/07 (a)(b)(c)(d)
355 357

CDC Mortgage Capital Trust

Series 2003-HE4 Class M1

5.97%, 03/26/07 (a)(b)
6,000 6,023

Series 2003-HE1 Class M1

6.67%, 03/26/07 (a)(b)
17,251 17,274

Series 2003-HE4 Class M2

6.97%, 03/26/07 (a)(b)
4,000 4,044

Series 2003-HE2 Class M2

7.22%, 03/26/07 (a)(b)
2,806 2,811

Centex Home Equity

Series 2003-B Class M1

6.02%, 03/26/07 (a)(b)(d)
19,000 19,019

Series 2003-B Class M2

7.02%, 03/26/07 (a)(b)(d)
4,806 4,814

Chase Funding Mortgage Loan Asset-Backed

Series 2001-3 Class 2M2

6.79%, 03/26/07 (a)(b)
134 135

Chec Loan Trust

Series 2004-2 Class M1

5.96%, 03/26/07 (a)(b)(d)
8,750 8,820

CIT Marine Trust

Series 1999-A Class C1

6.25%, 11/15/19 (b)(d)
1,621 1,623

Countrywide Alternative Loan Trust

Series 2007-2CB Class 1A1

5.75%, 03/25/37 (b)(d)
29,029 29,333

Countrywide Asset-Backed Certificates

Series 2005-2N Class N

4.50%, 08/25/36 (c)(d)
120 116

Series 2004-14N Class N

5.00%, 06/25/36 (c)(d)
472 471

Series 2004-2N Class N1

5.00%, 02/25/35 (c)(d)
192 191

Series 2004-10 Class MV5

6.43%, 03/24/08 (a)(b)(d)
1,000 1,010

Series 2004-6 Class M2

5.97%, 03/26/07 (a)(b)(d)
15,000 15,083

Series 2002-6 Class M1

6.42%, 03/26/07 (a)(b)(d)
843 845

Series 2003-2 Class M2

6.97%, 03/26/07 (a)(b)(d)
118 120

Series 2002-6 Class M2

7.42%, 03/26/07 (a)(b)(d)
1,104 1,107

Credit Suisse Mortgage Capital Certificates

Series 2007-2 Class 2A1

5.00%, 03/25/37 (b)
50,000 49,063

Distribution Financial Services

Series 2001-1 Class D

7.73%, 11/15/22 (b)(d)
8,250 7,921

Finance America Mortgage Loan

Series 2004-3 Class M1

5.90%, 03/26/07 (a)(b)(d)
13,600 13,646

Series 2004-1 Class M4

6.17%, 03/26/07 (a)(b)
4,000 4,030

Series 2004-2 Class M6

6.72%, 03/26/07 (a)(b)
3,000 3,026

First Alliance Mortgage Loan Trust

Series 1998-3 Class A4

5.82%, 03/20/07 (a)(b)
111 111

First Franklin Mortgage Loan

Series 2003-FF3 Class M4

10.20%, 03/26/07 (a)(b)(d)
268 269

Series 1997-FF3 Class M1

5.95%, 03/20/07 (a)(b)
121 121

Fremont Home Loan Trust

Series 2003-B Class M1

6.02%, 03/26/07 (a)(b)(d)
20,000 20,079

Series 2004-A Class M2

6.47%, 03/26/07 (a)(b)(d)
1,102 1,104

Series 2003-B Class M2

6.94%, 03/26/07 (a)(b)(d)
7,516 7,565

Series 2003-A Class M2

7.05%, 03/26/07 (a)(b)(d)
3,876 3,883

Fremont NIM Trust

Series 2005-A

3.75%, 01/25/35 (c)
188 188

Galena CDO I (Cayman No. 1) Ltd.

Series I-A Class B1U7

6.23%, 07/11/07 (a)
5,000 5,003

GSamp Trust

Series 2005-HE2 Class N

5.00%, 03/25/35 (c)(d)
2,661 2,656

HFC Home Equity Loan Asset Backed Certificates

Series 2006-4 Class A1F

5.79%, 10/02/07 (a)(b)
29,570 29,567

Home Equity Asset Trust

Series 2004-8 Class M1

5.90%, 03/26/07 (a)(b)(d)
22,000 22,174

Series 2003-3 Class M2

7.19%, 03/26/07 (a)(b)
1,977 1,981

Impac CMB Trust

Series 2003-10 Class 1A1

6.02%, 03/26/07 (a)(b)(d)
1,671 1,673

Indymac Home Equity Loan Trust

Series 2004-B Class M4

6.47%, 03/26/07 (a)(b)
14,500 14,716

Irwin Home Equity

Series 2003-1 Class M2

7.32%, 03/26/07 (a)(b)
3,936 3,970

Long Beach Mortgage Loan Trust

Series 2003-2 Class M1

6.14%, 03/26/07 (a)(b)
7,402 7,412

Series 2004-1 Class M6

6.72%, 03/26/07 (a)(b)
8,000 8,044

Series 2003-4 Class M2

7.07%, 03/26/07 (a)(b)(d)
12,705 12,821

Series 2003-4 Class M3

7.47%, 03/26/07 (a)(b)
275 276

22 See financial notes

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Series 2003-2 Class M3

7.57%, 03/26/07 (a)(b)
439 440

Master Asset Backed Securities

Series 2003-WMC2 Class M1

6.02%, 03/26/07 (a)(b)
815 816

Series 2003-OPT1 Class M2

7.17%, 03/26/07 (a)(b)
12,500 12,523

Series 2002-OPT1 Class M2

8.25%, 03/26/07 (a)(b)
10,000 10,025

MBNA Master Credit Card Trust

Series 2003-3 Class B

5.70%, 03/15/07 (a)(b)
14,662 14,726

Series 2000-H Class B

5.92%, 03/15/07 (a)(b)
14,500 14,680

Series 2003-3 Class C

6.67%, 03/15/07 (a)(b)
11,000 11,134

Merrill Lynch Mortgage Investors, Inc.

Series 2005-WM1N Class N1

5.00%, 09/25/35 (c)
123 122

Series 2003-WMC3 Class M4

6.37%, 03/26/07 (a)(b)
3,213 3,232

Series 2003-WWC3 Class M3

7.80%, 03/26/07 (a)(b)
1,021 1,026

Morgan Stanley ABS Capital I

Series 2004-HE8 Class M1

5.96%, 03/26/07 (a)(b)
19,810 19,954

Series 2003-HE3 Class M1

6.00%, 03/26/07 (a)(b)
9,403 9,447

Series 2003-NC6 Class M1

6.12%, 03/26/07 (a)(b)
15,223 15,239

Series 2004-HE9 Class M4

6.32%, 03/26/07 (a)(b)
15,000 15,118

Series 2004-HE1 B2

7.22%, 03/26/07 (a)(b)
6,000 6,023

New Century Home Equity Loan Trust

Series 2004-3 Class M1

5.94%, 03/26/07 (a)(b)
14,000 14,055

Series 2003-3 Class M3

7.70%, 03/26/07 (a)(b)
2,414 2,425

Novastar Home Equity Loan

Series 2005-1 Class M4

6.00%, 03/26/07 (a)(b)
8,000 8,054

Series 2003-4 Class M1

6.03%, 03/26/07 (a)(b)
20,000 20,093

Series 2003-3 Class M1

6.07%, 03/26/07 (a)(b)
23,000 23,083

Series 2003-2 Class M1

6.07%, 03/26/07 (a)(b)
15,720 15,756

Series 2003-3 Class M2

6.97%, 03/26/07 (a)(b)
8,343 8,390

Series 2004-4 Class B1

7.02%, 03/26/07 (a)(b)
10,000 10,023

Series 2003-1 Class M2

7.32%, 03/26/07 (a)(b)
3,360 3,379

Novastar NIM Trust

Series 2005-N1

4.78%, 10/26/35 (c)
516 516

Ocwen Advance Receivables Backed Notes

Series 2006-1A Note

5.34%, 03/23/07 (a)(b)(c)(d)
30,000 30,022

ODIN CDO I (Cayman Islands) Ltd.

Series 1A Class B1U5

6.18%, 04/11/07 (a)(c)(d)
20,000 19,955

Option One Mortgage Loan Trust

Series 2004-2 Class M1

5.85%, 03/26/07 (a)(b)
7,000 7,019

Series 2003-2 Class M1

5.97%, 03/26/07 (a)(b)
9,626 9,639

Series 2003-1 Class M1

6.22%, 03/26/07 (a)(b)
10,564 10,586

Series 2004-1 Class M2

6.42%, 03/26/07 (a)(b)
3,800 3,822

Series 2004-1 Class M3

6.67%, 03/26/07 (a)(b)
5,000 5,022

Series 2002-6 Class M2

7.02%, 03/26/07 (a)(b)
45 45

Series 2003-1 Class M2

7.27%, 03/26/07 (a)(b)
100 100

Option One Mortgage Securities Corp NIM Trust

Series 2005-3A Class N1

5.44%, 08/26/35 (c)
4,132 4,113

Overture CDO (Jersey) Ltd.

Series IA Class B1

6.46%, 07/15/07 (a)(b)
1,700 1,703

Park Place Securities NIM Trust

Series 2004-WHQ2 Class B

5.00%, 02/25/35 (c)
876 874

Park Place Securities, Inc.

Series 2004-MHQ1 Class M1

6.02%, 03/26/07 (a)(b)
15,000 15,074

Pinnacle Capital Asset Trust

Series 2006-A Class B

5.51%, 09/25/09 (b)(c)(d)
21,000 21,030

Residential Asset Securities Corp.

Series 2003-KS1 Class A2

6.06%, 03/26/07 (a)(b)
17 17

Series 2004-KS2 Class M22

6.32%, 03/26/07 (a)(b)
8,828 8,863

Series 2003-KS6 Class M2

7.57%, 03/26/07 (a)(b)
1,932 1,936

Sail Net Interest Margin Notes

Series 2005-3A Class A

4.75%, 04/27/35 (c)
486 486

Series 2003-12A Class A

7.35%, 11/27/33 (c)
22 —

Saxon Asset Securities Trust

Series 2004-1 Class M2

6.45%, 03/26/07 (a)(b)(d)
12,750 12,765

SLM Student Loan Trust

Series 2007-2 Class A2

5.36%, 08/04/11 (a)(b)(d)
345,000 345,000

Series 2005-5 Class A2

5.44%, 04/25/07 (a)(b)(d)
157,250 156,674

Specialty Underwriting & Residential Finance

Series 2004-BC1 Class M1

5.83%, 03/26/07 (a)(b)
10,151 10,196

Structured Asset Investment Loan Trust

Series 2003-BC7 Class M2

7.07%, 03/26/07 (a)(b)
9,115 9,157

Superior Wholesale Inventory Financing Trust

Series 2007-AE1 Class B

5.62%, 01/06/10 (a)(b)(d)
10,000 10,000

USXL Funding LLC

Series 2006-1A Class A

5.37%, 04/15/14 (b)(c)(d)
41,753 41,850

See financial notes 23

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

WFS Financial Owner Trust

Series 2004-1 Class C

2.49%, 08/22/11 (b)
1,489 1,466

Total Asset-Backed Obligations
(Cost $1,577,318) 1,578,836

Mortgage-Backed Securities 42.4% of net assets

Collateralized Mortgage Obligations 34.6%

ABN Amro Mortgage Corp.

Series 2003-9 Class A2

4.50%, 08/25/18 (b)(d)
4,810 4,733

Series 2003-7 Class A2

5.00%, 07/25/18 (b)(d)
1,224 1,218

Adjustable Rate Mortgage Trust

Series 2007-1 Class 4A1

5.97%, 03/25/49
60,000 60,469

American Home Mortgage Investment Trust

Series 2005-3 Class 2A3

4.99%, 07/20/10 (a)(b)(d)
25,000 24,559

Banc of America Alternative Loan Trust

Series 2004-1 Class 4A1

4.75%, 02/25/19 (b)(d)
15,263 15,057

Series 2005-5 Class 3CB1

6.00%, 06/25/35 (b)(d)
15,892 16,056

Banc of America Funding Corp.

Series 2004-3 Class 2A2

5.00%, 09/25/19 (b)(d)
13,337 13,078

Banc of America Mortgage Securities, Inc.

Series 2005-E Class 3A1

5.21%, 10/10/09 (a)(b)(d)
9,590 9,535

Series 2004-6 Class 2A7

5.50%, 07/25/34 (b)(d)
2,227 2,209

Series 2006-B Class 3A1

6.18%, 06/10/09 (b)
124,613 126,385

Bear Stearns Adjustable Rate Mortgage Trust

Series 2005-1 Class 3A1

5.20%, 03/01/07 (a)(b)(d)
13,759 13,703

Cendant Mortgage Corp.

Series 2003-9 Class 1A5

5.25%, 11/25/33 (b)(d)
15,296 15,226

Chase Mortgage Finance Corp.

Series 2007-A1 Class 10A1

4.92%, 06/23/10 (a)(d)
95,000 93,608

Series 2003-S14 2A2

5.00%, 01/25/34 (b)(d)
13,061 12,954

Series 2005-A1 Class 2A2

5.25%, 11/02/08 (a)(b)(d)
88,387 87,771

Series 2006-S3 Class 1A5

6.00%, 11/25/36 (b)(d)
100,000 100,933

Series 2006-A1 Class 2A1

6.11%, 11/30/07 (a)(b)(d)
8,701 8,709

Citigroup Mortgage Loan Trust

Series 2007-AR4 Class 2A3A

5.73%, 01/28/10
55,348 55,331

Series 2006-AR5 Class 2A4A

6.46%, 03/31/10 (a)(b)(d)
10,144 10,345

Citimortgage Alternative Loan Trust

Series 2005-A1 Class 2A1

5.00%, 07/25/20 (b)(d)
24,781 24,383

Series 2006-A5 Class 1A10

6.00%, 10/25/36 (b)(d)
35,665 36,111

Series 2006-A7 Class 1A12

6.00%, 12/25/36
39,533 39,994

6.00%, 02/25/37 (b)
183,100 185,344

Countrywide Alternative Loan Trust

Series 2004-30CB Class 1A2

4.25%, 02/25/35 (b)(d)
4,207 4,153

Series 2005-1CB Class 1A1

5.00%, 03/25/35 (b)(d)
12,672 12,489

Series 2005-21CB Class A3

5.25%, 06/25/35 (b)
47,122 46,462

Series 2005-75CB Class A3

5.50%, 01/25/36 (b)(d)
3,948 3,962

Series 2005-86CB Class A4

5.50%, 02/25/36 (b)(d)
64,642 64,617

Series 2005-51 Class 3AB1

5.53%, 03/20/07 (a)(b)
3,090 3,094

Series 2007-2CB Class 2A13

5.75%, 03/25/37 (b)
34,049 34,431

Series 2006-4CB Class 1A1

6.00%, 04/25/36 (b)(d)
75,451 76,558

Series 2006-19CB Class A7

6.00%, 08/25/36 (b)(d)
37,143 37,482

Series 2006-32CB Class A10

6.00%, 11/25/36 (b)(d)
53,450 53,928

Series 2006-27CB Class A4

6.00%, 11/25/36 (b)(d)
34,891 35,104

Series 2006-40T1 Class 1A2

6.00%, 01/25/37 (b)(d)
47,104 47,733

Series 2006-41CB Class 1A3

6.00%, 01/25/37 (b)(d)
73,632 74,701

Series 2006-41 Class 2A14

6.00%, 01/25/37 (b)(d)
53,473 53,967

Series 2005-J1 Class 3A1

6.50%, 08/25/32 (b)(d)
10,018 10,147

Series 2006-11CB Class 3A1

6.50%, 05/25/36 (b)(d)
23,721 23,999

Countrywide Home Loan

Series 2003-42 Class 2A2

3.63%, 11/18/07 (a)(b)(d)
25,782 25,503

Series 2005-HYB2 Class 1A4

4.50%, 04/13/08 (b)
1,835 1,833

Series 2004-4 Class A3

4.50%, 05/25/34 (b)(d)
16,281 16,107

Series 2006-HYB3 Class 2AB3

5.63%, 02/10/11 (a)(b)(d)
41,457 41,807

Credit Suisse First Boston Mortgage Securities Corp.

Series 2003-8 Class 3A3

5.50%, 04/25/33 (b)
8,468 8,424

Series 2005-12 Class 6A1

6.00%, 01/25/36 (b)
383 384

Series 2002-34 Class DB1

6.98%, 03/22/11 (a)(b)
5,668 5,809

Series 2002-AR28 Class 1A2

7.11%, 03/25/07 (a)(b)(d)
279 280

Credit Suisse Mortgage Capital Certificates

Series 2006-8 Class 3A1

6.00%, 10/25/21 (b)
106,054 106,965

Series 2006-6 Class 1A8

6.00%, 07/25/36 (b)(d)
54,521 55,111

24 See financial notes

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Deutsche Alternative Asset Securities, Inc.

Series 2006-AR5 Class 22A

5.50%, 10/25/21 (b)(d)
19,918 20,049

Series 2005-6 Class 1A3

5.50%, 12/25/35 (b)(d)
34,356 34,502

Series 2006-AR5 Class 23A

6.00%, 10/25/21 (b)(d)
52,960 53,860

Deutsche Mortgage Securities, Inc.

Series 2004-3 Class 1A7

3.75%, 03/25/34 (b)(d)
7,094 6,966

Fifth Third Mortgage Loan Trust

Series 2002-FTB1 Class 2A1

5.53%, 03/19/07 (a)(b)(d)
1,784 1,779

Series 2002-FTB1

6.40%, 08/19/07 (a)(b)(d)
786 793

First Horizon Asset Securities, Inc.

Series 2004-3 Class 1A1

5.25%, 06/25/34 (b)
6,469 6,253

GMAC Mortgage Corp. Loan

Series 2003-J7 Class A2

4.50%, 11/25/33 (b)(d)
12,592 12,378

Series 2003-AR1 Class A5

4.60%, 10/01/09 (a)(b)(d)
20,526 19,440

Series 2004-J3 Class A1

5.25%, 07/25/34 (b)
11,627 11,556

GSR Mortgage Loan Trust

Series 2004-5 Class 3A2

4.70%, 10/21/08 (a)(b)
21,888 21,595

IndyMac Index Mortgage Loan Trust

Series 2004-AR1 Class AX1

0.80%, 03/01/07 (a)(b)(d)
122,335 499

JP Morgan Alternative Loan Trust

Series 2006-A5 Class 2A1

5.55%, 12/02/09 (a)(b)(d)
53,082 53,070

Series 2006-A6 Class 2A1

5.55%, 12/31/09 (a)(b)(d)
52,000 51,784

Series 2006-A4 Class A1

5.95%, 09/14/09 (a)(b)(d)
129,211 130,888

Series 2006-S1 Class 2A6

6.00%, 01/21/12 (b)
38,352 39,081

Series 2006-S1 Class 1A16

6.00%, 03/25/36 (b)(d)
25,242 25,644

JP Morgan Mortgage Trust

Series 2004-A3 Class SF3

4.59%, 05/24/10 (a)(b)(d)
81,468 79,648

Series 2007-A1 Class 6A1

4.78%, 11/14/10 (a)(b)(d)
284,079 280,753

Series 2006-S2 Class 2A1

5.00%, 07/25/36 (b)
10,087 10,027

Series 2005-A8 Class 6A2

5.14%, 01/22/08 (a)(b)
11,061 11,009

Series 2006-A7 Class 2A4R

5.50%, 09/21/11 (b)
70,364 70,997

Series 2006-S3 Class 2A6

6.00%, 08/25/21 (b)
18,739 19,059

Series 2006-S2 Class 3A7

6.25%, 07/25/36 (b)
8,554 8,716

Lehman Mortgage Trust

Series 2006-2 Class 6A1

6.00%, 04/25/36 (b)
— —

Master Adjustable Rate Mortgage Trust

Series 2004-13 Class 2A2

3.82%, 12/01/09 (a)(b)
15,149 15,019

Series 2005-1 Class 5A1

4.97%, 05/27/08 (b)
2,494 2,504

6.01%, 11/25/36 (b)
46,733 47,098

Master Alternative Loans Trust

Series 2004-10 Class 4A1

6.00%, 09/25/19 (b)
12,016 12,234

Master Asset Securitization Trust

Series 2006-1 Class 4A1

5.75%, 02/25/21 (b)
25,606 25,880

Merrill Lynch Mortgage Investors Trust

Series 2003-A1 Class 3A3

4.86%, 12/25/32 (b)
6,722 6,681

Morgan Stanley Mortgage Loan Trust

Series 2004-5AR Class 3A4

4.42%, 02/25/09 (a)(b)
5,190 5,127

Series 2004-8AR Class 3A

4.90%, 08/25/07 (a)(b)
6,948 7,092

Series 2004-8AR Class 4A1

5.37%, 09/25/34 (a)(b)
4,470 4,486

Series 2007-3XS Class 1A2A

5.61%, 06/02/10
36,450 36,450

Series 2005-2AR Class B1

5.82%, 03/25/07 (a)(b)
28,088 28,290

Series 2006-7 Class 2A

6.00%, 06/25/21 (b)
25,965 26,371

Series 2006-2 Class 4A

6.00%, 02/25/36 (b)
4,798 4,856

Series 2004-9 Class 2A

6.35%, 03/01/07 (a)(b)
9,774 9,954

Series 2006-2 Class 6A

6.50%, 02/25/36 (b)
13,582 13,797

Prime Mortgage Trust

Series 2005-3 Class A4

4.75%, 08/25/20 (b)
572 561

Series 2005-2 Class 1A2

5.00%, 07/25/20 (b)(d)
28,659 28,140

Series 2005-4 Class 1A7

5.25%, 05/03/13 (b)
3 3

Residential Accredit Loans, Inc.

Series 2004-QA3 Class NB21

4.69%, 08/25/09 (a)(b)
4,621 4,576

Series 2004-QS16 Class 2A1

5.00%, 12/25/19 (b)(d)
28,451 27,935

Series 2002-QS18 Class A1

5.50%, 12/25/17 (b)(d)
57,082 57,010

Series 2006-QS18 Class 3A1

5.75%, 07/09/10 (a)(b)(d)
58,425 58,775

Series 2006-QS12 Class 2A18

5.75%, 09/25/36 (b)(d)
46,172 46,407

Series 2006-QS9 Class 1A3

6.00%, 09/06/11 (a)
337 339

Series 2001-QS19 Class A2

6.00%, 12/25/16 (b)
11,100 10,985

Series 2006-QS3 Class 1A10

6.00%, 03/25/36 (b)
9,149 9,295

Residential Asset Securitization Trust

Series 2005-A6CB Class A1

5.50%, 06/25/35 (b)(d)
104,668 105,716

Series 2006-A1 Class 3A2

6.00%, 04/25/36 (b)(d)
61,788 62,115

Residential Funding Mortgage Security I

Series 2006-SA4 Class 3A1

5.85%, 01/27/10 (a)(b)(d)
23,938 24,010

See financial notes 25

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Sequoia Mortgage Trust

Series 2003-8 Class X1

0.80%, 06/20/07 (a)(b)(d)
80,296 207

Series 2007-1 Class 2A1

6.17%, 09/12/09 (b)
80,000 80,575

Structured Adjustable Rate Mortgage Loan Trust

Series 2005-22 Class 1A2

5.25%, 01/17/09 (b)
15,067 14,968

Structured Asset Securities Corp.

Series 2004-7 Class 3A1

5.50%, 05/25/19 (b)(d)
18,806 18,729

Washington Mutual

Series 2006-AR8 Class 1A4

1.00%, 08/29/09 (b)
57,203 57,913

Washington Mutual Alternative Mortgage Pass-Through Certificates

Series 2003-AR1 Class A6

4.48%, 02/25/08 (b)
1,453 1,444

Series 2007-1 Class 2A1

6.00%, 01/25/22 (b)
30,225 30,452

Series 2006-3 Class 3CB4

6.00%, 04/25/36 (b)(d)
35,401 35,825

Series 2005-7 Class 3CB

6.50%, 08/25/35 (b)(d)
10,611 10,823

Wells Fargo Mortgage Backed Securities Trust

Series 2004-Z Class 2AIO

0.21%, 03/01/09 (a)(b)(d)
69,926 288

Series 2004-7 Class 2A1

4.50%, 07/25/19 (b)(d)
36,154 34,792

Series 2003-0 Class 2A1

4.62%, 04/25/13 (a)(b)(d)
20,010 19,467

Series 2004-K Class 2A5

4.73%, 08/25/11 (a)(b)(d)
12,872 12,688

Series 2003-N Class 2A2

4.75%, 05/25/13 (a)(b)(d)
10,439 10,193

Series 2003-16 Class 1A1

4.75%, 12/25/18 (b)
8,768 8,648

Series 2006-1 Class A3

5.00%, 03/25/21 (b)(d)
63,283 62,077

Series 2006-20 Class A1

5.50%, 12/25/21 (b)
45,953 46,146

Series 2006-AR1 Class 2A4

5.56%, 03/17/12 (a)(b)(d)
52,453 52,011

Series 2006-AR13 Class A4

5.76%, 07/08/11 (a)(b)
43,825 44,696

3,996,755

Commercial Mortgage Backed Securities 0.7%

ACT Depositor Corp.

Series 2005-RR Class A1FL

5.62%, 03/22/07 (a)(b)(d)
9,999 9,981

Crown Castle Towers LLC

Series 2005-1A Class B

4.88%, 06/15/35 (c)(d)
11,000 10,912

Series 2005-1A Class AFL

5.70%, 03/15/07 (a)(c)(d)
14,480 14,585

Global Signal Trust III

Series 2004-2A Class C

4.70%, 12/15/14 (c)(d)
7,000 6,907

Series 2006-1 Class A1FL

5.54%, 03/15/07 (a)(c)(d)
44,000 44,059

86,444

U.S. Government Agency Mortgages 7.1%

Fannie Mae

6.96%, 03/01/07 (d)
427 431

7.22%, 12/20/07
136 138

5.00%, 01/06/08 (a)
16,654 2,115

7.38%, 03/10/08
116 118

6.70%, 03/13/08
103 104

6.95%, 03/13/08
439 445

7.11%, 03/13/08
503 515

6.50%, 05/05/08 to 05/01/18 (a)
6,645 6,806

6.00%, 11/22/08 (a)
15,500 15,819

6.50%, 01/03/09 to 01/01/18 (a)(d)
3,043 3,119

6.26%, 09/08/10 (d)
6,660 6,738

6.10%, 03/09/12 (d)
4,344 4,381

6.00%, 04/01/17 (d)
4,965 5,050

3.75%, 12/25/17
2,629 2,527

6.50%, 09/01/19
1,846 1,891

0.00%, 07/01/20 to 04/25/37
137,000 135,601

5.00%, 05/01/21
88,679 87,662

6.00%, 01/01/22 to 03/01/27
90,285 91,519

4.00%, 11/25/22 to 09/25/31
17,815 17,125

4.25%, 07/25/25
18,229 17,850

Fannie Mae TBA

5.50%, 12/01/99
200,000 200,500

Federal Home Loan Bank

6.00%, 02/01/94
84,253 85,378

Freddie Mac

6.88%, 06/15/07 (d)
637 645

5.50%, 09/16/07 (a)(d)
489 490

6.00%, 12/28/07 (a)(d)
117 117

5.47%, 11/01/10 (d)
20,312 20,321

7.00%, 03/01/12
1,289 1,320

6.00%, 11/01/16 to 01/01/22
57,000 57,914

5.00%, 02/01/19
10,241 10,121

9.30%, 11/15/20 (b)(d)
350 349

5.50%, 06/01/21
9,198 9,219

4.00%, 03/15/23 (b)
31,670 30,075

7.34%, 10/15/25 (d)
353 357

7.06%, 01/15/29 (d)
570 583

817,343

Total Mortgage-Backed Securities
(Cost $4,882,143) 4,900,542

26 See financial notes

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

Number
Value

Security of Shares ($ x 1,000)

Preferred Stock 1.1% of net assets

Capital Trust
15,000 14,955

Comerica Capital Trust I
1,391,046 35,113

LaSalle Hotel Properties
106,800 2,697

Lehman Brothers CR - Bank of America, Series II *
9,100 9,420

Lehman Brothers CR - Bank of America, Series III *
9,100 9,420

Pinto Totta International Finance (b)(c)
15,000 15,278

Sovereign Real Estate Investment Trust. (c)
1,650,000 2,571

Woodbourne Pass Through Trust (b)(c)
400,000 40,149

Total Preferred Stock
(Cost $129,086) 129,603


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)


Short-Term Investments 4.2% of net assets




Commercial Paper & Other Obligations 4.0%


Atlantis Two Funding Corp.
5.35%, 03/08/07		33,397		33,362
5.36%, 03/15/07		11,357		11,333
ConocoPhillips
5.33%, 03/01/07		92,000		92,000
Cox Enterprises, Inc.
5.50%, 03/01/07		100,000		100,000
5.50%, 03/15/07		80,000		79,829
5.57%, 03/15/07		25,000		25,000
Kinder Morgan Energy Partners
5.33%, 03/02/07		28,500		28,496
Rockies Express Pipe
5.35%, 04/16/07		67,000		66,542
Viacom, Inc.
5.45%, 03/01/07		9,500		9,500
Volkswagen America, Inc.
5.30%, 03/15/07		17,751		17,715

				463,777


Repurchase Agreement 0.1%


Fixed Income Clearing Corp. dated 02/28/07, due 03/01/07 at 5%, with a maturity value of $4,535 (fully collateralized by Federal Home Loan Bank with a value of $4,646).		4,534		4,534


U.S. Treasury Obligations 0.1%


U.S. Treasury Bill
5.00%, 04/26/07		1,000		992
5.01%, 05/10/07		2,000		1,981
5.04%, 05/24/07		1,500		1,483
5.04%, 04/26/07		1,500		1,488
5.06%, 04/12/07		2,000		1,988
5.07%, 04/19/07		1,500		1,490
5.10%, 03/22/07		1,000		997
5.18%, 03/15/07		1,000		998

				11,417

Total Short-Term Investments (Cost $479,728)				479,728


End of Investments.



At 02/28/07 the tax basis cost of the fund’s investments was $12,398,222, and the unrealized appreciation and depreciation were $48,025 and ($8,599), respectively, with a net unrealized appreciation of $39,426.



Short Sales (1.9)% of net assets




U.S. Government Agency Mortgages 1.9%


Fannie Mae TBA
6.00%, 12/01/99	217,500	219,403

End of Short Sale Positions.


	Notional		Unrealized
	Amount		Gains/
	(Foreign)		(Losses)
	(x 1,000)		(USD)


Swap Agreements 0.3% of net assets




Interest Rate Swaps 0.2%


British Pounds 0.2%
Receive variable rate payments of 3 month LIBOR, Pay fixed rate payments of 5.91%, expires 06/16/14, Lehman Brothers, Inc.		24,100		(13	)


Credit Default Swaps 0.1%


ABITIBI-CONSOLIDATED, Inc. Rate 0.70%, expires 03/20/08, Goldman Sachs Capital Markets, L.L.C.		10,000		(15	)

				(28	)

See financial notes 27

Schwab YieldPlus Fund

Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at

02/28/07. All numbers are x 1,000 except number of

futures contracts.


	Number of			Contract		Unrealized
	Contracts			Value		Gains/ Losses


Futures Contracts


2 Years, Short, U.S. Treasury Note, expires 06/29/07		(5,328	)		1,091,990		(3,667	)
30 Years, Short, U.S. Treasury Note, expires 06/30/07		(90	)		10,164		38
5 Years, Short, U.S. Treasury Note, expires 06/29/07		(20,900	)		2,214,420		(15,845	)

							(19,474	)


*		Non-income producing security.
(a)		Variable-rate security.
(b)		Callable security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $1,637,666 or 14.2% of net assets.
(d)		All or a portion of this security is held as collateral for open futures contracts.

28 See financial notes

Schwab YieldPlus Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers are x 1,000 except NAV.




Assets
Investments, at value (cost $12,398,184)		$12,437,648
Cash		7
Receivables:
Investments sold		977,460
Interest		93,325
Fund shares sold		64,329
Due from brokers for futures		3,613
Dividends		793
Prepaid expenses	+	165


Total assets		13,577,340


Liabilities
Securities sold short, at value (proceeds $219,122)		219,403
Swap agreements, at fair value		28
Payables:
Investments bought		1,752,993
Investment adviser and administrator fees		290
Transfer agent and shareholder services fees		110
Fund shares redeemed		51,709
Dividends on short sales		206
Dividends to shareholders	+	41


Total liabilities		2,024,780


Net Assets
Total assets		13,577,340
Total liabilities	−	2,024,780


Net assets		$11,552,560
Net Assets by Source
Capital received from investors		11,599,371
Distributions in excess of net investment income		(289	)
Net realized capital losses		(66,203	)
Net unrealized capital gains		19,681

Net Asset Value (NAV) by Share Class


			Shares
Share Class	Net Assets	¸	Outstanding	=	NAV

Investor Shares	$1,123,321		115,908			$9.69
Select Shares	$10,429,239		1,076,278			$9.69

See financial notes 29

Schwab YieldPlus Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Dividends		$3,845
Interest	+	276,504


Total Investment Income		280,349


Net Realized Gains and Losses
Net realized losses on investments		(4,216	)
Net realized losses on futures contracts	+	(2,869	)


Net realized losses		(7,085	)


Net Unrealized Gains and Losses
Net unrealized gains on investments		49,091
Net unrealized losses on short sales		(281	)
Net unrealized losses on swap agreements		(28	)
Net unrealized losses on futures contracts	+	(15,579	)


Net unrealized gains		33,203


Expenses
Investment adviser and administrator fees		14,445
Transfer agent and shareholder service fees:
Investor Shares		1,227
Select Shares		4,283
Registration fees		534
Portfolio accounting fees		130
Shareholder reports		80
Custodian fees		75
Professional fees		39
Trustees’ fees		27
Overdraft expense		1
Other expenses	+	29


Total expenses		20,870
Custody credits	−	55


Net expenses		20,815


Increase in Net Assets from Operations
Total investment income		280,349
Net expenses	−	20,815


Net investment income		259,534
Net realized losses		(7,085	)
Net unrealized gains	+	33,203


Increase in net assets from operations		$285,652

30 See financial notes

Schwab YieldPlus Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$259,534			$312,949
Net realized gains or losses			(7,085	)		15,172
Net unrealized gains or losses	+		33,203			(19,215	)


Increase in net assets from operations			285,652			308,906


Distributions Paid
Dividends from Net Investment Income
Investor Shares			26,094			35,864
Select Shares	+		234,568			279,674


Total dividends from net investment income			$260,662			$315,538

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares Sold
Investor Shares			56,974			$551,664			65,811			$635,962
Select Shares	+		575,820			5,574,845			660,037			6,376,927


Total shares sold			632,794			$6,126,509			725,848			$7,012,889


Shares Reinvested
Investor Shares			2,304			$22,317			3,159			$30,527
Select Shares	+		18,991			183,896			23,138			223,550


Total shares reinvested			21,295			$206,213			26,297			$254,077


Shares Redeemed
Investor Shares			(35,025	)		($339,139	)		(53,855	)		($520,393	)
Select Shares	+		(275,866	)		(2,670,802	)		(452,062	)		(4,367,163	)


Total shares redeemed			(310,891	)		($3,009,941	)		(505,917	)		($4,887,556	)

Net transactions in fund shares			343,198			$3,322,781			246,228			$2,379,410

Shares Outstanding and Net Assets

9/1/06-2/28/07

9/1/05-8/31/06

NET ASSETS

Beginning of period

848,988

$8,204,789

602,760

$5,832,011

Total increase

343,198

3,347,771

246,228

2,372,778

End of period

1,192,186

$11,552,560

848,988

$8,204,789

Distributions in excess of net investment income/
Net Investment income not yet distributed

($289

)

$839

See financial notes 31

Schwab Short-Term Bond Market Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per Share Data ($)

Net asset value at beginning of period		9.91			10.05			10.21			10.14			10.07			10.08

Income from investment operations:
Net investment income		0.24			0.42			0.30			0.28			0.34			0.50
Net realized and unrealized gains or losses		0.06			(0.14	)		(0.13	)		0.07			0.07			(0.02	)

Total income from investment operations		0.30			0.28			0.17			0.35			0.41			0.48
Less distributions:
Dividends from net investment income		(0.24	)		(0.42	)		(0.31	)		(0.28	)		(0.34	)		(0.49	)
Distributions from net realized gains		—			—			(0.02	)		—			—			—

Total distributions		(0.24	)		(0.42	)		(0.33	)		(0.28	)		(0.34	)		(0.49	)

Net asset value at end of period		9.97			9.91			10.05			10.21			10.14			10.07

Total return (%)		3.07	¹		2.87			1.68			3.46			4.16			4.88

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.55	²		0.55			0.55			0.53			0.43			0.35
Gross operating expenses		0.58	²		0.57			0.57			0.57			0.58			0.63
Net investment income		4.87	²		4.18			3.00			2.69			3.34			4.95
Portfolio turnover rate		86	¹		171			109			114			124			150
Net assets, end of period ($ x 1,000,000)		581			604			660			728			648			493

* Unaudited.

¹ Not Annualized.

² Annualized.

32 See financial notes

Schwab Short-Term Bond Market Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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


				Cost		Value
Holdings by Category				($ x 1,000)		($ x 1,000)


	34	.7%	U.S. Government Securities		201,781		201,868
	31	.8%	Corporate Bonds		183,990		184,682
	27	.1%	Mortgage-Backed Securities		157,180		157,680
	3	.6%	Asset-Backed Obligations		20,688		20,683
	0	.5%	Preferred Stock		2,911		3,117
	4	.5%	Short-Term Investments		26,403		26,403

	102	.2%	Total Investments		592,953		594,433
	9	.9%	Collateral Invested for Securities on Loan		57,389		57,389
	(12	.1)%	Other Assets and Liabilities				(70,526	)

	100	.0%	Net Assets				581,296


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)





U.S. Government Securities 34.7% of net assets




U.S. Government Agency Securities 24.1%


Fannie Mae
5.00%, 10/15/11		5,000		5,041
4.50%, 01/01/20		8,046		7,810
6.00%, 01/01/22 (d)		2,988		3,036
5.50%, 03/19/22		3,500		3,509
Federal Home Loan Bank
4.13%, 10/19/07		10,000		9,933
6.00%, 01/01/27		6,898		6,990
Freddie Mac
3.25%, 11/02/07 (b)		64,483		63,668
5.00%, 01/16/09 (d)		40,000		40,125

				140,112


U.S. Treasury Obligations 10.6%


U.S. Treasury Notes
3.38%, 10/15/09 (e)		10,000		9,709
4.63%, 11/15/09 (e)		20,000		20,030
3.50%, 12/15/09 (e)		8,000		7,781
4.75%, 02/15/10		2,450		2,463
4.00%, 04/15/10 (e)		3,000		2,955
3.63%, 06/15/10 (e)		3,250		3,163
5.75%, 08/15/10 (e)		4,000		4,158
3.88%, 09/15/10 (e)		2,500		2,449
4.75%, 10/31/11 (e)		6,000		6,028
4.50%, 11/30/11 (e)		1,000		999
4.75%, 01/31/12 (e)		2,000		2,021

				61,756

Total U.S. Government Securities (Cost $201,781)				201,868




Corporate Bonds 31.8% of net assets




Finance 16.3%


Banking 10.1%
Abbey National PLC
6.70%, 06/15/08 (a)(b)(d)		1,425		1,448
Bank of Scotland
7.00%, 11/20/07 (a)(b)(c)(d)		1,495		1,510
Barclays Bank PLC
8.55%, 06/15/11 (a)(b)(c)(d)		5,000		5,619
BBVA Bancomer Capital Trust I
5.38%, 07/22/10 (a)(b)(c)(d)		2,000		1,988
BCI US Funding Trust
8.01%, 07/15/08 (a)(b)(c)(d)		1,100		1,136
Citibank Korea, Inc.
4.68%, 06/18/08 (a)(b)		2,000		2,023
Danske Bank A/S
5.91%, 06/16/14 (a)(b)(c)(d)		2,000		2,055
DBS Capital Funding Corp.
7.66%, 03/15/07 (b)(c)		2,000		2,171
Deutsche Bank Capital Trust
7.16%, 03/30/07 (b)		8,000		8,380
HSBC Capital Funding LP
9.55%, 06/30/10 (a)(b)(c)(d)		5,000		5,635
ING Capital Funding Trust III
8.44%, 12/31/10 (a)(b)(d)		2,000		2,220
JP Morgan Chase Capital XXI
6.31%, 05/02/07 (a)(b)(e)		3,000		3,037
Mizuho Preferred Capital Co., LLC
8.79%, 06/30/08 (a)(b)(c)		3,000		3,131
Natexis Ambs Co., LLC
8.44%, 06/30/08 (a)(b)(c)(d)		3,000		3,119
PNC Preferred Funding Trust I
6.52%, 03/15/12 (a)(b)(c)		2,000		2,082
RBS Capital Trust IV
6.16%, 03/30/07 (a)(b)(d)		4,000		4,052
Santander Issuances S.A Unipersonal
5.73%, 03/20/07 (a)(b)(c)(d)		3,000		3,006
Sovereign Bank
4.38%, 08/01/08 (a)(b)(d)		3,800		3,755
UBS Preferred Funding Trust I
8.62%, 10/01/10 (a)(b)		2,000		2,223

				58,590

See financial notes 33

Schwab Short-Term Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Brokerage 0.3%

Lehman Brothers Holdings E-Capital Trust I

6.14%, 05/21/07 (a)(b)(d)
2,000 2,030

Finance Company 3.0%

General Electric Capital Corp.

5.53%, 04/27/07 (a)(d)
5,000 5,020

General Motors Acceptance Corp.

6.52%, 03/23/07 (a)(d)
1,800 1,807

iStar Financial, Inc.

5.76%, 03/03/07 (a)(d)
1,970 1,975

5.65%, 09/15/11 (b)(d)
2,000 2,019

Residential Capital Corp.

6.46%, 04/17/07 (a)(d)
1,000 1,004

7.19%, 04/17/07 (a)(b)(c)(d)
3,800 3,796

6.88%, 06/30/15 (b)
2,000 2,065

17,686

Insurance 2.7%

Marsh & McLennan Cos., Inc.

5.50%, 04/16/07 (a)(d)
4,430 4,431

Oil Insurance Ltd.

7.56%, 06/30/11 (a)(b)(c)(d)
1,000 1,062

Stoneheath RE

6.87%, 04/15/07 (a)(b)
2,000 2,021

ZFS Finance USA Trust I

6.15%, 12/15/10 (a)(b)(c)
1,500 1,535

ZFS Finance USA Trust III

6.51%, 03/15/07 (a)(b)(c)
2,500 2,550

Zurich Capital Trust I

8.38%, 06/01/07 (b)(c)
3,811 3,984

15,583

Real Estate Investment Trust 0.2%

Health Care Property Investors, Inc.

5.81%, 03/15/07 (a)(b)(d)
1,000 1,000

94,889

Industrial 12.0%

Basic Industry 0.2%

XSTRATA Finance Dubai Ltd.

5.71%, 05/14/07 (a)(b)(c)
1,000 1,001

Communications 4.7%

Alamosa Delaware, Inc.

8.50%, 01/31/08 (b)(d)
3,000 3,176

America Movil SA de CV

5.99%, 04/27/07 (a)(d)
3,000 3,007

Comcast Holdings Corp.

10.63%, 07/15/12 (d)
2,000 2,439

Nextel Partners, Inc.

8.13%, 07/01/07 (b)(d)
2,750 2,869

Rogers Wireless Communications, Inc.

8.49%, 03/15/07 (a)(b)
880 900

TCI Communications, Inc.

9.80%, 02/01/12
630 751

Telecom Italia Capital S.A.

4.88%, 10/01/10 (b)(e)
4,000 3,936

Telefonica Emisones SAU

5.67%, 03/20/07 (a)(b)
2,000 2,006

Telefonos de Mexico, S.A.

4.50%, 11/19/08 (b)(d)
2,000 1,982

Time Warner Entertainment Co.

7.25%, 05/14/07 (a)
2,000 2,048

Ubiquitel Operating Co.

9.88%, 03/01/07 (b)
1,686 1,814

US Unwired, Inc.

10.00%, 06/15/08 (b)
2,450 2,681

27,609

Consumer Cyclical 4.5%

D.R. Horton, Inc.

8.00%, 02/01/09 (e)
2,000 2,092

Ford Motor Credit Corp.

8.11%, 04/13/07 (a)(d)
2,000 2,013

8.36%, 05/02/07 (a)(d)
3,750 3,799

JC Penney Co., Inc.

8.13%, 04/01/07 (b)
500 514

KB Home

7.75%, 08/01/07 (b)(e)
1,000 1,026

9.50%, 08/15/07 (b)(e)
4,597 4,752

Seminole Tribe of Florida

5.80%, 10/01/13 (c)
900 895

Time Warner, Inc.

5.59%, 05/14/07 (a)
1,500 1,504

5.50%, 11/15/11 (b)
1,000 1,012

Toll Corp.

8.25%, 02/01/08 (b)
6,500 6,687

8.25%, 12/01/11 (b)(e)
1,545 1,611

25,905

Consumer Non-Cyclical 0.7%

Biovail Corp.

7.88%, 04/01/07 (b)(d)
2,750 2,818

Stater Brothers Holdings, Inc.

8.86%, 03/15/07 (a)(b)
1,000 1,015

3,833

Energy 1.6%

ConocoPhillips

9.38%, 02/15/11
1,200 1,383

Delek & Avner-Yam Tethys Ltd.

6.46%, 05/01/07 (a)(b)(c)(d)
1,484 1,482

Husky Oil Ltd.

8.90%, 08/15/08 (a)(b)(d)
2,000 2,097

Premcor Refining Group, Inc.

9.50%, 02/01/08 (b)(e)
4,000 4,303

9,265

Transportation 0.3%

ERAC USA Finance Co.

5.61%, 04/30/07 (a)(c)(d)
1,000 1,003

Yellow Roadway Corp.

6.74%, 05/15/07 (a)(b)
1,000 1,002

2,005

69,618

Utilities 3.5%

Electric 2.3%

Entergy Gulf States, Inc.

4.88%, 03/01/07 (b)(d)
2,000 1,948

5.77%, 03/01/07 (a)(b)(d)
1,200 1,199

Southern California Edison

5.44%, 03/13/07 (a)(b)(d)
10,000 10,004

13,151

Natural Gas 1.2%

CenterPoint Energy Resources, Inc.

6.50%, 02/01/08
2,955 2,984

34 See financial notes

Schwab Short-Term Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Enterprise Products Operating L.P.

4.95%, 06/01/10 (b)(d)
3,000 2,985

Williams Partners LP/Williams Partners Finance Corp.

7.50%, 06/15/11 (b)(c)
1,000 1,055

7,024

20,175

Total Corporate Bonds
(Cost $183,990) 184,682

Mortgage-Backed Securities 27.1% of net assets

Collateralized Mortgage Obligations 22.4%

American Home Mortgage Investment Trust

Series 2005-3 Class 2A3

4.99%, 07/20/10 (a)(b)(d)
10,000 9,824

Banc of America Mortgage Securities

Series 2003-5 Class 2A1

5.00%, 07/07/08 (b)
66 66

Chase Mortgage Finance Corp.

Series 2006-A1 Class 2A1

6.11%, 11/30/07 (a)(b)(d)
21,752 21,771

Series 2005-A1 Class 2A2

5.25%, 11/02/08 (a)(b)(d)
15,456 15,348

Countrywide Alternative Loan Trust

Series 2006-41CB Class 1A3

6.00%, 03/25/07 (b)(d)
9,663 9,803

Series 2004-30CB Class 1A2

4.25%, 08/24/08 (b)(d)
4,276 4,220

Countrywide Home Loans

Series 2003-8 Class A4

4.50%, 05/25/09 (b)(d)
7,358 7,239

GSR Mortgage Loan Trust

Series 2004-5 Class 3A2

4.71%, 10/21/08 (a)(b)(d)
5,000 4,933

JP Morgan Alternative Loan Trust

Series 2006-S1 Class 1A16

6.00%, 04/19/09 (b)(d)
6,696 6,802

Series 2006-A5 Class 2A1

5.55%, 12/02/09 (a)(b)(d)
18,565 18,561

JP Morgan Mortgage Trust

Series 2005-A8 Class 6A2

5.15%, 01/22/08 (a)(b)(d)
3,950 3,932

Series 2006-S2 Class 3A7

6.25%, 11/07/09 (b)(d)
4,528 4,614

Master Alternative Loans Trust

Series 2004-4 Class 9A1

5.50%, 06/02/09 (b)
4,700 4,681

Morgan Stanley Mortgage Loan Trust

Series 2004-9 Class 2A

6.35%, 03/25/07 (a)(b)(d)
2,745 2,795

Series 2004-8AR Class 4A1

5.36%, 03/26/07 (a)(b)(d)
4,470 4,487

Residential Accredit Loans, Inc.

Series 2006-QS18 Class 3A1

5.75%, 12/25/21 (b)
4,878 4,907

Wells Fargo Mortgage Backed Securities Trust

Series 2006-1 Class A3

5.00%, 05/14/12 (b)(d)
6,709 6,581

130,564

Commercial Mortgage Backed Securities 4.7%

ACT Depositor Corp.

Series 2005-RR Class A1FL

5.62%, 03/22/07 (a)(b)(d)
3,999 3,992

Credit Suisse Mortgage Capital Certificates

Series 2006-C1 Class A2

5.51%, 08/14/10 (a)(b)(d)
10,000 10,123

Crown Castle Towers LLC

Series 2005-1 Class A

4.64%, 03/15/07 (c)(d)
4,000 3,950

Global Signal Trust III

Series 2006-1 Class A1FL

5.54%, 03/15/07 (a)(d)
3,000 3,004

Series 2006-1B

5.59%, 02/12/11 (d)
4,000 4,044

LB-UBS Commercial Mortgage Trust

Series 2005-C7 Class A2

5.10%, 09/14/10 (b)(d)
2,000 2,003

27,116

Total Mortgage-Backed Securities
(Cost $157,180) 157,680

Asset-Backed Obligations 3.6% of net assets

Aria CDO I (Jersey) Ltd.

Series 1A-3 Class B1U5

6.46%, 04/09/07 (a)(b)(c)(d)
4,000 4,000

Capital One Auto Finance Trust

Series 2007-A Class A3A

5.25%, 02/14/09 (b)(d)
5,000 5,023

Fremont Home Loan Trust

Series 2003-B Class M2

6.94%, 03/25/07 (a)(b)(d)
2,891 2,910

Long Beach Mortgage Loan Trust

Series 2003-4 Class M3

7.47%, 03/25/07 (a)(b)(d)
3,847 3,863

Merrill Lynch Mortgage Investors, Inc.

Series 2004-WM2N Class N1

4.50%, 05/25/07 (c)(d)
237 237

USXL Funding LLC

Series 2006-1A Class A

5.38%, 09/15/08 (b)(c)(d)
4,639 4,650

Total Asset-Backed Obligations
(Cost $20,688) 20,683


	Number		Value
Security	of Shares		($ x 1,000)


Preferred Stock 0.5% of net assets


Sovereign Real Estate Investment Trust. (b)(c)		2,000,000		3,117

Total Preferred Stock (Cost $2,911)				3,117

See financial notes 35

Schwab Short-Term Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Short-Term Investments 4.5% of net assets

Commercial Paper & Other Obligations 4.2%

CVS Corp.

5.35%, 03/01/07
800 800

Kinder Morgan Energy

5.35%, 03/02/07
8,100 8,099

Viacom, Inc.

5.45%, 03/01/07
15,600 15,600

24,499

Repurchase Agreement 0.2%

Fixed Income Clearing Corp. dated 02/28/07, due 03/01/07 at 5%, with a maturity value of $1,357 (fully collateralized by Federal Home Loan Bank with a value of $1,395.).

1,357 1,357

U.S. Treasury Obligations 0.1%

U.S. Treasury Bills

5.17%, 03/15/07
200 199

5.07%, 04/19/07
200 199

5.06%, 04/26/07
150 149

547

Total Short-Term Investments
(Cost $26,403) 26,403

End of Investments.



At 02/28/07 the tax basis cost of the fund’s investments was $592,964, and the unrealized appreciation and depreciation were $2,314 and ($845) respectively, with a net unrealized appreciation of $1,469.


	Number		Value
Security	of Shares		($ x 1,000)


Collateral Invested for Securities on Loan 9.9% of net assets


State Street Navigator Security Lending Prime Portfolio		57,388,843		57,389

End of collateral invested for securities on loan.



In addition to the above, the fund held the following at 02/28/07. All numbers are x1,000 except number of futures contracts.


	Number of			Contract		Unrealized
	Contracts			Value		Gains/ Losses


Futures Contracts


10 Years, Short, U.S. Treasury Note, expires 06/20/07		(40	)		4,344		(14	)
2 Years, Long, U.S. Treasury Note, expires 06/29/07		555			113,749		470
5 Years, Long, U.S. Treasury Note, expires 06/29/07		750			79,465		627

							1,083


(a)		Variable-rate security.
(b)		Callable security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $65,769 or 11.3% of net assets.
(d)		All or a portion of this security is held as collateral for futures contracts.
(e)		All or a portion of this security is on loan.

36 See financial notes

Schwab Short-Term Bond Market Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers are x 1,000 except NAV.




Assets
Investments, at value including $55,590 of securities on loan (cost $592,953)		$594,433
Collateral invested for securities on loan		57,389
Receivables:
Investments sold		18,721
Interest		5,124
Fund shares sold		548
Income from securities on loan		4
Prepaid expenses	+	3


Total assets		676,222


Liabilities
Collateral held for securities on loan		57,389
Payables:
Investments bought		36,265
Investment adviser and administrator fees		13
Transfer agent and shareholder services fees		12
Fund shares redeemed		1,059
Due to brokers for futures		165
Dividends to shareholders		1
Accrued expenses	+	22


Total liabilities		94,926


Net Assets
Total assets		676,222
Total liabilities	−	94,926


Net assets		$581,296
Net Assets by Source
Capital received from investors		593,763
Distribution in excess of net investment income		(31	)
Net realized capital losses		(14,999	)
Net unrealized capital gains		2,563

Net Asset Value (NAV)


		Shares
Net Assets	¸	Outstanding	=	NAV

$581,296		58,295			$9.97

See financial notes 37

Schwab Short-Term Bond Market Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$15,912
Dividends		243
Securities on loan	+	35


Total Investment Income		16,190


Net Realized Gains and Losses
Net realized gains on investments		448
Net realized losses on futures contracts	+	(747	)


Net realized losses		(299	)


Net Unrealized Gains and Losses
Net unrealized gains on investments		3,318
Net unrealized gains on futures contracts	+	996


Net unrealized gains		4,314


Expenses
Investment adviser and administrator fees		855
Transfer agent and shareholder service fees		747
Portfolio accounting fees		28
Shareholder reports		23
Registration fees		22
Professional fees		19
Custodian fees		13
Trustees’ fees		6
Overdraft expense		6
Other expenses	+	2


Total expenses		1,721
Expense reduction by adviser and Schwab	−	73
Custody credits	−	1


Net expenses		1,647


Increase in Net Assets From Operations
Total investment income		16,190
Net expenses	−	1,647


Net investment income		14,543
Net realized losses		(299	)
Net unrealized gains	+	4,314


Increase in net assets from operations		$18,558

38 See financial notes

Schwab Short-Term Bond Market Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			9/1/05-8/31/06
Net investment income			$14,543			$25,654
Net realized losses			(299	)		(9,747	)
Net unrealized gains	+		4,314			710


Increase in net assets from operations			18,558			16,617


Distributions Paid
Dividends from net investment income			$14,593			$25,878

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			9,050			$89,828			16,711			$165,441
Shares reinvested			1,087			10,812			2,013			19,918
Shares redeemed	+		(12,766	)		(126,823	)		(23,465	)		(232,462	)


Net transactions in fund shares			(2,629	)		($26,183	)		(4,741	)		($47,103	)

Shares Outstanding and Net Assets


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			NET ASSETS			SHARES			NET ASSETS
Beginning of period			60,924			$603,514			65,665			$659,878
Total decrease	+		(2,629	)		(22,218	)		(4,741	)		(56,364	)


End of period			58,295			$581,296			60,924			$603,514


Distribution in excess of net investment income/Net investment income not yet distributed						($31	)					$19

See financial notes 39

Schwab Total Bond Market Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			9/1/02-			9/1/01-
	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03			8/31/02


Per-Share Data ($)

Net asset value at beginning of period		9.76			10.10			10.15			10.20			10.22			10.24

Income from investment operations:
Net investment income		0.25			0.47			0.35			0.31			0.34			0.47
Net realized and unrealized gains or losses		0.15			(0.31	)		0.08			0.32			0.10			0.13

Total income from investment operations		0.40			0.16			0.43			0.63			0.44			0.60
Less distributions:
Dividends from net investment income		(0.25	)		(0.47	)		(0.36	)		(0.33	)		(0.37	)		(0.46	)
Distributions from net realized gains		—			(0.03	)		(0.12	)		(0.35	)		(0.09	)		(0.16	)

Total distributions		(0.25	)		(0.50	)		(0.48	)		(0.68	)		(0.46	)		(0.62	)

Net asset value at end of period		9.91			9.76			10.10			10.15			10.20			10.22

Total return (%)		4.17	¹		1.66			4.31			6.37			4.37			6.18

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.53	²		0.53			0.54			0.52			0.43			0.35
Gross operating expenses		0.53	²		0.53			0.54			0.54			0.54			0.57
Net investment income		5.13	²		4.68			3.49			3.08			3.36			4.66
Portfolio turnover rate		137	¹		221			221			223			121			74
Net assets, end of period ($ x 1,000,000)		1,394			1,233			1,195			1,042			1,025			1,053

* Unaudited.

¹ Not annualized.

² Annualized.

40 See financial notes

Schwab Total Bond Market Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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


				Cost			Value
Holdings by Category				($ x 1,000)			($ x 1,000)


	52	.9%	Mortgage-Backed Securities		735,473			737,893
	27	.0%	Corporate Bonds		373,377			375,941
	17	.6%	U.S. Government Securities		240,790			246,054
	3	.8%	Asset-Backed Obligations		52,593			52,871
	1	.3%	Preferred Stock		16,823			17,845
	4	.8%	Short-Term Investments		67,298			67,298

	107	.4%	Total Investments		1,486,354			1,497,902
	(3	.9)%	Short Sales		(54,866	)		(54,976	)
	13	.1%	Collateral Invested for Securities on Loan		182,482			182,482
	(16	.6)%	Other Assets and Liabilities					(230,921	)

	100	.0%	Net Assets					1,394,486


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)





Mortgage-Backed Securities 52.9% of net assets




Collateralized Mortgage Obligations 17.7%


ABN Amro Mortgage Corp.
Series 2003-7 Class A2
5.00%, 07/25/18 (d)		177		176
Banc of America Mortgage Securities
Series 2003-5 Class 2A1
5.00%, 03/01/07		66		66
Bank of America Alternative Loan Trust
Series 2006-4 Class 3CB6
6.00%, 05/25/36 (d)		11,068		11,169
Chase Mortgage Finance Corp.
Series 2006-A1 Class 2A1
6.11%, 11/30/07 (a)(b)(d)		13,051		13,063
Series 2005-A1 Class 2A2
5.25%, 11/02/08 (a)(d)		7,728		7,674
Series 2007-A1 Class 10A1
4.92%, 06/23/10 (a)		15,000		14,780
Countrywide Alternative Loan Trust
Series 2004-30CB Class 1A2
4.25%, 02/25/35 (d)		4,276		4,220
Countrywide Asset-Backed Certificates
Series 2003-J10 Class 2A1
5.00%, 06/25/08		44		44
Countrywide Home Loans
Series 2003-J7 Class 4A1
4.50%, 11/10/11		146		142
Credit Suisse Mortgage Capital Certificates
Series 2006-8 Class 3A1
6.00%, 10/25/21		9,641		9,724
Deutsche Alternative Asset Securities, Inc.
Series 2006-AR5 Class 22A
5.50%, 10/25/21 (d)		9,528		9,590
Series 2005-6 Class 1A3
5.50%, 12/25/35		10,817		10,862
GSR Mortgage Loan Trust
Series 2004-5 Class 3A2
4.71%, 10/21/08 (a)(b)(d)		10,000		9,866
JP Morgan Alternative Loan Trust
Series 2006-A5 Class 2A1
5.55%, 12/02/09 (a)(b)(d)		16,708		16,705
Series 2006-S1 Class 1A16
6.00%, 03/25/36 (d)		13,391		13,604
JP Morgan Mortgage Trust
Series 2005-A8 Class 6A2
5.15%, 03/01/07 (a)(d)		3,950		3,932
Series 2004-A5 Class 4A1
3.43%, 07/13/09 (a)(b)(d)		11,972		11,461
Series 2007-A1 Class 6A1
4.78%, 11/14/10 (a)(b)(d)		14,925		14,751
Series 2006-S2 Class 3A7
6.25%, 06/25/36 (d)		9,055		9,227
Series 2006-S2 Class 2A1
5.00%, 07/25/36 (d)		9,264		9,210
Master Alternative Loans Trust
Series 2004-4 Class 9A1
5.50%, 04/25/19		5,196		5,175
Master Seasoned Securities Trust
Series 2005-1 Class A3
6.20%, 01/22/11 (a)(b)		996		1,019
Morgan Stanley Mortgage Loan Trust
Series 2004-9 Class 4A
5.59%, 03/01/07		164		168
Ser 2004 9 Cl 1a
6.17%, 03/01/07 (a)(b)		531		536
Series 2006-2 Class 4A
6.00%, 02/25/36 (d)		11,802		11,945
Series 2006-2 Class 6A
6.50%, 02/25/36		6,836		6,944
Residential Accredit Loans, Inc.
Series 2006-QS18 Class 3A1
5.75%, 07/09/10 (b)(d)		9,756		9,814
Residential Asset Mortgage Products, Inc.
Series 2005-SL2 Class A1
6.00%, 05/03/10		43		43
Structured Asset Securities Corp.
Series 2003-20 Class 2A3
4.50%, 07/25/18		859		801

See financial notes 41

Schwab Total Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Wells Fargo Mortgage Backed Securities Trust

Series 2006-1 Class A3

5.00%, 03/25/21 (d)
40,253 39,486

246,197

Commercial Mortgage Backed Securities 7.8%

ACT Depositor Corp.

Series 2005-RR Class A1FL

5.62%, 03/22/07 (a)(d)
10,999 10,979

Banc of America Commercial Mortgage, Inc.

Series 2006-1 Class A2

5.33%, 01/17/11 (a)(b)(d)
9,000 9,074

Bear Stearns Commercial Mortgage Securities

Series 2005-PWR7 CIass A2

4.95%, 02/11/41 (d)
7,500 7,451

Credit Suisse Mortgage Capital Certificates

Series 2006-C1 Class A2

5.51%, 03/01/07 (a)(d)
7,000 7,086

Crown Castle Towers LLC

Series 2005-1A Class AFL

5.70%, 03/15/07 (a)(c)(d)
10,000 10,072

Series 2005-1A Class B

4.88%, 06/15/35 (c)(d)
5,375 5,332

Global Signal Trust III

Series 2006-1 Class A1FL

5.54%, 03/15/07 (a)(c)(d)
5,000 5,006

Series 2004-2A Class C

4.70%, 12/15/14 (c)
175 173

Series 2006-1B

5.59%, 02/15/36 (c)(d)
8,000 8,088

JP Morgan Chase Commercial Mortgage Securities Corp.

Series 2005-LDP3 Class A4

4.94%, 03/01/07 (a)(d)
12,930 12,649

LB-UBS Commercial Mortgage Trust

Series 2005-C7 Class A4

5.20%, 03/11/07 (a)(d)
13,500 13,456

Series 2005-C7 Class A2

5.10%, 11/15/30 (d)
15,000 15,022

Morgan Stanley Capital I

Series 2005-HQ7 Class A4

5.20%, 03/01/07 (a)(d)
5,000 5,006

109,394

U.S. Government Agency Mortgages 27.4%

Fannie Mae

5.50%, 04/09/08 to 03/01/18
18,949 18,991

6.00%, 11/22/08 to 01/01/37
38,202 38,736

6.50%, 02/21/09 to 11/01/36
5,361 5,493

6.00%, 04/05/09 (d)
2,155 2,183

6.50%, 07/15/09 to 10/05/09 (d)
6,214 6,395

5.00%, 10/18/09 to 12/22/14
12,910 12,558

5.50%, 07/24/10 to 03/01/35 (d)
43,664 43,404

4.00%, 07/01/18
4,803 4,559

4.50%, 12/01/19 (d)
8,954 8,692

6.47%, 04/01/21
9,759 9,925

3.75%, 05/25/30
1,348 1,282

7.50%, 01/01/33 (d)
1,624 1,693

5.00%, 11/01/36 (d)
44,860 43,604

Fannie Mae TBA

5.50%, 03/14/22
58,500 58,646

Federal Home Loan Bank

6.00%, 02/01/94
13,796 13,980

Freddie Mac

6.00%, 10/21/07 to 03/07/09
3,657 3,716

6.00%, 03/27/08 to 06/01/20 (d)
8,144 8,271

5.50%, 06/01/21 (d)
13,797 13,829

4.00%, 03/15/23 (d)
24,770 23,522

6.50%, 03/01/32 (d)
3,339 3,428

Freddie Mac REMICS

4.00%, 09/15/19 (d)
10,000 9,224

5.00%, 10/15/19 (d)
17,620 17,334

4.00%, 11/15/20
2,603 2,538

Ginnie Mae

6.00%, 09/17/09 to 10/15/34
13,343 13,569

7.50%, 03/15/32 (d)
886 924

7.00%, 06/15/33
2,056 2,159

6.00%, 10/15/34 (d)
10,031 10,199

5.50%, 05/20/35
3,456 3,448

382,302

Total Mortgage-Backed Securities
(Cost $735,473) 737,893

Corporate Bonds 27.0% of net assets

Finance 12.4%

Banking 7.1%

Barclays Bank PLC

5.93%, 12/15/16 (a)(b)(c)(d)
3,000 3,071

BBVA Bancomer Capital Trust I

5.38%, 07/22/10 (a)(b)(c)(d)
3,000 2,982

Capital One Capital III

7.69%, 08/15/36 (d)
5,000 5,661

Citibank Korea, Inc.

4.68%, 06/18/08 (a)(b)
4,000 4,047

Danske Bank A/S

5.91%, 06/16/14 (a)(c)(b)(d)
3,000 3,082

DBS Bank Ltd.

5.97%, 04/16/07 (a)(c)(d)
5,000 5,196

Deutsche Bank Capital Trust

7.16%, 03/30/07 (a)
10,200 10,684

Fleet Capital Trust V

6.36%, 03/19/07 (a)
5,000 5,029

HSBC Capital Funding LP

9.55%, 06/30/10 (a)(b)(c)(d)
3,000 3,381

ING Capital Funding Trust III

8.44%, 12/31/10 (a)(b)(d)
5,574 6,188

JP Morgan Chase Capital XIII

6.31%, 03/30/07 (a)(d)
2,000 2,033

JP Morgan Chase Capital XVIII

6.95%, 08/17/36
2,000 2,191

Mizuho Preferred Capital Co., LLC

8.79%, 06/30/08 (a)(b)(c)(d)
5,000 5,218

42 See financial notes

Schwab Total Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Natexis Ambs Co., LLC

8.44%, 06/30/08 (a)(b)(c)(d)
7,000 7,277

PNC Preferred Funding Trust I

6.52%, 03/15/12 (c)
4,000 4,163

RBS Capital Trust IV

6.16%, 03/30/07 (a)(d)
7,000 7,091

Resona Preferred Global Securities

7.19%, 07/30/15 (a)(b)(c)
3,000 3,235

Santander Issuances S.A Unipersonal

5.73%, 03/20/07 (a)(c)
5,000 5,010

SMFG Preferred Capital USD 1 Ltd

6.08%, 01/25/17 (a)(b)
3,000 3,050

Sovereign Bank

4.38%, 08/01/08 (a)(b)
3,000 2,965

Tokai Preferred Capital Co., LLC

9.98%, 06/30/08 (a)(b)(c)
3,925 4,147

UBS Preferred Funding Trust I

8.62%, 10/01/10 (a)(b)(d)
3,000 3,334

99,035

Brokerage 0.1%

The Goldman Sachs Group, Inc.

5.63%, 01/15/17 (d)
2,000 2,006

Finance Company 2.3%

General Electric Capital Corp

5.56%, 04/10/07 (a)(d)
5,000 5,018

General Electric Capital Corp.

5.74%, 05/08/07 (a)
2,000 2,007

General Motors Acceptance Corp.

6.52%, 03/23/07 (a)(d)
4,400 4,419

HSBC Finance Capital Trust IX

5.91%, 11/30/15 (a)(b)(d)
3,000 3,066

iStar Financial, Inc.

5.76%, 03/03/07 (a)(d)
2,000 2,005

5.65%, 09/15/11 (d)
2,000 2,019

Residential Capital Corp.

7.19%, 04/17/07 (c)
6,800 6,792

6.46%, 04/17/09 (a)
3,000 3,013

6.88%, 06/30/15
3,000 3,097

31,436

Insurance 2.5%

Assured Guaranty US Holdings, Inc.

6.40%, 12/15/16 (a)(b)(d)
2,000 2,051

AXA SA

6.38%, 12/14/36 (a)(b)(c)(d)
2,000 1,998

Highmark, Inc.

6.80%, 08/15/13 (c)(d)
4,000 4,237

Liberty Mutual Group, Inc.

7.00%, 03/15/07 (c)
4,700 4,691

Oil Insurance Ltd.

7.56%, 06/30/11 (a)(b)(c)
4,000 4,246

Stoneheath RE

6.87%, 10/15/11 (a)(b)
3,000 3,031

ZFS Finance USA Trust I

6.15%, 12/15/10 (a)(b)(c)
2,500 2,559

ZFS Finance USA Trust III

6.51%, 12/15/10 (a)(c)(d)
5,000 5,101

Zurich Capital Trust I

8.38%, 06/01/37 (c)(d)
7,000 7,317

35,231

Real Estate Investment Trust 0.4%

Health Care Property Investors, Inc.

5.81%, 03/15/07 (a)(d)
2,000 2,000

Simon Property Group LP

5.75%, 12/01/15
3,000 3,090

5,090

172,798

Industrial 11.2%

Basic Industry 0.2%

Xstrata Finance Dubai Ltd.

5.71%, 05/14/07 (a)(c)
2,000 2,003

Communications 3.8%

Alamosa Delaware, Inc.

8.50%, 01/31/12 (d)
1,725 1,826

America Movil SA de CV

5.99%, 04/27/07 (a)(d)
3,000 3,007

5.75%, 01/15/15
3,000 3,026

BellSouth Corp.

6.55%, 06/15/34 (d)
2,000 2,125

Comcast Holdings Corp.

10.63%, 07/15/12
2,567 3,130

News America, Inc.

8.00%, 10/17/16
3,000 3,512

Nextel Partners, Inc.

8.13%, 07/01/11
8,741 9,120

Rogers Wireless Communications, Inc.

8.49%, 12/15/10 (a)
2,850 2,914

8.00%, 12/15/12
3,000 3,214

TCI Communications, Inc.

9.80%, 02/01/12 (e)
4,000 4,767

Telecom Italia Capital SA

5.25%, 10/01/15
2,000 1,912

Telefonica Emisones SAU

5.67%, 03/20/07 (a)
3,000 3,009

Telefonos de Mexico, S.A.

4.50%, 11/19/08
3,000 2,974

Time Warner Entertainment Co.

10.15%, 05/01/12
2,230 2,682

Ubiquitel Operating Co.

9.88%, 03/01/11
3,000 3,228

US Unwired, Inc.

10.00%, 06/15/12
2,000 2,189

52,635

Consumer Cyclical 4.5%

CVS Lease Pass Through

6.04%, 12/10/28 (d)
2,990 3,026

D.R. Horton, Inc.

8.50%, 04/15/12 (d)
3,000 3,135

Ford Motor Credit Corp.

8.11%, 04/13/07 (a)
3,000 3,020

8.36%, 05/02/07 (a)(d)
9,750 9,876

General Motors Acceptance Corp.

8.00%, 11/01/31
3,000 3,017

JC Penney Co., Inc.

8.13%, 04/01/27
1,000 1,029

KB Home

7.75%, 02/01/10
2,000 2,052

9.50%, 02/15/11 (e)
9,602 9,926

Seminole Tribe of Florida

5.80%, 10/01/13 (c)
1,800 1,789

Time Warner, Inc.

5.59%, 05/14/07 (a)(d)
5,500 5,514

6.50%, 11/15/36
1,000 1,041

See financial notes 43

Schwab Total Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Toll Corp.

8.25%, 02/01/11 (d)
13,376 13,761

8.25%, 12/01/11 (e)
5,755 6,000

63,186

Consumer Non-Cyclical 0.5%

Biovail Corp.

7.88%, 04/01/10 (d)
6,250 6,404

Stater Brothers Holdings, Inc.

8.86%, 03/15/07 (a)
1,000 1,015

7,419

Energy 1.9%

ConocoPhillips

9.38%, 02/15/11 (d)
5,000 5,764

Delek & Avner-Yam Tethys Ltd.

6.46%, 05/01/07 (a)(c)(d)
2,227 2,224

Husky Oil Ltd.

8.90%, 08/15/08 (a)(b)(d)
6,000 6,290

Premcor Refining Group, Inc.

9.50%, 02/01/13 (d)
8,500 9,144

XTO Energy, Inc.

7.50%, 04/15/12
3,000 3,291

26,713

Transportation 0.3%

ERAC USA Finance Co.

5.61%, 04/30/07 (a)(c)(d)
2,000 2,006

Yellow Roadway Corp.

6.74%, 05/15/07 (a)
2,000 2,003

4,009

155,965

Utilities 3.4%

Electric 2.5%

Centerpoint Energy Resources Corp.

7.88%, 04/01/13 (d)
3,000 3,367

CenterPoint Energy Resources Corp.

6.25%, 02/01/37 (d)
2,000 2,059

Duke Capital LLC

6.25%, 02/15/13 (e)
2,000 2,055

Entergy Gulf States, Inc.

5.76%, 03/01/07 (a)(d)
2,400 2,398

4.88%, 11/01/11 (d)
3,000 2,922

Midamerican Energy Holdings Co.

6.13%, 04/01/36
2,000 2,075

Nevada Power Co.

5.95%, 03/15/16
2,500 2,568

Southern California Edison

5.44%, 03/13/07 (a)(d)
17,119 17,125

34,569

Natural Gas 0.9%

Energy Transfer Partners LP

6.63%, 10/15/36 (d)
1,000 1,059

Enterprise Products Operating LP

8.38%, 08/01/16 (a)(b)(d)
3,000 3,347

Kinder Morgan, Inc.

6.80%, 03/01/08
3,000 3,043

Magellan Midstream Partners

5.65%, 10/15/16 (e)
3,000 3,005

Northwest Pipeline Corp.

7.00%, 06/15/16
2,000 2,155

12,609

47,178

Total Corporate Bonds
(Cost $373,377) 375,941

U.S. Government Securities 17.6% of net assets

U.S. Government Agency Securities 3.0%

Fannie Mae

4.50%, 01/01/20
11,877 11,530

5.00%, 09/14/07
4,268 4,262

6.00%, 01/01/22
12,124 12,318

Freddie Mac

5.00%, 02/16/17 (d)
13,000 13,097

41,207

U.S. Treasury Obligations 14.6%

U.S. Treasury Bonds

9.88%, 11/15/15 (e)
3,000 4,135

9.00%, 11/15/18 (e)
4,000 5,554

8.13%, 08/15/19 (e)
5,000 6,606

8.00%, 11/15/21 (e)
7,000 9,384

7.25%, 08/15/22 (e)
2,500 3,175

6.25%, 08/15/23 (e)
11,700 13,653

6.88%, 08/15/25 (e)
8,000 10,044

6.00%, 02/15/26 (e)
8,000 9,211

6.13%, 11/15/27 (e)
7,500 8,834

5.25%, 02/15/29 (d)
5,000 5,332

6.13%, 08/15/29 (e)
1,000 1,188

6.25%, 05/15/30 (e)
7,000 8,474

5.38%, 02/15/31 (e)
17,182 18,739

4.50%, 02/15/36 (e)
13,595 13,189

U.S. Treasury Inflation Protected Security

2.38%, 01/15/17 (e)
27,017 27,487

U.S. Treasury Notes

4.75%, 02/15/10
2,450 2,463

4.75%, 01/31/12 (e)
4,750 4,800

4.63%, 02/29/12
500 503

4.63%, 11/15/16 (e)
6,900 6,933

4.63%, 02/15/17 (e)
30,000 30,183

4.75%, 02/15/37
7,000 7,085

U.S. Treasury Strip Principal Notes

0.0, 08/15/25 (d)
19,000 7,875

204,847

Total U.S. Government Securities
(Cost $240,790) 246,054

Asset-Backed Obligations 3.8% of net assets

ABSC NIMs Trust

Series 2005-HE6 Class A1

5.05%, 08/27/35 (c)(d)
348 347

Aegis Asset Backed Securities Trust

Series 2004-4

5.00%, 10/25/34 (d)
527 523

44 See financial notes

Schwab Total Bond Market Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Aria CDO I (Jersey) Ltd.

Series 1A-3 Class B1U5

6.46%, 04/09/07 (a)(c)(d)
6,000 6,000

Banc of America Alternative Loan Trust

Series 2003-11 Mtg Class 15I0

0.35%, 03/01/07 (a)(b)(d)
44,036 559

CDC Mortgage Capital Trust

Series 2003-HE2 Class M2

7.22%, 03/25/07 (a)(d)
2,864 2,869

Citicorp Mortgage Securities, Inc.

Series 2003-11 Class 1A4

5.25%, 12/25/33 (d)
1,000 991

Countrywide Asset-Backed Certificates

Class 2001-BC3 Class M1

6.14%, 03/25/07 (a)(d)
1,704 1,706

Series 2004-BC1N Class N

5.50%, 04/25/35 (d)
421 419

Countrywide Home Loan Mortgage Pass Through Trust

Series 2003-J6 Class 1A1

5.50%, 08/25/33 (d)
1,324 1,307

First Horizon Asset Securities Inc

Series 2003-3 Class 1A2

4.20%, 05/25/33 (d)
6,310 6,195

GSAA Home Equity Trust

Series 2004-NC1 Class AF6

4.76%, 06/28/11 (a)(b)
7,000 6,888

GSR Mortgage Loan Trust

Series 2006-AR2 Class 3A1

5.76%, 03/25/07 (a)
145 146

Long Beach Mortgage Loan Trust

Series 2003-4 Class M3

7.47%, 03/25/07 (a)(d)
5,037 5,059

PHH Alternative Mortgage Trust

Series 2007-1 Class 22A1

6.00%, 03/01/07 (a)(d)
13,620 13,713

Sequoia Mortgage Trust

Series 2004-4 Class B1

5.82%, 03/20/07 (a)
3,412 3,416

Series Class 2004-4 Class B2

6.22%, 03/20/07 (a)
2,730 2,733

Total Asset-Backed Obligations
(Cost $52,593) 52,871


	Number		Value
Security	of Shares		($ x 1,000)


Preferred Stock 1.3% of net assets


CoBank, ACB (c)		115,000		6,164
RAM Holdings Ltd (c)		2,000		2,053
Sovereign Real Estate Investment Trust. (b)(c)		6,178,000		9,628

Total Preferred Stock (Cost $16,824)				17,845


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)


Short-Term Investments 4.8% of net assets




Commercial Paper & Other Obligations 4.6%


ConocoPhillips
5.33%, 03/01/07		3,000		3,000
CVS Corp.
5.35%, 03/01/07 (c)		14,300		14,300
Kinder Morgan Energy
5.35%, 03/02/07		3,400		3,399
Viacom, Inc.
5.45%, 03/01/07		44,900		44,900

				65,599


Repurchase Agreement 0.1%


Fixed Income Clearing Corp. dated 11/30/06, due 12/01/06 at 5.0%, with a maturity value of $707 (fully collateralized by Federal Home Loan Bank with a value of $727.)		707,000		707


U.S. Treasury Obligations 0.1%


U.S. Treasury Bill
5.00%, 03/15/07		300		300
5.00%, 04/19/07		100		99
5.04%, 05/24/07		600		593

				992

Total Short-Term Investments (Cost $67,298)				67,298


End of Investments.



At 02/28/07 the tax basis cost of the fund’s investments was $1,490,888 and the unrealized appreciation and depreciation was $10,391 and ($3,377), respectively, with a net appreciation of $7,014.



Short Sales 3.9% of net assets




U.S. Government Agency Mortgages 3.9%


Fannie Mae TBA
6.00%, 12/01/99	54,500	54,976

End of Short Sale Positions.

See financial notes 45

Schwab Total Bond Market Fund

Portfolio Holdings (Unaudited) continued

Number
Value

Security of Shares ($ x 1,000)

Collateral Invested for Securities on Loan
13.1% of net assets

State Street Navigator Security Lending Prime Portfolio
182,481,664 182,482

End of collateral invested for securities on loan.



In addition to the above, the fund held the following at 02/28/07. All numbers are x 1,000 except number of futures contracts.


	Number of		Contract		Unrealized
	Contracts		Value		Gains


Futures Contracts


10 Years, Long, U.S. Treasury Note expires 06/20/07		288		31,275		242
2 Years, Long, U.S. Treasury Note expires 06/29/07		367		75,218		314
5 Years, Long, U.S. Treasury Note expires 06/29/07		818		86,670		752

						1,308


(a)		Variable-rate security.
(b)		Callable security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $158,888 or 11.4% of net assets.
(d)		All or a portion of this security is held as collateral for futures contracts and short sales.
(e)		All or a portion of this security is on loan.

46 See financial notes

Schwab Total Bond Market Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers are x 1,000 except NAV.




Assets
Investments, at value including $177,839 of securities on loan (cost $1,486,354)		$1,497,902
Collateral invested for securities on loan		182,482
Receivables:
Investments sold		221,676
Interest		9,502
Fund shares sold		2,064
Dividends		106
Income from securities on loan		9
Prepaid expenses	+	6


Total assets		1,913,747


Liabilities
Securities sold short, at value (proceeds $54,866)		54,976
Collateral held for securities on loan		182,482
Payables:
Investments bought		280,544
Investment adviser and administrator fees		29
Transfer agent and shareholder services fees		29
Fund shares redeemed		887
Due to brokers for futures		217
Dividends to shareholders		73
Accrued expenses	+	24


Total liabilities		519,261


Net Assets
Total assets		1,913,747
Total liabilities	−	519,261


Net assets		$1,394,486
Net Assets by Source
Capital received from investors		1,397,039
Distributions in excess of net investment income		(378	)
Net realized capital losses		(14,921	)
Net unrealized capital gains		12,746

Net Asset Value (NAV)


		Shares
Net Assets	¸	Outstanding	=	NAV

$1,394,486		140,734			$9.91

See financial notes 47

Schwab Total Bond Market Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$35,004
Dividends		976
Securities on loan	+	152


Total Investment Income		36,132


Net Realized Gains and Losses
Net realized gains on investments		4,935
Net realized gains on short sales		100
Net realized losses on futures contracts	+	(1,646	)


Net realized gains		3,389


Net Unrealized Gains and Losses
Net unrealized gains on investments		15,345
Net unrealized losses on short sales		(110	)
Net unrealized gains on futures contracts	+	1,018


Net unrealized gains on investments		16,253


Expenses
Investment adviser and administrator fees		1,605
Transfer agent and shareholder service fees		1,598
Portfolio accounting fees		44
Custodian fees		32
Shareholder reports		24
Registration fees		24
Professional fees		17
Overdraft expense		15
Trustees’ fees		8
Other expenses	+	5


Total expenses		3,372
Custody credits	−	1


Net expenses		3,371


Increase in Net Assets from Operations
Total investment income		36,132
Net expenses	−	3,371


Net investment income		32,761
Net realized gains		3,389
Net unrealized gains	+	16,253


Increase in net assets from operations		$52,403

48 See financial notes

Schwab Total Bond Market Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for the current period are unaudited.




Operations


		9/1/06-2/28/07		9/1/05-8/31/06
Net investment income			$32,761		$56,373
Net realized gains or losses			3,389		(14,676	)
Net unrealized gains or losses	+		16,253		(21,059	)


Increase in net assets from operations			52,403		20,638


Distributions Paid
Dividends from Net Investment Income
Dividends from net investment income			33,173		57,742
Dividends from net realized gains	+		—		3,285


Total distributions			$33,173		$61,027

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares sold			20,746			$204,009			26,420			$258,784
Shares reinvested			3,085			30,385			5,787			56,546
Shares redeemed	+		(9,348	)		(91,916	)		(24,280	)		(237,202	)


Net transactions in fund shares			14,483			$142,478			7,927			$78,128

Shares Outstanding and Net Assets

9/1/06-2/28/07

9/1/05-8/31/06

NET ASSETS

Beginning of period

126,251

$1,232,778

118,324

$1,195,039

Total increase

14,483

161,708

7,927

37,739

End of period

140,734

$1,394,486

126,251

$1,232,778

Distributions in excess of net investment income/
Net investment income not yet distributed

($378

)

$34

See financial notes 49

Schwab GNMA Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			3/3/03¹
Investor Shares	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03


Per Share Data ($)

Net asset value at beginning of period		9.44			9.72			9.78			9.69			10.00

Income from investment operations:
Net investment income		0.22			0.41			0.35			0.16			0.06
Net realized and unrealized gains or losses		0.09			(0.25	)		(0.02	)		0.26			(0.17	)

Total income or loss from investment operations		0.31			0.16			0.33			0.42			(0.11	)
Less distributions:
Dividends from net investment income		(0.23	)		(0.44	)		(0.39	)		(0.33	)		(0.20	)

Net asset value at end of period		9.52			9.44			9.72			9.78			9.69

Total return (%)		3.36	²		1.74			3.47			4.39			(1.11	)²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.74	³		0.74			0.74			0.51			—
Gross operating expenses		1.07	³		0.98			1.03			1.11			0.99	³
Net investment income		4.68	³		4.30			3.59			1.89			1.37	³
Portfolio turnover rate		112	²		126			131			199			105	²
Net assets, end of period ($ x 1,000,000)		14			15			17			18			21


	9/1/06-			9/1/05-			9/1/04-			9/1/03-			3/3/03¹
Select Shares	2/28/07*			8/31/06			8/31/05			8/31/04			8/31/03


Per Share Data ($)

Net asset value at beginning of period		9.44			9.72			9.78			9.69			10.00

Income from investment operations:
Net investment income		0.23			0.43			0.37			0.17			0.06
Net realized and unrealized gains or losses		0.10			(0.25	)		(0.02	)		0.26			(0.17	)

Total income or loss from investment operations		0.33			0.18			0.35			0.43			(0.11	)
Less distributions:
Dividends from net investment income		(0.24	)		(0.46	)		(0.41	)		(0.34	)		(0.20	)

Net asset value at end of period		9.53			9.44			9.72			9.78			9.69

Total return (%)		3.57	²		1.93			3.67			4.53			(1.11	)²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.55	³		0.55			0.55			0.37			—
Gross operating expenses		0.92	³		0.84			0.88			0.96			0.83	³
Net investment income		4.89	³		4.49			3.80			2.03			1.37	³
Portfolio turnover rate		112	²		126			131			199			105	²
Net assets, end of period ($ x 1,000,000)		20			23			24			19			28

* Unaudited.

¹ Commencement of operations.

² Not annualized.

³ Annualized.

50 See financial notes

Schwab GNMA Fund

Portfolio Holdings as of February 28, 2007, (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.1%

Mortgage-Backed Securities

32,751

32,717

.1%

Asset-Backed Obligations

.6%

Short-Term Investments

217

.8%

Total Investments

32,996

32,963

.2%

Other Assets and Liabilities

1,083

100

.0%

Net Assets

34,046


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)





Mortgage-Backed Securities 96.1% of net assets




Collateralized Mortgage Obligations 9.2%


Countrywide Alternative Loan Trust
Series 2005-23CB Class A15
5.50%, 07/25/35		1,313		1,307
MASTR Asset Securitization Trust
Series 2003-6 Class 9A1
4.25%, 07/25/33		643		625
TBW Mortgage Backed Pass Through Certificates
Series 2006-2 Class CX
5.50%, 07/25/36		2,093		317
Washington Mutual, Inc.
Series 2003-S12 Class 1A3
4.50%, 11/25/18		450		440
Series 2003-S10 Class A5
5.00%, 10/25/18		435		435

				3,124



U.S. Government Agency Mortgages 86.9%


Freddie Mac
5.00%, 11/01/14		626		624
Ginnie Mae
4.50%, 02/20/30		355		351
5.00%, 02/15/18 to 05/15/35 (a)		4,826		4,739
5.00%, 01/16/32 to 01/15/35		2,369		2,323
5.50%, 11/15/18 to 05/20/35 (a)		7,254		7,258
5.50%, 06/15/33 to 10/15/33		2,073		2,073
6.00%, 04/15/28 to 01/15/35 (a)		6,198		6,303
6.00%, 08/15/34		2,438		2,479
6.50%, 05/15/24 to 10/15/32 (a)		658		677
7.00%, 11/15/23 to 08/15/31 (a)		781		814
7.50%, 07/15/23 to 03/15/28 (a)		305		320
8.00%, 09/15/07 to 08/15/09 (a)		75		77
8.50%, 08/15/27 to 12/15/29 (a)		38		40
9.00%, 09/20/15 to 12/20/30 (a)		1,416		1,515

				29,593

Total Mortgage-Backed Securities (Cost $32,751)				32,717




Asset-Backed Obligations 0.1% of net assets




Variable-Rate Obligations 0.1%


Countrywide Asset-Backed Certificates
Series 2003-2 Class M2
6.97%, 03/26/07 (a)		28		29

Total Asset-Backed Obligations (Cost $28)				29




Short-Term Investments 0.6% of net assets




Repurchase Agreement 0.6%


Fixed Income Clearing Corp. dated 02/28/07, due 03/01/07 at 5.0%, with a maturity value of $207 (fully collateralized by Federal Home Loan Bank with a value of $214.)		207		207


U.S. Treasury Obligations 0.0%


U.S. Treasury Bill
5.01%, 05/10/07		10		10

Total Short-Term Investments (Cost $217)				217


End of Investments.

See financial notes 51

Schwab GNMA Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$979
Dividends	+	4


Total Investment Income		983


Net Realized Gains and Losses
Net realized gains on investments		20
Net realized gains on futures contracts	+	4


Net realized gains on investments		24


Net Unrealized Gains and Losses
Net unrealized gains on investments		331
Net unrealized gains on futures contracts	+	29


Net unrealized gains		360


Expenses
Investment adviser and administrator fees		81
Transfer agent and shareholder service fees:
Investor Shares		18
Select Shares		11
Portfolio accounting fees		22
Professional fees		17
Registration fees		16
Custodian fees		6
Trustees’ fees		4
Shareholder reports	+	1


Total expenses		176
Expense reduction by adviser and Schwab	−	63


Net expenses		113


Increase in Net Assets from Operations
Total investment income		983
Net expenses	−	113


Net investment income		870
Net realized gains		24
Net unrealized gains	+	360


Increase in net assets from operations		$1,254

54 See financial notes

Schwab GNMA Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07		9/1/05-8/31/06
Net investment income			$870		$1,712
Net realized gains or losses			24		(207	)
Net unrealized gains or losses	+		360		(831	)


Increase in net assets from operations			1,254		674


Distributions Paid
Dividends from Net Investment Income
Investor Shares			352		735
Select Shares	+		569		1,112


Total dividends from net investment income			$921		$1,847

Transactions in Fund Shares


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			VALUE			SHARES			VALUE
Shares Sold
Investor Shares			147			$1,393			402			$3,824
Select Shares	+		304			2,888			776			7,334


Total shares sold			451			$4,281			1,178			$11,158


Shares Reinvested
Investor Shares			30			$286			65			$613
Select Shares	+		40			383			85			810


Total shares reinvested			70			$669			150			$1,423


Shares Redeemed
Investor Shares			(245	)		($2,318	)		(628	)		($5,948	)
Select Shares	+		(662	)		(6,287	)		(926	)		(8,769	)


Total shares redeemed			(907	)		($8,605	)		(1,554	)		($14,717	)

Net transactions in fund shares			(386	)		($3,655	)		(226	)		($2,136	)

Shares Outstanding and Net Assets


		9/1/06-2/28/07						9/1/05-8/31/06
		SHARES			NET ASSETS			SHARES			NET ASSETS
Beginning of period			3,960			$37,368			4,186			$40,677
Total decrease	+		(386	)		(3,322	)		(226	)		(3,309	)


End of period			3,574			$34,046			3,960			$37,368


Distributions in excess of net investment income/ Net investment income not yet distributed						($31	)					$20

See financial notes 55

Schwab Inflation Protected Fund^tm

Financial Statements

Financial Highlights


	9/1/06-			3/31/06¹-
Investor Shares	2/28/07*			8/31/06


Per Share Data ($)

Net asset value at beginning of period		10.01			10.00

Income from investment operations:
Net investment income		0.04			0.29
Net realized and unrealized gains		0.09			0.01

Total income from investment operations		0.13			0.30
Less distributions:
Dividends from net investment income		(0.08	)		(0.29	)

Net asset value at end of period		10.06			10.01

Total return (%)		1.28	²		3.07	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.65	³		0.41	³
Gross operating expenses		0.79	³		0.92	³
Net investment income		0.91	³		6.91	³
Portfolio turnover rate		21	²		2	²
Net assets, end of period ($ x 1,000,000)		15			16


	9/1/06-			3/31/06¹-
Select Shares	2/28/07*			8/31/06


Per Share Data ($)

Net asset value at beginning of period		10.01			10.00

Income from investment operations:
Net investment income		0.06			0.30
Net realized and unrealized gains		0.07			0.01

Total income from investment operations		0.13			0.31
Less distributions:
Dividends from net investment income		(0.08	)		(0.30	)

Net asset value at end of period		10.06			10.01

Total return (%)		1.30	²		3.11	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.51	^3,4		0.36	³
Gross operating expenses		0.65	³		0.76	³
Net investment income		0.96	³		7.06	³
Portfolio turnover rate		21	²		2	²
Net assets, end of period ($ x 1,000,000)		62			44

* Unaudited.

¹ Commencement of operations

² Not annualized.

³ Annualized.

⁴ The ratio of net operating expenses would have been 0.50% if overdraft expenses had not been included.

56 See financial notes

Schwab Inflation Protected Fund

Portfolio Holdings as of February 28, 2007 (Unaudited)

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

Cost

Value

Holdings by Category

($ x 1,000)

.6%

U.S. Government Securities

69,597

70,563

.9%

Corporate Bonds

4,464

4,500

.7%

Preferred Stock

510

546

.2%

Short-Term Investments

939

.4%

Total Investments

75,510

76,548

.6%

Other Assets and Liabilities

475

100

.0%

Net Assets

77,023


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)





U.S. Government Securities 91.6% of net assets




U.S. Treasury Obligations 91.6%


U.S. Treasury Inflation Protected Security
3.88%, 01/15/09		1,230		1,273
4.25%, 01/15/10		3,598		3,819
3.50%, 01/15/11		3,478		3,665
2.38%, 04/15/11		7,421		7,496
3.38%, 01/15/12		4,489		4,753
3.00%, 07/15/12		3,367		3,521
1.88%, 07/15/13		4,285		4,220
2.00%, 01/15/14		3,058		3,024
1.88%, 07/15/15		6,743		6,593
2.00%, 01/15/16		4,575		4,509
2.50%, 07/15/16		1,998		2,055
2.38%, 01/15/17		5,203		5,294
2.00%, 01/15/26 (d)		12,302		11,862
3.63%, 04/15/28		1,871		2,315
3.88%, 04/15/29		3,682		4,751
3.38%, 04/15/32		1,137		1,413

Total U.S. Government Securities (Cost $69,597)				70,563




Corporate Bonds 5.9% of net assets




Finance 3.2%


Banking 1.4%
Capital One Capital III
7.69%, 08/15/36		250		283
Citibank Korea, Inc.
4.68%, 06/18/08 (a) (b)		500		506
HUBCO Capital Trust I, Series B
8.98%, 02/01/27 (b)		200		209
Sovereign Capital Trust I
9.00%, 04/01/27 (b)		100		104

				1,102
Finance Company 0.7%
ILFC E-Capital Trust I
5.90%, 12/21/10 (a) (b) (c)		250		254
Residential Capital LLC
7.19%, 04/17/07 (a) (b) (c)		300		300

				554
Insurance 1.1%
Assured Guaranty US Holdings, Inc.
6.40%, 12/15/16 (a) (b)		250		257
Liberty Mutual Group, Inc.
7.00%, 03/15/17 (a) (b) (c)		300		299
Oil Insurance Ltd.
7.56%, 06/30/11 (a) (b) (c)		250		265

				821

				2,477


Industrial 2.2%


Communications 0.5%
Nextel Partners, Inc.
8.13%, 07/01/11 (b)		100		104
Rogers Wireless Communications, Inc.
8.49%, 03/15/07 (a) (b)		200		205
US Unwired, Inc.
10.00%, 06/15/12 (b)		50		55

				364
Consumer Cyclical 1.4%
D.R. Horton, Inc.
8.50%, 04/15/12 (b)		100		104
JC Penney Co., Inc.
8.13%, 04/01/27 (b)		500		515
Toll Corp.
8.25%, 02/01/11 (b)		400		411

				1,030
Energy 0.3%
Transocean, Inc.
5.57%, 03/05/07 (a) (b)		250		250

				1,644


Utilities 0.5%


Natural Gas 0.5%
Energen Corp.
5.71%, 05/15/07 (a) (b)		100		100

See financial notes 57

Schwab Inflation Protected Fund

Portfolio Holdings (Unaudited) continued

Security
Face Amount
Value

Rate, Maturity Date ($ x 1,000) ($ x 1,000)

Enterprise Products Operating LP

8.38%, 08/01/16 (a) (b)
250 279

379

Total Corporate Bonds
(Cost $4,464) 4,500


	Number		Value
Security	of Shares		($ x 1,000)


Preferred Stock 0.7% of net assets


Sovereign Real Estate Investment Trust. (b) (c)		350		546

Total Preferred Stock (Cost $510)				546


Security	Face Amount		Value
Rate, Maturity Date	($ x 1,000)		($ x 1,000)


Short-Term Investments 1.2% of net assets




Repurchase Agreement 1.1%


Fixed Income Clearing Corp. dated 02/28/07, due 03/01/07 at 5%, with a maturity value of $839 (fully collateralized by Federal Home Loan Bank with a value of $864)
5.00%, 03/01/07		839		839


U.S. Treasury Obligations 0.1%


U.S. Treasury Bill
4.96%, 03/22/07		100		100

Total Short-Term Investments (Cost $939)				939


End of Investments.



At 02/28/2007 the tax basis cost of the fund’s investments was $75,510, and the unrealized appreciation and depreciation was $1,039 and ($1), respectively, with a net unrealized appreciation of $1,038.

In addition to the above, the fund held the following at 02/28/07. All numbers are x 1,000 except number of futures contracts.


	Number of			Contract		Unrealized
	Contracts			Value		Gains/Losses


Futures Contracts


10 Years, Short, U.S. Treasury Note, expires 06/20/07		(5	)		543		(5	)
5 Years, Long, U.S. Treasury Note, expires 06/29/07		20			2,119		1

							(4	)





(a)		Variable-rate security.
(b)		Callable security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $1,664 or 2.2% of net assets.
(d)		All or a portion of this security is held as collateral for futures contracts.

58 See financial notes

Schwab Inflation-Protected Fund

Statement of

Assets and Liabilities

As of February 28, 2007; unaudited. All numbers x 1,000 except NAV.




Assets
Investments, at value (cost $75,510)		$76,548
Receivables:
Fund shares sold		543
Interest		399
Due from brokers for futures		4
Prepaid expenses	+	6


Total assets		77,500


Liabilities
Payables:
Investments bought		299
Investment adviser and administrator fees		1
Transfer agent and shareholder services fees		1
Fund shares redeemed	+	176


Total liabilities		477


Net Assets
Total assets		77,500
Total liabilities	−	477


Net assets		$77,023
Net Assets by Source
Capital received from investors		76,271
Distributions in excess of net investment income		(176	)
Net realized capital losses		(106	)
Net unrealized capital gains		1,034

Net Asset Value (NAV) by Share Class

Shares

Share Class

Net Assets

Outstanding

NAV

Investor Shares

$14,725

1,465

$10.06

Select Shares

$62,298

6,191

$10.06


*	Due to rounding, net assets divided by shares outstanding does not equal the net asset value per share.

See financial notes 59

Schwab Inflation-Protected Fund

Statement of

Operations

For September 1, 2006 through February 28, 2007; unaudited. All numbers are x 1,000.




Investment Income
Interest		$491
Dividends	+	2


Total Investment Income		493


Net Realized Gains and Losses
Net realized losses on investments		(53	)
Net realized losses on futures contracts	+	(53	)


Net realized losses		(106	)


Net Unrealized Gains and Losses
Net unrealized gains on investments		852
Net unrealized losses on futures contracts	+	(5	)


Net unrealized gains		847


Expenses
Investment adviser and administrator fees		132
Transfer agent and shareholder service fees:
Investor Shares		19
Select Shares		25
Registration fees		20
Professional fees		15
Trustees’ fees		5
Custodian fees		5
Portfolio accounting fees		2
Overdraft Expense		2
Shareholder Reports	+	1


Total expenses		226
Expense reduction by adviser and Schwab	−	47


Net expenses		179


Increase in Net Assets from Operations
Total investment income		493
Net expenses	−	179


Net investment income		314
Net realized losses		(106	)
Net unrealized gains	+	847


Increase in net assets from operations		$1,055

60 See financial notes

Schwab Inflation-Protected Fund

Statements of

Changes in Net Assets

For the current and prior report periods. All numbers are x 1,000.
Figures for current period are unaudited.




Operations


		9/1/06-2/28/07			*3/31/06-8/31/06**
Net investment income			$314			$1,271
Net realized losses			(106	)		—
Net unrealized gains	+		847			187


Increase in net assets from operations			1,055			1,458


Distributions Paid
Dividends from Net Investment Income
Investor Shares			123			413
Select Shares	+		367			858


Total dividends from net investment income			$490			$1,271

Transactions in Fund Shares


		9/1/06-2/28/07						*3/31/06-8/31/06**
		SHARES			VALUE			SHARES			VALUE
Shares Sold
Investor Shares			254			$2,512			1,632			$16,291
Select Shares	+		2,560			25,373			4,427			44,141


Total shares sold			2,814			$27,885			6,059			$60,432


Shares Reinvested
Investor Shares			10			$97			36			$364
Select Shares	+		9			90			60			594


Total shares reinvested			19			$187			96			$958


Shares Redeemed
Investor Shares			(363	)		($3,591	)		(104	)		($1,038	)
Select Shares	+		(756	)		(7,478	)		(109	)		(1,084	)


Total shares redeemed			(1,119	)		($11,069	)		(213	)		($2,122	)

Net transactions in fund shares			1,714			$17,003			5,942			$59,268

Shares Outstanding and Net Assets

9/1/06-2/28/07

3/31/06*-8/31/06

NET ASSETS

Beginning of period

5,942

$59,455

—

$—

Total increase

1,714

17,568

5,942

59,455

End of period

7,656

$77,023

5,942

$59,455

Distributions in excess of net investment income

($176

)

$—


*	Commencement of operations.

See financial notes 61

Schwab Bond Funds

Financial Notes, unaudited

1. Business Structure of the Funds:



Schwab Investments (organized October 26, 1990) Schwab YieldPlus Fund Schwab Short-Term Bond Market Fund Schwab Total Bond Market Fund Schwab GNMA Fund Schwab Inflation Protected Fund		Schwab 1000 Index Fund Schwab Tax-Free YieldPlus Fund Schwab Short/Intermediate Tax-Free Bond Fund Schwab Long-Term Tax-Free Bond Fund Schwab California Tax-Free YieldPlus Fund Schwab California Short/Intermediate Tax-Free Bond Fund Schwab California Long-Term Tax-Free Bond Fund

The Schwab YieldPlus Fund, Schwab GNMA Fund and Schwab Inflation Protected Fund offer two share classes: Investor Shares and Select Shares^®. Shares of each class represent interests in the same portfolio, but each class has different expenses and investment minimums. Schwab Short-Term Bond Market Fund and Schwab Total Bond Market Fund each offers one share class. The Schwab Inflation Protected Fund commenced operations on March 31, 2006.

Shares are bought and sold at net asset value, or NAV, which is the price for all outstanding shares. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the funds use in the preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America.

(a) Security Valuation:

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

Securities for which no quoted value is available: valued at fair value, as determined in good faith by the fund’s investment adviser using guidelines adopted by the fund’s Board of Trustees. In the determination of a fair valuation the guidelines include, but are not limited, to the use of analytical data, business conditions, recent trades, general and/or specific market trends and any emergency or significant events that would have a material impact on the value of the security.

Swap agreements: swaps may be valued based on a model that constructs curves, such as swap yield curves, based on market data, and that uses the curves to calculate process. Or swaps may be valued based on dealer quotes.

Short-term securities (60 days or less to maturity): valued at amortized cost.

Mutual Funds: Valued at their respective net asset values as determined by those funds in accordance with the 1940 Act.

(b) Portfolio Investments:

Futures Contract: The funds may invest in futures contracts. Futures contracts involve certain risks because they can be very sensitive to market movements.

Schwab Bond Funds

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

difference in trading hours or to market conditions that may reduce the liquidity for a futures contract or its underlying securities.

Swap Agreements: The funds may enter into swap agreements. In an interest rate swap, a fund and a counterparty agree to swap payments that are based on two different rates. The counterparty is typically a large financial institution, and the term of the swap is specified in advance. For example, a fund may agree that for six months it will pay the counterparty the equivalent of the interest on a given amount invested at LIBOR (the London Interbank Offered Rate). In exchange, the counterparty might agree to pay a fund the equivalent of the same amount invested in a certain bond index during this same six months.

The Credit Swap or Credit Default Swap is a bilateral financial contract in which one counterparty (the Protection Buyer) pays a periodic fee, typically expressed in basis points on the notional amount, in return for a Contingent Payment by the Protection Seller following a Credit Event of a Reference Entity. The definitions of a Credit Event and the settlement mechanism used to determine the Contingent Payment are flexible and determined by negotiation between the counterparties at the inception of the transaction.

Swap agreements carry certain risks. Because the net gains or losses stemming from a swap agreement depend on the movements of one rate relative to another, a fund could experience unanticipated losses if one or both rates failed to behave as expected. A fund also could lose money if a counterparty failed to honor the terms of a swap agreement.

TBA: The funds may enter into “TBA” (to be announced) purchase commitments to purchase securities for a fixed price at a future date, typically not exceeding 45 days. TBAs may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date. This risk is in addition to the risk of decline in a fund’s other assets.

Mortgage Dollar Roll: The funds may enter into mortgage dollar roll transactions. In these transactions, a fund sells mortgage-backed securities for delivery in the current month and simultaneously agrees to buy back, on a given date in the future, securities of a similar type, coupon rate and maturity. Dollar roll transactions involve the risk that the market value of the security sold short by the fund may decline below the repurchase price of similar securities.

Short Sale: The funds may also sell securities short (sell securities they do not own). When they do so, the funds also place assets worth at least 100% of the value of the short securities into segregated accounts, as collateral. If the market value of the short securities subsequently falls, the funds can realize a gain by closing the position. However, if the value rises, the funds typically would have to add to their collateral or close out their short position at a loss. The potential for losses associated with short positions is much greater than the original value of the securities sold short and exceed amounts recorded in the Statements of Assets and Liabilities.

If a fund sells securities short, it records the proceeds received as an asset and the obligation to buy back the securities as a liability. At the time a short sale is initiated, the asset and the liability are of equal value and effectively cancel each other out. Subsequently, the fund values the liability side of the transaction according to the market price of the securities sold short, and values the asset side according to the value of the proceeds. When the fund closes out a short position (buys the security), it records as a realized gain or loss. Interest accrued on securities sold short is recorded as an expense on the fund’s records.

Repurchase Agreement: The funds may enter into repurchase agreements. In a repurchase agreement, a fund buys a security from another party (usually a financial institution) with the agreement that it be sold back in the future. The date, price and other conditions are all specified when the agreement is created.

The funds’ repurchase agreements will be fully collateralized by U.S. government securities. All collateral is held by the funds’ custodian (or, with tri-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement.

Schwab Bond Funds

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

fund could end up paying more for the security than its market value at the time of settlement. The funds set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis.

Securities Lending: The funds may loan securities to certain brokers, dealers and other financial institutions that pay the funds negotiated fees. The funds receive cash, letters of credit or U.S. Government securities as collateral on these loans. All of the cash collateral received is reinvested in high quality, short-term investments. The value of the collateral must be at least 102% of the market value of the loaned securities as of the first day of the loan, and at least 100% each day thereafter.

(c) Security Transactions:

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved. Gains and losses from paydowns on mortgage and asset backed securities are recorded as adjustments to interest income.

(d) Investment Income:

(e) Expenses:

(f) Distributions to Shareholders:

(g) Custody Credit:

(h) Accounting Estimates:

The accounting policies described in this report conform with accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.

Each fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund also may keep certain assets in segregated accounts, as required by securities law.

(i) Federal Income Taxes:

Schwab Bond Funds

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(j) Indemnification:

(k) New Accounting Standards:


3.	Affiliates and Affiliated Transactions:

(All dollar amounts are x 1,000)

Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc. (“Schwab”), an affiliate of the investment adviser and is the trust’s shareholder services agent and transfer agent.

For its advisory and administrative services to the fund, the investment adviser is entitled to receive an annual fee payable monthly based on the fund’s average daily net assets described as follows:

Short-Term

Inflation

YieldPlus

Bond

Total Bond

GNMA

Protected

Average daily net assets

Fund

Market Fund

Fund

First $500 million

0.35%

0.30%

0.45%

0.40%

Over $500 million

0.30%

0.22%

0.40%

0.35%

Over $1 billion

n/a

0.375%

0.33%

For its transfer agent and shareholder services, Schwab is entitled to receive an annual fee payable monthly based on each fund’s average daily net assets described as follows:


	Transfer Agent Fees		Shareholder Service Fees

Investor Shares		0.05%		0.20%
Select Shares*		0.05%		0.05%

Schwab Bond Funds

Financial Notes, unaudited (continued)

3. Affiliates and Affiliated Transactions (continued):

Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with certain funds to limit the total expenses charged, excluding interest, taxes and certain non-routine expenses, through November 14, 2007, as follows:

Short-Term

Inflation

YieldPlus

Bond

Total Bond

GNMA

Protected

Fund

Market Fund

Fund

Fund**

Investor Shares

n/a

0.55%

0.74%

0.65%

Select Shares*

n/a

0.55%

0.50%

* Select Shares are only offered by YieldPlus Fund, GNMA Fund and Inflation Protected Fund.

** Schwab and the investment adviser further agreed to limit the expenses of both Investor Shares and Select Shares of Inflation Protected Fund to 0.00% from 3/31/06 (Commencement of operation) to 5/31/06.

The funds may engage in certain transactions involving affiliates. For instance, a fund may let other Schwab Funds buy and sell fund shares, particularly Schwab MarketTrack Portfolios and Schwab Target Funds. As of February 28, 2007, the percentages of Schwab Bond Funds shares owned by other Schwab Funds are:


	Total Bond Market Fund		YieldPlus Fund

MarketTrack Growth Portfolio		8.2%		—%
MarketTrack Balanced Portfolio		14.0%		—%
MarketTrack Conservative Portfolio		13.3%		—%
MarketTrack Growth Portfolio II		0.5%		—%
Target 2010 Fund		2.0%		0%	*
Target 2020 Fund		2.3%		0%	*
Target 2030 Fund		1.2%		0%	*
Target 2040 Fund		0.5%		0%	*
Retirement Income Fund		1.7%		0.1%

* Less than 0.1%

The funds may make 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 officers. As of February 28, 2007, each fund’s total security transactions with other Schwab Funds were as follows:


YieldPlus Fund			$101
Short-Term Bond Market Fund			—
Total Bond Market Fund			—
GNMA Fund			—
Inflation Protected Fund			101

Trustees

Trustees may include people who are officers and/ or directors of the investment adviser or Schwab. Federal securities law limit the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

Schwab Bond Funds

Financial Notes, unaudited (continued)

4. Borrowing:


5.	Purchases and Sales of Investment Securities:

(All dollar amounts are x 1,000)

For the period ended February 28, 2007, purchases and sales of securities (excluding short-term obligations and securities sold short) were as follows:


			Purchases of Long-Term
	Purchases of other		U.S. Government		Total Purchases of
	Long-Term Securities		Security transactions		Long-Term Securities

YieldPlus Fund		$8,151,279		$1,230,899		$9,382,178
Short-Term Bond Market Fund		267,689		235,902		503,591
Total Bond Market Fund		699,304		1,188,151		1,887,455
GNMA Fund		4,840		34,716		39,556
Inflation Protected Fund		3,602		30,547		34,149


			Sales/Maturities of
	Sales/Maturities of		Long-Term U.S. Government		Total Sales/Maturities of
	other Long-Term Securities		Security transactions		Long-Term Securities

YieldPlus Fund		$4,630,231		$813,582		$5,443,813
Short-Term Bond Market Fund		220,640		306,895		527,535
Total Bond Market Fund		635,681		1,160,805		1,796,486
GNMA Fund		1,945		42,645		44,590
Inflation Protected Fund		9,808		6,133		15,941


6.	Federal Income Taxes:

(All dollar amounts are x 1,000)

As of August 31, 2006, the funds had capital loss carry forwards available to offset net capital gains before the expiration dates:


			Short-Term						Inflation
	YieldPlus		Bond		Total Bond		GNMA		Protected
Expire	Fund		Market Fund		Market Fund		Fund		Fund


2009		$—		$—		$—		$—		$—
2010		287		—		—		—		—
2011		47,204		—		—		—		—
2012		7,223		—		—		1,405		—
2013		7,728		—		—		537		—
2014		—		5,711		3,580		185		—


		$62,442		$5,711		$3,580		$2,127		$—

For tax purposes, realized capital losses, occurring after October 31, may be deferred and treated as occurring on the first day of following fiscal year.


			Short-Term						Inflation
	YieldPlus		Bond		Total Bond		GNMA		Protected
	Fund		Market Fund		Market Fund		Fund		Fund


Deferred capital losses		$93		$8,885		$10,060		$276		$—
Capital losses utilized		$3,093		—		—		—		—

Trustees and Officers


Independent Trustees
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term 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. From 1996 to 2001, Vice President for Business Affairs and Chief Financial Officer of Stanford University, and in 2001, Special Advisor to the President of Stanford University.		95	Board 1—Director, Redwood Trust, Inc. Board 2—Director, PMI Group, Inc.


Donald F. Dorward 1931 Trustee (Trustee of Schwab Investments since 1989.)	Chief Executive Officer, Dorward & Associates (corporate management, marketing and communications consulting firm). From 1996-1999, Executive Vice President and Managing Director, Grey Advertising. Prior to 1996, President and Chief Executive Officer, Allen & Dorward Advertising.		57	None.


William A. Hasler 1941 Trustee (Trustee of Schwab Investments since 2000.)	Retired. Dean Emeritus, Haas School of Business, University of California, Berkeley. Until February 2004, Co-Chief Executive Officer, Aphton Corp. (bio-pharmaceuticals). Prior to August 1998, Dean of the Haas School of Business, University of California, Berkeley (higher education).		95	Board 1—Director, Mission West Properties Board 2—Director, TOUSA Board 3—Director, Harris-Stratex Networks Board 4—Director, Genitope Corp. Board 5—Director & Non-Executive Chairman, Solectron Corp. Board 6—Director, Ditech Networks


Robert G. Holmes 1931 Trustee (Trustee of Schwab Investments since 1989.)	Chairman, Chief Executive Officer and Director, Semloh Financial, Inc. (international financial services and investment advisory firm)		57	None.


Gerald B. Smith 1950 Trustee (Trustee of Schwab Investments since 2000.)	Chairman and Chief Executive Officer and founder of Smith Graham & Co. (investment advisors).		57	Board 1—Board of Cooper Industries Board 2—Chairman of the Audit Committee of Oneok Partners LP.


Independent Trustees continued
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term of		Fund Complex
Office, and Length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee		Other Directorships


Donald R. Stephens 1938 Trustee (Trustee of Schwab Investments since 1989.)	Managing Partner, D.R. Stephens & Company (investments). Prior to 1996, Chairman and Chief Executive Officer of North American Trust (real estate investment trust).		57	None.


Michael W. Wilsey 1943 Trustee (Trustee of Schwab Investments since 1989.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).		57	None.


Interested Trustees
Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the Trust; (Term of		Fund Complex
Office, and Length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee		Other Directorships


Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Investments since 1989.)	Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc.; Chairman and Director, 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 and Director, Schwab Holdings, Inc.; Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until May 2003, Co-Chief Executive Officer, The Charles Schwab Corporation.		57	None.


Randall W. Merk²1954 Trustee (Trustee of Schwab Investments since 2005.)	Executive Vice President and President, Schwab Financial Products, Charles Schwab & Co., Inc.; Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC. From September 2002 to July 2004, Chief Executive Officer and President, Charles Schwab Investment Management, Inc. and Executive Vice President, Charles Schwab & Co., Inc. Prior to September 2002, President and Chief Investment Officer, American Century Investment Management, and Director, American Century Companies, Inc.		95	None.


Officers of the Trust
Name, Year of Birth, and Position(s)
with the Trust; (Term of Office, and
Length of Time Served³)		Principal Occupations During the Past Five Years


Evelyn Dilsaver 1955 President and Chief Executive Officer (Officer of Schwab Investments since 2004.)		President, Chief Executive Officer, and Director, Charles Schwab Investment Management, Inc.; Executive Vice President, Charles Schwab & Co., Inc; President and Chief Executive Officer, Laudus Trust and Laudus Variable Insurance Trust; President, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust; President, Mutual Fund Division, UST Advisers, Inc. From June 2003 to July 2004, Senior Vice President, Asset Management Products and Services, Charles Schwab & Co., Inc. Prior to June 2003, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, U.S. Trust, a subsidiary of The Charles Schwab Corporation.


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc.; Chief Financial Officer, Laudus Trust and Laudus Variable Insurance Trust; Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust; Chief Financial Officer, Mutual Fund Division, UST Advisors, Inc. Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited. From December 1999 to November 2004, Sr. Vice President, Financial Reporting, Charles Schwab & Co., Inc.


Kimon Daifotis 1959 Senior Vice President and Chief Investment Officer—Fixed Income (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Investment Officer—Fixed Income, Charles Schwab Investment Management, Inc. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc.


Jeffrey Mortimer 1963 Senior Vice President and Chief Investment Officer—Equities (Officer of Schwab Investments since 2004.)		Senior Vice President and Chief Investment Officer—Equities, Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer, Laudus Trust and Laudus Variable Insurance Trust. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc.


Randall Fillmore 1960 Chief Compliance Officer and AML Officer (Officer of Schwab Investments since 2002.)		Senior Vice President and Chief Compliance Officer, Charles Schwab Investment Management, Inc.; Senior Vice President Charles Schwab & Co., Inc.; Chief Compliance Officer, Laudus Trust and Laudus Variable Insurance Trust; Chief Compliance Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. From 2002 to 2003, Vice President, Charles Schwab & Co., Inc., and Charles Schwab Investment Management, Inc. From 2000 to 2002, Vice President, Internal Audit, Charles Schwab & Co., Inc.


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Investments since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc.; Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc.; Chief Legal Officer, Laudus Trust and Laudus Variable Insurance Trust; Chief Legal Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. Prior to June 1998, Branch Chief in Enforcement at U.S. Securities and Exchange Commission in San Francisco.


Catherine MacGregor 1964 Vice President (Officer of Schwab Investments since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Variable Insurance Trust; since 2006, Chief Counsel, Laudus Trust and Laudus Variable Insurance Trust. Until July 2005, Senior Associate, Paul Hastings Janofsky & Walker LLP.


Cathy Sabo 1964 Vice President (Officer of Schwab Investments since 2005.)		Vice President, Compliance, Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Variable Insurance Trust. Until 2004, Vice President, Client, Sales & Services Controls, Charles Schwab & Co., Inc.


Officers of the Trust continued
Name, Year of Birth, and Position(s)
with the Trust; (Term of Office, and
Length of Time Served³)		Principal Occupations During the Past Five Years


Michael Haydel 1972 Vice President (Officer of Schwab Investments since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President and AML Officer, Laudus Trust and Laudus Variable Insurance Trust. Until March 2004, Director Charles Schwab & Co., Inc.


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 of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010.

²	In addition to their employment with the investment adviser and the distributor, Messrs. Schwab and Merk also own stock of The Charles Schwab Corporation. Mr. Schwab and Mr. Merk are Interested Trustees because they are employees of Schwab and/or the 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 other officer serves at the pleasure of the Board.