Schwab U.S. Small-Cap ETF NCSR Certified annual shareholder report (management investment company)

Schwab U.S. Small-Cap ETF (SCHA) N-CSRCertified annual shareholder report (management investment company)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-22311

Schwab Strategic Trust

(Exact name of registrant as specified in charter)

211 Main St, San Francisco, California 94105

(Address of principal executive offices) (Zip code)

Marie Chandoha
The Charles Schwab Family of Funds
211 Main St, San Francisco, California 94105
(Name and address of agent for service)

Registrant’s telephone number, including area code: (415) 636-7000

Date of fiscal year end: December 31

Date of reporting period: December 31, 2011

Item 1: Report(s) to Shareholders.

Annual report dated December 31, 2011, enclosed.

Schwab Fixed-Income ETFs

Schwab U.S. TIPS ETF^tm

Schwab Short-Term

U.S. Treasury ETF^tm

Schwab Intermediate-Term

U.S. Treasury ETF^tm

Schwab U.S. Aggregate Bond ETF^tm

Go paperless today.

Simplify your financial life

by viewing these documents online.

This wrapper is not part of the shareholder report.

Schwab Fixed-Income ETFs

Annual Report

December 31, 2011

Schwab U.S. TIPS ETF^tm

Schwab Short-Term

U.S. Treasury ETF^tm

Schwab Intermediate-Term

U.S. Treasury ETF^tm

Schwab U.S. Aggregate Bond ETF^tm

This page is intentionally left blank.

In This Report

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor: SEI Investments Distribution Co. (SIDCO).

Performance at a Glance

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


Total Return for the Report Period*


Schwab U.S. TIPS ETF^tm (Ticker Symbol: SCHP)

NAV Return¹			13.38%
Market Price Return¹			13.42%
Barclays Capital U.S. TIPS Index (Series-L)^SM			13.56%
ETF Category: Morningstar Inflation-Protected Bond²			12.67%

Performance Details			pages 6-7



Schwab Short-Term U.S. Treasury ETF^tm (Ticker Symbol: SCHO)

NAV Return¹			1.43%
Market Price Return¹			1.45%
Barclays Capital U.S. 1-3 Year Treasury Bond Index^SM			1.55%
ETF Category: Morningstar Short Government²			1.20%

Performance Details			pages 8-9



Schwab Intermediate-Term U.S. Treasury ETF^tm (Ticker Symbol: SCHR)

NAV Return¹			10.02%
Market Price Return¹			10.36%
Barclays Capital U.S. 3-10 Year Treasury Bond Index^SM			10.17%
ETF Category: Morningstar Intermediate Government²			7.77%

Performance Details			pages 10-11



Schwab U.S. Aggregate Bond ETF^tm** (Ticker Symbol: SCHZ)

NAV Return¹			3.75%
Market Price Return¹			4.15%
Barclays Capital U.S. Aggregate Bond Index^SM			3.83%
ETF Category: Morningstar Intermediate-Term Bond²			2.36%

Performance Details			pages 12-13

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. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares.

Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price (not NAV) and are not individually redeemed by the fund. Brokerage commissions will reduce returns.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. An investment in the fund(s) is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Government backing applies only to the government issued bonds that make up the fund, not the fund itself.

TIPS generally have lower yields than conventional fixed rate bonds and will likely decline in price during periods of deflation, which could result in losses.

Barclays Capital and the names identifying the Barclays’ indices are trade marks or names of Barclays Bank PLC and its affiliates (“Barclays”) and have been licensed for use in connection with the listing and trading of the fund. The fund is not sponsored by, endorsed, sold or promoted by Barclays and Barclays makes no representation regarding the advisability of investing in such fund.


*	The report period covers the 12 months beginning January 1, 2011 through December 31, 2011, except where noted.

**	Total returns are since inception date of 7/14/11. Inception represents the date that the shares began trading in the secondary market. These total returns may differ from those disclosed in the Financial Highlights, as the total returns in the Financial Highlights are calculated from the commencement of operations date which is the first day the NAV was determined.

¹	The fund’s per share net asset value (“NAV”) is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.

²	The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.

2 Schwab Fixed-Income ETFs

From the President

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

Dear Shareholder,

As President and CEO of Charles Schwab Investment Management, Inc., I’d like to take this opportunity to thank you for allowing us to serve your investment needs, and for reading this important communication concerning the performance of the Schwab Fixed-Income ETFs. Although the investment environment has been challenging, recent signs suggest the potential for improvement.

During the year ended December 31, 2011, geopolitical unrest, natural disasters, legislative gridlock in the U.S., S&P’s downgrade of long-term U.S. sovereign debt, the euro zone’s ongoing debt crisis, and a shifting outlook regarding economic prospects resulted in a frequently volatile investment environment. Amid the market turbulence, bonds generated solid returns and money market securities continued to help investors preserve their hard-earned capital. On the equity side, U.S. stocks finished mixed after a year that generally favored defensive shares, dividend-paying stocks, and some of the largest blue-chip names. Record corporate profits and historically appealing levels for financial metrics such as price-to-earnings ratios served as part of the backdrop for the stock market’s performance, as did a fourth-quarter rally. The Dow Jones Industrial Average returned 8.38%, outpacing the 2.11% return of the S&P 500 Index, and the -4.18% loss posted by the small-cap Russell 2000 Index.

Early year optimism that U.S. economic growth would reach self-sustaining levels ultimately met with disappointing results. Inflation-adjusted U.S. economic activity (real GDP) expanded at a lackluster 0.4% annual pace in the first quarter of 2011. Although growth accelerated to a 2.8% annualized rate in the fourth quarter (advance estimate), the year’s overall level of activity represented a deceleration from the 3.0% pace achieved in 2010. As a result, companies remained reluctant to add employees at a consistently meaningful pace and the unemployment rate hovered around 9.0% for most of 2011, before trending lower during the final months of the year.

Attempting to right the unsettled economic landscape, the Federal Reserve (the Fed) implemented a variety of conventional and unconventional monetary operations. On the more conventional side, the Fed kept the federal funds rate target at a historically low 0-0.25%, where rates have held since they were first cut to that level in December 2008. Less conventionally, the Fed completed a second round of

Yields of U.S. Treasury Securities: Effective Yields of Three-Month, Two-Year and 10-Year Treasuries

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.

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 Fixed-Income ETFs 3

From the President continued

Amid the market turbulence, bonds generated solid returns and money market securities continued to help investors preserve their hard-earned capital.

quantitative easing in June, purchasing approximately $600 billion of long-term Treasuries over roughly a 10-month period. This effort was designed to spark a faster rate of expansion by keeping long-term interest rates low. In late September, the Fed began “Operation Twist,” an attempt to further reduce long-term interest rates and help the still-troubled U.S. housing sector, while essentially holding short-term rates steady.

This collective backdrop paved the way for solid returns by fixed-income securities. U.S. Treasuries turned in particularly strong performances, thanks in part to intermittent bouts of investors looking for a safe haven. The U.S. Treasury sector of the Barclays Aggregate U.S. Bond Index returned 9.81% for the 12 months, the U.S. Agency sector returned 4.82%, and the Corporate sector returned 8.15%, while the longer maturities in each of these categories easily outperformed shorter maturities. The rally also pushed down the yield of the 10-year Treasury bond to only 1.89% by the end of 2011, marking the first time in more than three decades that the yield on the benchmark bond finished a calendar year below 2.0%.

Money market instruments continued to offer a compelling means of achieving capital preservation for investors, even while posting near-zero returns. The historically low interest rate environment and periodic flights to safety drove up demand for short-term, highly liquid investments, a process that further reduced the already low yields on money market securities.

Thank you for investing in the Schwab Fixed-Income ETFs. Please review the following pages for details about each fund’s characteristics, investment performance, and objectives.

We encourage you to review your investment portfolio regularly to make sure it meets your current financial plan. For answers to questions you may have or to consult our website for more information, please visit www.schwabetfs.com. We are also happy to hear from you at 1-800-435-4000.

Sincerely,

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

4 Schwab Fixed-Income ETFs

Fund Management



		Matthew Hastings, CFA, a managing director and portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the funds. He joined the firm in 1999 and has worked in fixed-income asset management since 1996.

		Steven Chan, CFA, a portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the funds. He joined the firm in 1996 and has been performing portfolio analytic and operational support since 2004 prior to moving to his current role in 2007.

		Brandon Matsui, CFA, a portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the funds. He joined the firm in June 2010. Prior to joining the firm, he was an associate portfolio manager at a large financial services firm for one year. Prior to that, he was a risk analytics manager of institutional investor accounts at a large investment management firm for four years.

		Steven Hung, a managing director and portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the Schwab U.S. Aggregate Bond ETF. He joined CSIM in 1998 and has worked in fixed-income asset management since 1999.

		Alfonso Portillo, Jr., a managing director and portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the Schwab U.S. Aggregate Bond ETF. He joined CSIM in 2007 and has worked in fixed-income and asset management since 1996.

Schwab Fixed-Income ETFs 5

Schwab U.S. TIPS ETF™

The Schwab U.S. TIPS ETF (the fund) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the Barclays Capital U.S. Treasury Inflation Protected Securities Index, Series-L (the index). To pursue that investment objective, the fund generally seeks to match the duration, yield curve, and other relevant exposures of the index by investing in all of the securities in approximately the same weight as represented by the index.

The fund’s market price return was 13.42% for the 12 months ended December 31, 2011, nearly matching its 13.38% NAV return, and closely aligned with the 13.56% return of the index. (For an explanation of the market price and NAV returns, please refer to footnote 3 on the next page.) Operational and transactional costs along with slight variations between the fund’s allocations and those of the index resulted in only minor differences in returns that were within the investment adviser’s expectations.

Market Performance. Treasury Inflation-Protected Securities (TIPS) generated some of the highest returns within the U.S. bond market in 2011, benefitting from many of the same factors that rewarded regular (nominal) Treasuries. These shared performance factors included intermittent flights to quality sparked by the euro zone’s ongoing and largely unresolved sovereign debt crisis, Standard & Poor’s unexpectedly timed downgrade of its long-term sovereign credit rating on the U.S., and other market-moving events detailed in the President’s Letter in this report. In addition, the Federal Reserve purchased TIPS, as well as nominal Treasuries and other securities, as part of its economic stimulus efforts.

Beyond these developments—which helped to push the real, or inflation-adjusted yields at which TIPS trade lower—TIPS returns were enhanced by the very threat for which they were engineered to fight: rising inflation. As measured by the non-seasonally adjusted consumer price index for all urban consumers, CPI-NSA (the index against which the principal of TIPS is adjusted), inflation rose at a 3.4% annual rate for the 12 months ended November 2011. This surge—which represented the fastest trailing 12-month pace since late 2008—translated into upwardly adjusted principal for TIPS and resulted in a greater income stream that enhanced returns.

The longest maturity TIPS generated the best performances in 2011. Based on the performance of sub-components of the Barclays Capital US Government Inflation-Linked Bond Index, TIPS returns ranged from roughly 4.5% for five-year and shorter maturities, to 24.4% for TIPS maturing in 10 years or more.

As of 12/31/11:

Portfolio Composition % of Investments


By Security Type¹


U.S. Government Obligations		100.0%



Weighted Average Maturity²		9.0 yrs
Weighted Average Effective Duration		8.1 yrs

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

An index is a statistical composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of operational and transaction costs incurred by the fund.

TIPS generally have lower yields than conventional fixed rate bonds and will likely decline in price during periods of deflation, which could result in losses.


¹		This list is not a recommendation of any security by the investment adviser.
²		See Glossary for definition of maturity.

6 Schwab Fixed-Income ETFs

Schwab U.S. TIPS ETF^tm

Performance Summary as of 12/31/11

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, when sold or redeemed, 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.schwabetfs.com.

August 5, 2010 – December 31, 2011
Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			Since Inception*


Fund: Schwab U.S. TIPS ETF^tm (8/5/10)
NAV Return³		13.38	%		10.45	%
Market Price Return³		13.42	%		10.68	%
Barclays Capital U.S. TIPS Index (Series-L)^SM		13.56	%		10.61	%
ETF Category: Morningstar Inflation-Protected Bond		12.67	%		10.73	%

Fund Expense Ratio⁴: 0.14%

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


*		Inception represents the date that the shares began trading in the secondary market.
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. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
³		The fund’s per share net asset value (“NAV”) is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
⁴		As stated in the prospectus.

Schwab Fixed-Income ETFs 7

Schwab Short-Term U.S. Treasury ETF™

The Schwab Short-Term U.S. Treasury ETF (the fund) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the Barclays Capital U.S. 1–3 Year Treasury Bond Index (the index). To pursue that investment objective, the fund seeks to match the duration, yield curve, and other relevant exposures of the index by investing in a representative sample of securities.

The fund’s market price return was 1.45% for the 12 months ended December 31, 2011, nearly matching its 1.43% NAV return, and closely aligned with the 1.55% return of the index. (For an explanation of the market price and NAV returns, please refer to footnote 3 on the next page.) Operational and transactional costs along with slight variations between the fund’s allocations and those of the index resulted in only minor differences in returns that were within the investment adviser’s expectations.

Market Performance. U.S. Treasuries readily outperformed other sectors of the U.S. bond market in 2011, as investors weathered substantial financial market volatility. As detailed in the President’s Letter in this report, the backdrop for those results included the euro zone’s ongoing and largely unresolved debt crisis, U.S. legislative gridlock, Standard & Poor’s unexpectedly timed downgrade of its long-term sovereign credit rating on the U.S., and numerous conventional and unconventional monetary programs enacted by the Federal Reserve (the Fed). The Fed’s announcement of expectations to hold short-term interest rates at near-zero levels until mid-2013—delivered in its post-meeting statement on August 9—was yet another illustrative example of what was anything but a typical year for investors.

Yields on two-year Treasury bonds were around 0.87% in mid-February amid growing optimism that global economic growth would soon become self-sustaining. But those hopes faded as one market-moving event after another pushed risk-averse investors toward traditional safe havens such as U.S. Treasuries. As a result, the yield on the two-year Treasury finished 2011 at 0.25%, down from 0.61% at the end of 2010.

As of 12/31/11:

Portfolio Composition % of Investments


By Security Type¹


U.S. Government Obligations		99.9%
Short-Term Investments & Other Assets²		0.1%



Weighted Average Maturity³		2.0 yrs
Weighted Average Effective Duration		1.9 yrs

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


¹		This list is not a recommendation of any security by the investment adviser.
²		Represents the fund’s position in money market mutual funds registered under the Investment Company Act of 1940, as amended.
³		See Glossary for definition of maturity.

8 Schwab Fixed-Income ETFs

Schwab Short-Term U.S. Treasury ETF^tm

Performance Summary as of 12/31/11

August 5, 2010 – December 31, 2011
Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			Since Inception*


Fund: Schwab Short-Term U.S. Treasury ETF^tm (8/5/10)
NAV Return³		1.43	%		1.15	%
Market Price Return³		1.45	%		1.21	%
Barclays Capital U.S. 1-3 Year Treasury Bond Index^SM		1.55	%		1.26	%
ETF Category: Morningstar Short Government		1.20	%		0.94	%

Fund Expense Ratio⁴: 0.12%


*		Inception represents the date that the shares began trading in the secondary market.
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. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
³		The fund’s per share net asset value (“NAV”) is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
⁴		As stated in the prospectus.

Schwab Fixed-Income ETFs 9

Schwab Intermediate-Term U.S. Treasury ETF™

The Schwab Intermediate-Term U.S. Treasury ETF (the fund) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the Barclays Capital U.S. 3-10 Year Treasury Bond Index (the index). To pursue that investment objective, the fund seeks to match the duration, yield curve, and other relevant exposures of the index by investing in a representative sample of securities.

The fund’s market price return was 10.36% for the 12 months ended December 31, 2011, close to its 10.02% NAV return, and aligned with the 10.17% return of the index. (For an explanation of the market price and NAV returns, please refer to footnote 3 on the next page.) Operational and transactional costs along with slight variations between the fund’s allocations and those of the index resulted in only minor differences in returns that were within the investment adviser’s expectations.

Yields on 10-year Treasury bonds were as high as 3.75% in early February amid growing optimism that global economic growth would soon become self-sustaining. But those hopes faded as one market-moving event after another pushed risk-averse investors toward traditional safe havens such as U.S. Treasuries. As a result, the yield on the 10-year Treasury finished the year at 1.89%, marking the first time in more than three decades that the yield of this security finished a calendar year below 2.0%.

As of 12/31/11:

Portfolio Composition % of Investments


By Security Type¹


U.S. Government Obligations		100.0%



Weighted Average Maturity²		5.9 yrs
Weighted Average Effective Duration		5.3 yrs

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


¹		This list is not a recommendation of any security by the investment adviser.
²		See Glossary for definition of maturity.

10 Schwab Fixed-Income ETFs

Schwab Intermediate-Term U.S. Treasury ETF^tm

Performance Summary as of 12/31/11

August 5, 2010 – December 31, 2011
Performance of a Hypothetical
$10,000 Investment¹

Average Annual Total Returns^1,2


Fund and Inception Date	1 Year			Since Inception*


Fund: Schwab Intermediate-Term U.S. Treasury ETF^tm (8/5/10)
NAV Return³		10.02	%		6.58	%
Market Price Return³		10.36	%		6.76	%
Barclays Capital U.S. 3-10 Year Treasury Bond Index^SM		10.17	%		6.75	%
ETF Category: Morningstar Intermediate Government		7.77	%		5.10	%

Fund Expense Ratio⁴: 0.12%


*		Inception represents the date that the shares began trading in the secondary market.
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. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
³		The fund’s per share net asset value (“NAV”) is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
⁴		As stated in the prospectus.

Schwab Fixed-Income ETFs 11

Schwab U.S. Aggregate Bond ETF™

The Schwab U.S. Aggregate Bond ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Barclays Capital U.S. Aggregate Bond Index (the index). To pursue that investment objective, the fund seeks to match the duration, yield curve, and other relevant exposures of the index by investing in a representative sample of securities.

For the period that began with the fund’s inception on July 14, 2011, and ended December 31, 2011, the fund’s market price return was 4.15%, close to its 3.75% NAV return, and aligned with the 3.83% return of the index. (For an explanation of the market price and NAV returns, please refer to footnote 3 on the next page.) Operational and transactional costs along with slight variations between the fund’s allocations and those of the index resulted in only minor differences in returns that were within the investment adviser’s expectations.

Market Performance. During the shortened report period, U.S. Treasuries outperformed “credit,” or “spread” sectors within the bond market (such as corporate, government agency, and mortgage-backed securities, which typically have higher yields than like-maturity Treasuries), in what was a largely risk-off investment environment. Intermittent headlines painting a grim picture of the euro zone’s financial crisis, U.S. legislative gridlock, and Standard & Poor’s unexpectedly timed downgrade of its long-term sovereign credit rating on the U.S. collectively pushed investors toward high-credit-quality securities.

As discussed in the President’s Letter in this report, long-term U.S. Treasuries enjoyed double-digit returns for all of 2011 in that setting, while the yield on the 10-year Treasury finished at 1.89%, marking the first time in more than three decades that this security’s yield closed out a calendar year under 2.0%.

The combination of coupon income and price appreciation in some sectors drove bond returns. For the July 14, 2011, through December 31, 2011, period covered by this commentary, the Treasury sector of the index returned 6.0%—with the 20+ Year Treasury sector returning a remarkable 27.1%—the investment-grade Corporate sector returned 2.9%, the U.S. Agency sector returned 2.4%, and the Mortgage Backed Securities sector returned 2.7%.

As of 12/31/11:

Portfolio Composition % of Investments


By Security Type¹


U.S. Government and Government Agencies		34.9%
Mortgage-Backed Securities*		27.4%
Corporate Bonds		17.1%
Foreign Securities		3.7%
Commercial Mortgage Backed Securities		1.8%
Short-Term Investments & Other Assets²		14.2%
Municipal Bonds		0.7%
Asset-Backed Obligations		0.2%



Weighted Average Maturity³		6.2 yrs
Weighted Average Effective Duration		4.4 yrs

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


*		The fund may seek to obtain exposure to U.S. agency mortgage pass-through securities, in part or in full, through the use of “to-be-announced” or “TBA” transactions, which are standardized contracts for future delivery of mortgage pass-through securities in which the exact mortgage pools to be delivered are not specified until a few days prior to settlement. These transactions represented approximately 13.7% of total investments on December 31, 2011.
¹		This list is not a recommendation of any security by the investment adviser.
²		Represents the fund’s position in money market mutual funds registered under the Investment Company Act of 1940, as amended.
³		See Glossary for definition of maturity. Does not include short-term investments.

12 Schwab Fixed-Income ETFs

Schwab U.S. Aggregate Bond ETF^tm

Performance Summary as of 12/31/11

July 14, 2011 – December 31, 2011
Performance of a Hypothetical
$10,000 Investment¹

Total Returns^1,2


Fund and Inception Date	Since Inception*


Fund: Schwab U.S. Aggregate Bond ETF^tm (7/14/11)
NAV Return³		3.75	%
Market Price Return³		4.15	%
Barclays Capital U.S. Aggregate Bond Index^SM		3.83	%
ETF Category: Morningstar Intermediate-Term Bond		2.36	%

Fund Expense Ratio⁴: 0.10%

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


*		Inception represents the date that the shares began trading in the secondary market. The fund’s total return may differ from those disclosed in the Financial Highlights, as the total returns in the Financial Highlights are calculated from the commencement of operations date which is the first day the NAV was determined.
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. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
³		The fund’s per share net asset value (“NAV”) is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
⁴		As stated in the prospectus.

Schwab Fixed-Income ETFs 13

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a shareholder of a fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares; and, (2) ongoing costs, including management 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 July 1, 2011 (or, for the Schwab U.S. Aggregate Bond ETF, since commencement of operations on July 13, 2011) and held through December 31, 2011.

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

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

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

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, including any redemption fees or brokerage commissions you may pay when purchasing or redeeming shares of the fund. If these transactional costs were included, your costs would have been higher.


					Ending
					Account Value
	Expense Ratio¹		Beginning		(Net of Expenses)		Expenses Paid
	(Annualized)		Account Value		at 12/31/11		During Period

Schwab U.S. TIPS ETF^tm2
Actual Return		0.14%	$	1,000	$	1,072.80	$	0.73
Hypothetical 5% Return		0.14%	$	1,000	$	1,024.50	$	0.71


Schwab Short-Term U.S. Treasury ETF^tm2
Actual Return		0.12%	$	1,000	$	1,006.40	$	0.61
Hypothetical 5% Return		0.12%	$	1,000	$	1,024.60	$	0.61


Schwab Intermediate-Term U.S. Treasury ETF^tm2
Actual Return		0.12%	$	1,000	$	1,067.30	$	0.63
Hypothetical 5% Return		0.12%	$	1,000	$	1,024.60	$	0.61


Schwab U.S. Aggregate Bond ETF^tm3
Actual Return		0.10%	$	1,000	$	1,037.90	$	0.48
Hypothetical 5% Return		0.10%	$	1,000	$	1,023.09	$	0.48


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the financial highlights.
²		Expenses for each fund are equal to its annualized expense ratio, multiplied by the average account value over the period (from 7/1/11 through 12/31/11), multiplied by 184 days of the period, and divided by 365 days of the fiscal year.
³		Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 172 days of the period (from commencement of operations on 7/13/11 through 12/31/11), and divided by 365 days of the fiscal year.

14 Schwab Fixed-Income ETFs

Schwab U.S. TIPS ETF™

Financial Statements

Financial Highlights


	1/1/11–			8/4/10¹–
	12/31/11			12/31/10


Per-Share Data ($)

Net asset value at beginning of period		50.37			50.00

Income (loss) from investment operations:
Net investment income (loss)		1.56			0.20
Net realized and unrealized gains (losses)		5.09			0.37	²

Total from investment operations		6.65			0.57
Less distributions:
Distributions from net investment income		(1.56	)		(0.20	)

Net asset value at end of period		55.46			50.37

Total return (%)		13.38			1.13	³

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.14			0.14	⁴
Gross operating expenses		0.14			0.14	⁴
Net investment income (loss)		3.03			1.27	⁴
Portfolio turnover rate⁵		26			6	³
Net assets, end of period ($ x 1,000)		288,373			80,591

¹ Commencement of operations.

² The per share amount does not accord with the change in aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.

³ Not annualized.

⁴ Annualized.

⁵ Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

See financial notes 15

Schwab U.S. TIPS ETF

Portfolio Holdings as of December 31, 2011

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

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

For fixed rate obligations, the rate shown is the interest rate (the rate established when the obligation was issued). For variable rate obligations, the rate shown is the rate as of the report date. The maturity date shown for all the securities is the final legal maturity.

Cost

Value

Holdings by Category

($)

.4%

U.S. Government Securities

270,102,010

286,628,753

.0%

Other Investment Company

125,867

.4%

Total Investments

270,227,877

286,754,620

.6%

Other Assets and
Liabilities, Net

1,618,867

100

.0%

Net Assets

288,373,487


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

U.S. Government Securities 99.4% of net assets

U.S. Treasury Obligations 99.4%


U.S. Treasury Inflation Protected Securities
0.63%, 04/15/13		6,023,931		6,128,386
1.88%, 07/15/13		9,870,409		10,328,495
2.00%, 01/15/14		9,531,722		10,091,711
1.25%, 04/15/14		6,444,322		6,751,458
2.00%, 07/15/14		9,166,909		9,875,877
1.63%, 01/15/15		8,048,516		8,674,770
0.50%, 04/15/15		8,811,406		9,213,471
1.88%, 07/15/15		7,779,963		8,579,821
2.00%, 01/15/16		7,553,715		8,438,935
0.13%, 04/15/16		15,653,914		16,329,067
2.50%, 07/15/16		7,622,205		8,815,538
2.38%, 01/15/17		6,610,172		7,670,906
2.63%, 07/15/17		5,665,923		6,745,111
1.63%, 01/15/18		5,983,652		6,816,696
1.38%, 07/15/18		5,901,405		6,682,397
2.13%, 01/15/19		5,505,334		6,545,347
1.88%, 07/15/19		6,238,934		7,351,211
1.38%, 01/15/20		7,568,597		8,616,394
1.25%, 07/15/20		11,627,832		13,152,124
1.13%, 01/15/21		13,368,601		14,910,134
0.63%, 07/15/21		14,121,669		15,114,564
2.38%, 01/15/25		10,401,819		13,229,866
2.00%, 01/15/26		7,558,280		9,286,027
2.38%, 01/15/27		6,068,962		7,837,519
1.75%, 01/15/28		6,075,525		7,299,197
3.63%, 04/15/28		7,110,630		10,584,812
2.50%, 01/15/29		5,873,412		7,835,484
3.88%, 04/15/29		8,473,782		13,199,271
3.38%, 04/15/32		2,372,809		3,652,276
2.13%, 02/15/40		4,546,786		6,099,786
2.13%, 02/15/41		7,970,125		10,772,102

Total U.S. Government Securities
(Cost $270,102,010)				286,628,753



	Number		Value
Security	of Shares		($)

Other Investment Company 0.0% of net assets

Money Market Fund 0.0%
State Street Institutional U.S. Government Money Market Fund		125,867		125,867

Total Other Investment Company
(Cost $125,867)				125,867



End of Investments

At 12/31/11, the tax basis cost of the fund’s investments was $270,305,835 and the unrealized appreciation and depreciation were $16,465,678 and ($16,893), respectively, with a net unrealized appreciation of $16,448,785.

16 See financial notes

Schwab U.S. TIPS ETF

Statement of

Assets and Liabilities

As of December 31, 2011



Assets

Investments, at value (cost $270,227,877)		$286,754,620
Receivables:
Investments sold		5,084,986
Interest	+	1,749,379

Total assets		293,588,985

Liabilities

Payables:
Investments bought		5,212,155
Investment adviser fees	+	3,343

Total liabilities		5,215,498

Net Assets

Total assets		293,588,985
Total liabilities	−	5,215,498

Net assets		$288,373,487

Net Assets by Source
Capital received from investors		272,122,490
Net investment income not yet distributed		11,167
Net realized capital losses		(286,913	)
Net unrealized capital gains		16,526,743

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$288,373,487

5,200,001

$55.46

See financial notes 17

Schwab U.S. TIPS ETF

Statement of

Operations

For January 1, 2011 through December 31, 2011



Investment Income

Interest		$5,981,508

Expenses

Investment adviser fees		263,869

Total expenses	−	263,869

Net investment income		5,717,639

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(255,882	)
Net realized gains on in-kind redemptions	+	852,960

Net realized gains		597,078
Net unrealized gains on investments	+	17,204,187

Net realized and unrealized gains		17,801,265

Net increase in net assets resulting from operations		$23,518,904

18 See financial notes

Schwab U.S. TIPS ETF

Statements of

Changes in Net Assets

For the current and prior report periods



Operations


1/1/11-12/31/11				*8/4/10-12/31/10**
Net investment income		$5,717,639			$239,653
Net realized gains (losses)		597,078			(35,416	)
Net unrealized gains (losses)	+	17,204,187			(677,444	)

Net increase (decrease) in net assets resulting from operations		23,518,904			(473,207	)

Distributions to Shareholders

Distributions from net investment income		($5,706,922	)		($239,780	)

Transactions in Fund Shares

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

VALUE

SHARES

VALUE

Shares Sold

4,000,000

$210,921,785

1,600,001

$81,303,794

Shares Redeemed

(400,000

)

(20,951,087

)

—

Net transactions in fund shares

3,600,000

$189,970,698

1,600,001

$81,303,794

Shares Outstanding and Net Assets

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

NET ASSETS

SHARES

NET ASSETS

Beginning of period

1,600,001

$80,590,807

—

$—

Total increase

3,600,000

207,782,680

1,600,001

80,590,807

End of period

5,200,001

$288,373,487

1,600,001

$80,590,807

Net investment income not yet distributed

$11,167

$—


*		Commencement of operations.

See financial notes 19

Schwab Short-Term U.S. Treasury ETF™

Financial Statements

Financial Highlights


	1/1/11–			8/4/10¹–
	12/31/11			12/31/10


Per-Share Data ($)

Net asset value at beginning of period		49.99			50.00

Income (loss) from investment operations:
Net investment income (loss)		0.21			0.06
Net realized and unrealized gains (losses)		0.51			(0.01	)

Total from investment operations		0.72			0.05
Less distributions:
Distributions from net investment income		(0.21	)		(0.06	)

Net asset value at end of period		50.50			49.99

Total return (%)		1.43			0.11	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.12			0.12	³
Gross operating expenses		0.12			0.12	³
Net investment income (loss)		0.42			0.37	³
Portfolio turnover rate⁴		74			48	²
Net assets, end of period ($ x 1,000)		181,805			49,990

¹ Commencement of operations.

² Not annualized.

³ Annualized.

⁴ Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

20 See financial notes

Schwab Short-Term U.S. Treasury ETF

Portfolio Holdings as of December 31, 2011

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

Cost

Value

Holdings by Category

($)

.6%

U.S. Government Securities

180,559,665

181,080,233

.1%

Other Investment Company

180,243

.7%

Total Investments

180,739,908

181,260,476

.3%

Other Assets and
Liabilities, Net

544,984

100

.0%

Net Assets

181,805,460


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

U.S. Government Securities 99.6% of net assets

U.S. Treasury Obligations 99.6%


U.S. Treasury Notes
1.38%, 01/15/13		3,749,000		3,796,155
0.63%, 01/31/13		2,329,000		2,340,736
2.88%, 01/31/13		1,851,000		1,905,157
1.38%, 02/15/13		5,699,000		5,775,805
3.88%, 02/15/13		1,923,000		2,002,474
1.38%, 03/15/13		5,989,000		6,075,325
1.75%, 04/15/13		7,078,000		7,219,560
3.13%, 04/30/13		2,107,000		2,188,564
1.38%, 05/15/13		4,448,000		4,519,239
3.63%, 05/15/13		3,993,000		4,178,926
1.13%, 06/15/13		7,350,000		7,447,909
1.00%, 07/15/13		3,979,000		4,027,030
0.38%, 07/31/13		2,925,000		2,932,427
3.38%, 07/31/13		4,164,000		4,370,576
0.75%, 08/15/13		6,708,000		6,764,864
3.13%, 08/31/13		4,266,000		4,469,970
3.13%, 09/30/13		6,720,000		7,056,262
2.75%, 10/31/13		4,983,000		5,209,378
0.50%, 11/15/13		5,696,000		5,723,147
2.00%, 11/30/13		6,377,000		6,588,487
0.75%, 12/15/13		4,299,000		4,341,152
1.00%, 01/15/14		4,515,000		4,582,373
1.25%, 02/15/14		6,805,000		6,945,884
4.00%, 02/15/14		2,523,000		2,721,293
1.88%, 02/28/14		1,584,000		1,638,203
1.75%, 03/31/14		2,680,000		2,768,148
1.25%, 04/15/14		4,542,000		4,641,002
1.88%, 04/30/14		6,202,000		6,427,790
2.25%, 05/31/14		4,719,000		4,937,622
0.75%, 06/15/14		6,825,000		6,900,184
2.63%, 06/30/14		1,950,000		2,061,210
0.63%, 07/15/14		2,773,000		2,794,882
4.25%, 08/15/14		2,171,000		2,391,832
2.38%, 08/31/14		2,132,000		2,246,262
0.25%, 09/15/14		7,003,000		6,986,585
2.38%, 09/30/14		5,850,000		6,173,125
0.50%, 10/15/14		6,028,000		6,053,902
2.38%, 10/31/14		5,270,000		5,567,676
2.13%, 11/30/14		6,006,000		6,309,117

Total U.S. Government Securities
(Cost $180,559,665)				181,080,233



	Number		Value
Security	of Shares		($)

Other Investment Company 0.1% of net assets

Money Market Fund 0.1%
State Street Institutional U.S. Government Money Market Fund		180,243		180,243

Total Other Investment Company
(Cost $180,243)				180,243



End of Investments

At 12/31/11, the tax basis cost of the fund’s investments was $180,739,908 and the unrealized appreciation and depreciation were $522,639 and ($2,071), respectively, with a net unrealized appreciation of $520,568.

See financial notes 21

Schwab Short-Term U.S. Treasury ETF

Statement of

Assets and Liabilities

As of December 31, 2011



Assets

Investments, at value (cost $180,739,908)		$181,260,476
Receivables:
Investments sold		15,021,055
Fund shares sold		15,143,998
Interest	+	845,954

Total assets		212,271,483

Liabilities

Payables:
Investments bought		15,268,006
Investment adviser fees		1,886
Fund shares redeemed		15,150,411
Distributions to shareholders	+	45,720

Total liabilities		30,466,023

Net Assets

Total assets		212,271,483
Total liabilities	−	30,466,023

Net assets		$181,805,460

Net Assets by Source
Capital received from investors		181,298,914
Net investment income not yet distributed		41
Net realized capital losses		(14,063	)
Net unrealized capital gains		520,568

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$181,805,460

3,600,001

$50.50

22 See financial notes

Schwab Short-Term U.S. Treasury ETF

Statement of

Operations

For January 1, 2011 through December 31, 2011



Investment Income

Interest		$699,946
Securities on loan	+	50

Total investment income		699,996

Expenses

Investment adviser fees		156,714

Total expenses	−	156,714

Net investment income		543,282

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(7,926	)
Net realized gains on in-kind redemptions	+	759,444

Net realized gains		751,518
Net unrealized gains on investments	+	597,217

Net realized and unrealized gains		1,348,735

Net increase in net assets resulting from operations		$1,892,017

See financial notes 23

Schwab Short-Term U.S. Treasury ETF

Statements of

Changes in Net Assets

For the current and prior report periods



Operations


1/1/11-12/31/11				*8/4/10-12/31/10**
Net investment income		$543,282			$51,345
Net realized gains (losses)		751,518			(6,407	)
Net unrealized gains (losses)	+	597,217			(76,649	)

Net increase (decrease) in net assets resulting from operations		1,892,017			(31,711	)

Distributions to Shareholders

Distributions from net investment income		($543,241	)		($51,380	)

Transactions in Fund Shares

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

VALUE

SHARES

VALUE

Shares Sold

5,300,000

$266,780,358

1,000,001

$50,073,058

Shares Redeemed

(2,700,000

)

(136,313,641

)

—

Net transactions in fund shares

2,600,000

$130,466,717

1,000,001

$50,073,058

Shares Outstanding and Net Assets

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

NET ASSETS

SHARES

NET ASSETS

Beginning of period

1,000,001

$49,989,967

—

$—

Total increase

2,600,000

131,815,493

1,000,001

49,989,967

End of period

3,600,001

$181,805,460

1,000,001

$49,989,967

Net investment income not yet distributed

$41

$—


*		Commencement of operations.

24 See financial notes

Schwab Intermediate-Term U.S. Treasury ETF™

Financial Statements

Financial Highlights


	1/1/11–			8/4/10¹–
	12/31/11			12/31/10


Per-Share Data ($)

Net asset value at beginning of period		49.31			50.00

Income (loss) from investment operations:
Net investment income (loss)		0.82			0.28
Net realized and unrealized gains (losses)		4.08			(0.69	)

Total from investment operations		4.90			(0.41	)
Less distributions:
Distributions from net investment income		(0.82	)		(0.28	)

Net asset value at end of period		53.39			49.31

Total return (%)		10.02			(0.83	)²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.12			0.12	³
Gross operating expenses		0.12			0.12	³
Net investment income (loss)		1.62			1.58	³
Portfolio turnover rate⁴		46			20	²
Net assets, end of period ($ x 1,000)		117,452			34,517

¹ Commencement of operations.

² Not annualized.

³ Annualized.

⁴ Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

See financial notes 25

Schwab Intermediate-Term U.S. Treasury ETF

Portfolio Holdings as of December 31, 2011

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

Cost

Value

Holdings by Category

($)

.9%

U.S. Government Securities

112,760,754

116,198,848

.0%

Other Investment Company

2,454

.9%

Total Investments

112,763,208

116,201,302

.1%

Other Assets and
Liabilities, Net

1,250,436

100

.0%

Net Assets

117,451,738


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

U.S. Government Securities 98.9% of net assets

U.S. Treasury Obligations 98.9%


U.S. Treasury Bond
7.25%, 05/15/16		660,000		846,502
8.50%, 02/15/20		595,000		915,231
8.75%, 05/15/20		616,000		964,666
8.75%, 08/15/20		1,247,000		1,967,045


U.S. Treasury Notes
2.25%, 01/31/15		2,315,000		2,445,763
4.00%, 02/15/15		1,832,000		2,034,951
2.38%, 02/28/15		1,588,000		1,685,141
2.50%, 03/31/15		3,850,000		4,105,663
2.50%, 04/30/15		1,588,000		1,694,942
4.13%, 05/15/15		2,574,000		2,887,907
2.13%, 05/31/15		2,052,000		2,166,625
4.25%, 08/15/15		2,052,000		2,325,655
1.25%, 08/31/15		1,368,000		1,404,552
1.38%, 11/30/15		1,373,000		1,415,048
2.13%, 02/29/16		1,462,000		1,551,319
2.38%, 03/31/16		3,177,000		3,402,618
2.00%, 04/30/16		1,462,000		1,544,009
3.25%, 06/30/16		3,114,000		3,458,729
4.88%, 08/15/16		1,870,000		2,218,142
1.00%, 08/31/16		2,093,000		2,116,220
3.13%, 10/31/16		3,190,000		3,537,662
2.75%, 11/30/16		4,322,000		4,719,421
3.13%, 01/31/17		2,822,000		3,137,271
3.00%, 02/28/17		3,300,000		3,650,110
3.25%, 03/31/17		3,146,000		3,523,029
3.13%, 04/30/17		2,228,000		2,481,783
2.75%, 05/31/17		2,090,000		2,287,735
2.50%, 06/30/17		2,948,000		3,188,678
2.38%, 07/31/17		780,000		838,439
4.75%, 08/15/17		2,860,000		3,444,066
4.25%, 11/15/17		828,000		978,140
2.25%, 11/30/17		770,000		821,614
3.50%, 02/15/18		2,013,000		2,295,293
2.75%, 02/28/18		890,000		975,941
4.00%, 08/15/18		1,003,000		1,181,425
1.38%, 09/30/18		2,068,000		2,079,471
3.75%, 11/15/18		1,902,000		2,213,007
2.75%, 02/15/19		2,803,000		3,070,381
3.13%, 05/15/19		3,378,000		3,788,109
3.63%, 08/15/19		2,917,000		3,378,936
3.38%, 11/15/19		2,210,000		2,519,572
3.63%, 02/15/20		2,056,000		2,384,800
3.50%, 05/15/20		1,486,000		1,709,713
2.63%, 08/15/20		3,630,000		3,915,579
2.63%, 11/15/20		3,050,000		3,283,993
3.63%, 02/15/21		1,694,000		1,967,025
3.13%, 05/15/21		3,661,000		4,088,308
2.13%, 08/15/21		3,173,000		3,254,803
2.00%, 11/15/21		330,000		333,816

Total U.S. Government Securities
(Cost $112,760,754)				116,198,848



	Number		Value
Security	of Shares		($)

Other Investment Company 0.0% of net assets

Money Market Fund 0.0%
State Street Institutional U.S. Government Money Market Fund		2,454		2,454

Total Other Investment Company
(Cost $2,454)				2,454



End of Investments

At 12/31/11, the tax basis cost of the fund’s investments was $112,764,541 and the unrealized appreciation and depreciation were $3,437,109 and ($348), respectively, with a net unrealized appreciation of $3,436,761.

26 See financial notes

Schwab Intermediate-Term U.S. Treasury ETF

Statement of

Assets and Liabilities

As of December 31, 2011



Assets

Investments, at value (cost $112,763,208)		$116,201,302
Receivables:
Investments sold		3,214,094
Interest	+	938,342

Total assets		120,353,738

Liabilities

Payables:
Investments bought		2,759,832
Investment adviser fees		1,148
Distributions to shareholders	+	141,020

Total liabilities		2,902,000

Net Assets

Total assets		120,353,738
Total liabilities	−	2,902,000

Net assets		$117,451,738

Net Assets by Source
Capital received from investors		114,054,364
Net investment income not yet distributed		1,117
Net realized capital losses		(41,837	)
Net unrealized capital gains		3,438,094

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$117,451,738

2,200,001

$53.39

See financial notes 27

Schwab Intermediate-Term U.S. Treasury ETF

Statement of

Operations

For January 1, 2011 through December 31, 2011



Investment Income

Interest		$1,165,387

Expenses

Investment adviser fees		80,459

Total expenses	−	80,459

Net investment income		1,084,928

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(35,235	)
Net realized gains on in-kind redemptions	+	708,200

Net realized gains		672,965
Net unrealized gains on investments	+	4,218,815

Net realized and unrealized gains		4,891,780

Net increase in net assets resulting from operations		$5,976,708

28 See financial notes

Schwab Intermediate-Term U.S. Treasury ETF

Statements of

Changes in Net Assets

For the current and prior report periods



Operations


1/1/11-12/31/11				*8/4/10-12/31/10**
Net investment income		$1,084,928			$140,623
Net realized gains (losses)		672,965			(6,602	)
Net unrealized gains (losses)	+	4,218,815			(780,721	)

Net increase (decrease) in net assets resulting from operations		5,976,708			(646,700	)

Distributions to Shareholders

Distributions from net investment income		($1,083,811	)		($140,650	)

Transactions in Fund Shares

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

VALUE

SHARES

VALUE

Shares Sold

1,900,000

$98,621,115

700,001

$35,304,104

Shares Redeemed

(400,000

)

(20,579,028

)

—

Net transactions in fund shares

1,500,000

$78,042,087

700,001

$35,304,104

Shares Outstanding and Net Assets

1/1/11-12/31/11

8/4/10*-12/31/10

SHARES

NET ASSETS

SHARES

NET ASSETS

Beginning of period

700,001

$34,516,754

—

$—

Total increase

1,500,000

82,934,984

700,001

34,516,754

End of period

2,200,001

$117,451,738

700,001

$34,516,754

Net investment income not yet distributed

$1,117

$—


*		Commencement of operations.

See financial notes 29

Schwab U.S. Aggregate Bond ETF™

Financial Statements

Financial Highlights


	7/13/11¹–
	12/31/11


Per-Share Data ($)

Net asset value at beginning of period		50.00

Income (loss) from investment operations:
Net investment income (loss)		0.37
Net realized and unrealized gains (losses)		1.52

Total from investment operations		1.89
Less distributions:
Distributions from net investment income		(0.39	)

Net asset value at end of period		51.50

Total return (%)		3.79	²

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.10	³
Gross operating expenses		0.10	³
Net investment income (loss)		1.67	³
Portfolio turnover rate^4,5		446	²
Net assets, end of period ($ x 1,000)		164,804

¹ Commencement of operations.

² Not annualized.

³ Annualized.

⁴ Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

⁵ Includes to-be-announced (TBA) transactions. See financial note 2.

30 See financial notes

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings as of December 31, 2011

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


				Cost		Value
Holdings by Category				($)		($)

	0	.2%	Asset-Backed Obligations		312,645		312,018
	2	.0%	Commercial Mortgage Backed Securities		3,315,528		3,351,338
	19	.8%	Corporate Bonds		32,478,480		32,681,428
	4	.3%	Foreign Securities		7,076,266		7,129,622
	31	.7%	Mortgage-Backed Securities		51,834,156		52,261,610
	0	.9%	Municipal Bonds		1,360,645		1,376,718
	40	.4%	U.S. Government and Government Agencies		64,725,833		66,527,100
	0	.3%	Other Investment Company		433,034		433,034
	16	.2%	Short-Term Investment		26,744,746		26,744,721


	115	.8%	Total Investments		188,281,333		190,817,589
	(15	.8)%	Other Assets and Liabilities, Net				(26,013,295	)


	100	.0%	Net Assets				164,804,294


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

Asset-Backed Obligations 0.2% of net assets


Citibank Credit Card Issuance Trust
Series 2005-A2 Class A2
4.85%, 03/10/17 (a)		100,000	��		111,896
Honda Auto Receivables Owner Trust
Series 2011-3 Class A3
0.88%, 09/21/15 (a)		200,000			200,122

Total Asset-Backed Obligations
(Cost $312,645)					312,018




Commercial Mortgage Backed Securities 2.0% of net assets


Banc of America Merrill Lynch Commercial Mortgage, Inc.
Series 2004-6 Class A5 4.81%, 12/10/42 (a)		200,000			214,828
Series 2005-4 Class A5A 4.93%, 07/10/45 (a)		361,000			394,253
Bear Stearns Commercial Mortgage Securities
Series 2005-PW10 Class A4 5.41%, 12/11/40 (a)		400,000			441,969
Series 2005-PWR8 Class A4 4.67%, 06/11/41		200,000			215,862
Credit Suisse Mortgage Capital Certificates
Series 2007-C5 Class A3
5.69%, 09/15/40 (a)(b)		200,000			209,269
Greenwich Capital Commercial Funding Corp.
Series 2007-GG9 Class A4
5.44%, 03/10/39 (a)		315,000			342,246
GS Mortgage Securities Corp. II
Series 2007-GG10 Class A3 5.79%, 08/10/45 (a)(b)		200,000			208,513
Series 2007-GG10 Class A4 5.79%, 08/10/45 (a)(b)		400,000			436,119
JP Morgan Chase Commercial Mortgage Securities Corp.
Series 2007-LD12 Class ASB
5.83%, 02/15/51 (a)(b)		196,601			212,431
Wachovia Bank Commercial Mortgage Trust
Series 2004-C11 Class A5 5.22%, 01/15/41 (a)(b)		220,000			236,072
Series 2006-C23 Class A5 5.42%, 01/15/45 (a)(b)		400,000			439,776

Total Commercial Mortgage Backed Securities
(Cost $3,315,528)					3,351,338




Corporate Bonds 19.8% of net assets

Finance 6.5%


Banking 4.2%
American Express Co.
8.13%, 05/20/19		70,000			90,633
American Express Credit Corp.
5.13%, 08/25/14		125,000			134,373
Bank of America Corp.
4.88%, 01/15/13		600,000			602,580
4.90%, 05/01/13		90,000			90,102
3.63%, 03/17/16		650,000			599,729
7.63%, 06/01/19		102,000			105,639
Barclays Bank PLC
3.90%, 04/07/15		100,000			100,503
Capital One Financial Corp.
2.13%, 07/15/14		100,000			98,778
Citigroup, Inc.
5.50%, 04/11/13		200,000			204,247
4.75%, 05/19/15		100,000			101,354
3.95%, 06/15/16		150,000			149,634
8.50%, 05/22/19		54,000			63,652
5.38%, 08/09/20		150,000			154,505
5.88%, 05/29/37		200,000			200,407
Credit Suisse USA, Inc.
5.38%, 03/02/16		250,000			264,684
Deutsche Bank AG
3.25%, 01/11/16		150,000			152,189
Goldman Sachs Group, Inc.
4.75%, 07/15/13		75,000			76,020
3.63%, 02/07/16		175,000			169,248
5.95%, 01/18/18		240,000			246,123
6.13%, 02/15/33		80,000			77,744
6.25%, 02/01/41		75,000			73,820
HSBC Holdings plc
5.10%, 04/05/21		350,000			372,596

See financial notes 31

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
HSBC USA, Inc.
5.00%, 09/27/20		64,000		60,585
JP Morgan Chase Capital XVIII
6.95%, 08/01/66		75,000		76,031
JPMorgan Chase & Co.
2.05%, 01/24/14		425,000		425,535
2.60%, 01/15/16		273,000		269,260
6.30%, 04/23/19		450,000		510,444
Merrill Lynch & Co., Inc.
6.88%, 04/25/18		100,000		98,718
Morgan Stanley
7.30%, 05/13/19		200,000		203,977
5.50%, 07/28/21		100,000		92,631
7.25%, 04/01/32		160,000		163,589
PNC Funding Corp.
3.63%, 02/08/15		60,000		63,071
Royal Bank of Scotland PLC
6.13%, 01/11/21		125,000		123,527
UBS AG
5.75%, 04/25/18		100,000		103,744
Wachovia Corp.
5.50%, 05/01/13		90,000		94,990
5.75%, 06/15/17		150,000		169,675
Wells Fargo & Co.
4.60%, 04/01/21		175,000		192,284
5.38%, 02/07/35		50,000		53,918
Wells Fargo & Co., Series I
3.75%, 10/01/14		150,000		158,461

				6,989,000


Brokerage 0.1%
BlackRock, Inc.
5.00%, 12/10/19		50,000		54,655
Jefferies Group, Inc.
5.50%, 03/15/16		40,000		37,100
Nomura Holdings, Inc.
5.00%, 03/04/15		100,000		100,770
6.70%, 03/04/20		15,000		15,819

				208,344


Finance Company 0.7%
Capital One Capital III
7.69%, 08/01/66		70,000		70,088
General Electric Capital Corp.
4.80%, 05/01/13		100,000		104,722
5.90%, 05/13/14		230,000		252,025
2.95%, 05/09/16		150,000		154,429
6.00%, 08/07/19		35,000		40,264
6.75%, 03/15/32		150,000		176,155
5.88%, 01/14/38		133,000		141,406
HSBC Finance Corp.
5.00%, 06/30/15		95,000		96,539
6.68%, 01/15/21		25,000		25,904
SLM Corp.
5.00%, 04/15/15		75,000		72,223

				1,133,755


Insurance 1.1%
Allstate Corp.
5.00%, 08/15/14		200,000		215,962
American International Group, Inc.
4.88%, 09/15/16		50,000		47,364
5.85%, 01/16/18		40,000		39,219
6.40%, 12/15/20		160,000		161,749
Berkshire Hathaway Finance Corp.
5.40%, 05/15/18		40,000		46,713
Berkshire Hathaway, Inc.
3.20%, 02/11/15		140,000		148,533
Chubb Corp.
6.00%, 05/11/37		50,000		60,504
Cigna Corp.
5.88%, 03/15/41 (a)		50,000		53,091
Hartford Financial Services Group, Inc.
5.50%, 03/30/20		70,000		71,162
5.95%, 10/15/36		100,000		93,040
MetLife, Inc.
6.82%, 08/15/18		100,000		119,116
Principal Financial Group, Inc.
7.88%, 05/15/14		25,000		27,889
Prudential Financial, Inc.
4.50%, 11/16/21		100,000		101,204
6.63%, 12/01/37		35,000		38,449
5.63%, 05/12/41		75,000		73,997
Travelers Cos., Inc.
5.90%, 06/02/19		60,000		71,493
6.25%, 06/15/37		70,000		87,348
UnitedHealth Group, Inc.
6.00%, 02/15/18		250,000		297,629

				1,754,462


Other Financial 0.0%
CME Group, Inc.
5.75%, 02/15/14		50,000		54,528

				54,528


Real Estate Investment Trust 0.4%
Digital Realty Trust LP
5.25%, 03/15/21		100,000		100,368
Duke Realty LP
7.38%, 02/15/15		175,000		192,320
HCP, Inc.
2.70%, 02/01/14		18,000		17,983
5.38%, 02/01/21 (a)		46,000		48,312
Simon Property Group LP
6.75%, 05/15/14 (a)		25,000		27,546
6.13%, 05/30/18		150,000		172,433
5.65%, 02/01/20 (a)		52,000		59,693

				618,655

				10,758,744

Industrial 11.0%


Basic Industry 1.1%
ArcelorMittal
5.25%, 08/05/20		102,000		92,778
7.00%, 10/15/39		100,000		93,203
Barrick North America Finance LLC
5.70%, 05/30/41		60,000		71,353
BHP Billiton Finance USA Ltd.
1.13%, 11/21/14		100,000		100,306
3.25%, 11/21/21		100,000		103,177
Cliffs Natural Resources, Inc.
4.88%, 04/01/21		150,000		149,735
6.25%, 10/01/40		50,000		49,409
Dow Chemical Co.
8.55%, 05/15/19		300,000		393,064

32 See financial notes

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
EI du Pont de Nemours & Co.
5.25%, 12/15/16		50,000		58,483
International Paper Co.
7.50%, 08/15/21		82,000		101,398
Monsanto Co.
2.75%, 04/15/16		80,000		84,052
Rio Tinto Finance USA Ltd.
8.95%, 05/01/14		85,000		99,462
1.88%, 11/02/15		170,000		171,582
6.50%, 07/15/18		43,000		51,899
Vale Overseas Ltd.
6.88%, 11/10/39		84,000		96,634

				1,716,535


Capital Goods 0.9%
Boeing Capital Corp.
4.70%, 10/27/19		50,000		57,008
Boeing Co.
6.88%, 03/15/39		90,000		128,449
Caterpillar Financial Services Corp.
7.15%, 02/15/19		72,000		92,351
Caterpillar, Inc.
5.70%, 08/15/16		100,000		117,467
Deere & Co.
5.38%, 10/16/29		50,000		63,025
General Electric Co.
5.00%, 02/01/13		40,000		41,695
5.25%, 12/06/17		195,000		224,103
Honeywell International, Inc.
4.25%, 03/01/13		140,000		146,095
4.25%, 03/01/21		200,000		226,246
Lockheed Martin Corp.
4.25%, 11/15/19		36,000		38,356
Raytheon Co.
3.13%, 10/15/20		100,000		100,971
Republic Services, Inc.
3.80%, 05/15/18		200,000		207,461
5.70%, 05/15/41		80,000		92,117

				1,535,344


Communications 2.2%
America Movil S.A.B. de C.V.
6.38%, 03/01/35		40,000		49,057
AT&T Mobility LLC
7.13%, 12/15/31		50,000		64,898
AT&T, Inc.
4.95%, 01/15/13		100,000		104,248
5.50%, 02/01/18		30,000		34,772
4.45%, 05/15/21		125,000		137,573
6.80%, 05/15/36		55,000		69,867
6.30%, 01/15/38		20,000		24,641
5.35%, 09/01/40		104,000		117,441
BellSouth Corp.
6.88%, 10/15/31		100,000		124,987
British Telecommunications plc
5.15%, 01/15/13		45,000		46,602
CBS Corp.
7.88%, 07/30/30		50,000		63,781
Cellco Partnership / Verizon Wireless Capital LLC
5.55%, 02/01/14		90,000		97,830
Comcast Cable Communications Holdings, Inc.
8.38%, 03/15/13		195,000		212,127
Comcast Corp.
5.30%, 01/15/14		50,000		53,904
5.15%, 03/01/20		50,000		56,958
Deutsche Telekom International Finance BV
8.75%, 06/15/30 (b)		100,000		139,859
DIRECTV Holdings LLC
3.50%, 03/01/16		30,000		30,958
5.88%, 10/01/19		25,000		28,185
6.00%, 08/15/40 (a)		75,000		82,107
6.38%, 03/01/41		35,000		40,499
Embarq Corp.
7.08%, 06/01/16		150,000		162,746
France Telecom S.A.
2.75%, 09/14/16		150,000		150,569
NBCUniversal Media LLC
4.38%, 04/01/21		250,000		264,339
News America, Inc.
5.30%, 12/15/14		54,000		58,853
6.90%, 03/01/19		30,000		35,310
6.15%, 03/01/37		50,000		54,837
Qwest Corp.
6.75%, 12/01/21		50,000		54,625
Telefonica Emisiones S.A.U.
2.58%, 04/26/13		20,000		19,522
6.22%, 07/03/17		50,000		51,302
Time Warner Cable, Inc.
5.85%, 05/01/17		50,000		57,007
6.55%, 05/01/37		200,000		228,229
Verizon Communications, Inc.
5.25%, 04/15/13		75,000		79,167
5.50%, 02/15/18		100,000		116,735
8.75%, 11/01/18		75,000		101,442
5.85%, 09/15/35		80,000		95,910
Verizon Global Funding Corp.
7.75%, 12/01/30		100,000		139,666
Vodafone Group PLC
5.00%, 12/16/13		150,000		161,025
5.63%, 02/27/17		50,000		58,123
5.45%, 06/10/19		45,000		52,466
4.38%, 03/16/21		30,000		32,794
6.15%, 02/27/37		50,000		62,439

				3,617,400


Consumer Cyclical 1.2%
CVS Caremark Corp.
4.88%, 09/15/14		75,000		82,068
4.75%, 05/18/20 (a)		108,000		120,643
Daimler Finance North America LLC
6.50%, 11/15/13		30,000		32,690
8.50%, 01/18/31		75,000		105,151
eBay, Inc.
1.63%, 10/15/15		50,000		50,388
Home Depot, Inc.
5.40%, 03/01/16		50,000		57,803
Macy’s Retail Holdings, Inc.
5.90%, 12/01/16		318,000		355,738
Marriott International, Inc.
5.63%, 02/15/13		50,000		52,141
McDonald’s Corp.
5.30%, 03/15/17		150,000		178,534
Target Corp.
3.88%, 07/15/20		25,000		27,670
6.35%, 11/01/32		45,000		57,322

See financial notes 33

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
Time Warner, Inc.
4.75%, 03/29/21		50,000		54,326
7.70%, 05/01/32		61,000		79,815
5.38%, 10/15/41		50,000		54,368
Toyota Motor Credit Corp.
4.25%, 01/11/21		80,000		87,665
Viacom, Inc.
2.50%, 12/15/16		50,000		50,039
Wal-Mart Stores, Inc.
4.25%, 04/15/13		100,000		104,891
6.50%, 08/15/37		200,000		277,293
Walt Disney Co.
1.35%, 08/16/16		150,000		150,583

				1,979,128


Consumer Non-Cyclical 2.9%
Abbott Laboratories
5.88%, 05/15/16		100,000		117,426
Altria Group, Inc.
7.75%, 02/06/14		20,000		22,611
4.75%, 05/05/21		100,000		110,314
10.20%, 02/06/39		37,000		57,751
Amgen, Inc.
6.40%, 02/01/39		200,000		236,642
Anheuser-Busch Cos., Inc.
6.45%, 09/01/37		60,000		80,624
Anheuser-Busch InBev Worldwide, Inc.
5.38%, 11/15/14		193,000		214,592
6.88%, 11/15/19		100,000		125,779
Archer-Daniels-Midland Co.
5.94%, 10/01/32		50,000		62,176
Aristotle Holding, Inc.
2.75%, 11/21/14 (c)		100,000		101,282
6.13%, 11/15/41 (c)		50,000		54,252
AstraZeneca plc
5.40%, 06/01/14		75,000		83,047
Coca-Cola Co.
1.50%, 11/15/15		100,000		101,459
3.15%, 11/15/20		150,000		157,730
Covidien International Finance S.A.
2.80%, 06/15/15		50,000		51,948
Diageo Capital plc
5.75%, 10/23/17		200,000		234,982
Express Scripts, Inc.
3.13%, 05/15/16		130,000		130,853
GlaxoSmithKline Capital, Inc.
5.65%, 05/15/18		100,000		120,526
Johnson & Johnson
1.20%, 05/15/14		100,000		101,603
5.95%, 08/15/37		75,000		103,715
Kimberly-Clark Corp.
5.00%, 08/15/13		45,000		48,027
Kraft Foods, Inc.
4.13%, 02/09/16		50,000		54,338
5.38%, 02/10/20		150,000		173,367
6.50%, 02/09/40		25,000		32,643
Kroger Co.
6.40%, 08/15/17		25,000		29,769
7.50%, 04/01/31		100,000		130,819
Merck & Co., Inc.
4.38%, 02/15/13		35,000		36,514
2.25%, 01/15/16		90,000		93,480
5.85%, 06/30/39		64,000		83,776
Novartis Capital Corp.
4.40%, 04/24/20		100,000		114,183
PepsiCo, Inc.
4.65%, 02/15/13		100,000		104,654
3.75%, 03/01/14		50,000		53,190
5.00%, 06/01/18		100,000		116,337
Pfizer, Inc.
6.20%, 03/15/19		225,000		278,045
Philip Morris International, Inc.
4.88%, 05/16/13		100,000		105,561
6.38%, 05/16/38		50,000		65,420
Procter & Gamble Co.
1.80%, 11/15/15		375,000		387,598
4.70%, 02/15/19		42,000		49,643
5.55%, 03/05/37		36,000		47,995
Quest Diagnostics, Inc.
3.20%, 04/01/16		200,000		207,288
Reynolds American, Inc.
7.63%, 06/01/16		25,000		29,839
Safeway, Inc.
3.95%, 08/15/20		50,000		49,466
Teva Pharmaceutical Finance Co. LLC
6.15%, 02/01/36		75,000		91,467
Thermo Fisher Scientific, Inc.
4.50%, 03/01/21		50,000		55,974
3.60%, 08/15/21 (a)		50,000		52,326

				4,761,031


Energy 1.3%
Anadarko Petroleum Corp.
5.95%, 09/15/16		125,000		141,841
6.38%, 09/15/17		100,000		116,054
8.70%, 03/15/19		68,000		86,937
6.45%, 09/15/36		100,000		114,383
BP Capital Markets PLC
3.63%, 05/08/14		120,000		126,172
4.75%, 03/10/19		100,000		111,243
Conoco, Inc.
6.95%, 04/15/29		64,000		87,495
ConocoPhillips
5.75%, 02/01/19		50,000		60,340
6.50%, 02/01/39		125,000		173,549
Devon Energy Corp.
5.60%, 07/15/41 (a)		100,000		120,702
Encana Corp.
6.50%, 02/01/38		68,000		80,878
Halliburton Co.
7.45%, 09/15/39		60,000		87,001
Marathon Petroleum Corp.
5.13%, 03/01/21		125,000		130,823
Occidental Petroleum Corp.
3.13%, 02/15/22 (a)		100,000		102,802
Shell International Finance BV
3.10%, 06/28/15		100,000		107,303
4.30%, 09/22/19		100,000		116,229
6.38%, 12/15/38		45,000		62,165
Talisman Energy, Inc.
3.75%, 02/01/21		48,000		47,280
Total Capital S.A.
3.00%, 06/24/15		100,000		105,777
Transocean, Inc.
5.25%, 03/15/13		50,000		51,415

34 See financial notes

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
Valero Energy Corp.
6.13%, 02/01/20		150,000		167,118

				2,197,507


Technology 1.0%
Cisco Systems, Inc.
2.90%, 11/17/14		166,000		175,737
5.90%, 02/15/39		50,000		62,835
Hewlett-Packard Co.
1.25%, 09/13/13		150,000		148,147
6.00%, 09/15/41		100,000		111,066
International Business Machines Corp.
7.50%, 06/15/13		274,000		301,091
7.00%, 10/30/25		105,000		144,323
Microsoft Corp.
4.50%, 10/01/40		200,000		226,659
Oracle Corp.
5.75%, 04/15/18		165,000		200,496
3.88%, 07/15/20		180,000		198,644
Xerox Corp.
4.50%, 05/15/21		25,000		25,385

				1,594,383


Transportation 0.4%
Burlington Northern Santa Fe LLC
4.70%, 10/01/19		140,000		157,377
5.05%, 03/01/41 (a)		80,000		89,070
Southwest Airlines Co.
5.13%, 03/01/17		70,000		73,858
Union Pacific Corp.
4.00%, 02/01/21 (a)		180,000		193,493
United Parcel Service, Inc.
6.20%, 01/15/38		125,000		168,754

				682,552

				18,083,880

Utilities 2.3%


Electric 1.6%
Appalachian Power Co.
7.00%, 04/01/38		75,000		101,003
Carolina Power & Light Co.
5.13%, 09/15/13		40,000		42,892
Commonwealth Edison Co.
1.95%, 09/01/16		50,000		49,971
Dominion Resources, Inc.
5.00%, 03/15/13		370,000		388,128
Duke Energy Carolinas LLC
6.00%, 12/01/28		160,000		198,167
Duke Energy Indiana, Inc.
3.75%, 07/15/20		175,000		188,253
Exelon Generation Co. LLC
5.20%, 10/01/19		142,000		156,237
4.00%, 10/01/20 (a)		150,000		154,482
FirstEnergy Corp.
7.38%, 11/15/31		64,000		78,929
Florida Power & Light Co.
5.95%, 02/01/38		50,000		65,802
Florida Power Corp.
6.40%, 06/15/38		91,000		123,885
Georgia Power Co.
4.75%, 09/01/40		200,000		222,185
Midamerican Energy Holdings Co.
5.75%, 04/01/18		100,000		115,554
6.13%, 04/01/36		200,000		239,682
National Rural Utilities Cooperative Finance Corp.
5.45%, 02/01/18		100,000		115,323
Pacific Gas & Electric Co.
6.05%, 03/01/34		142,000		176,355
Public Service Electric & Gas Co.
0.85%, 08/15/14		100,000		100,033
Virginia Electric and Power Co.
6.00%, 05/15/37		139,000		178,087

				2,694,968


Natural Gas 0.7%
Energy Transfer Partners LP
6.70%, 07/01/18		50,000		55,545
Enterprise Products Operating LLC
9.75%, 01/31/14		134,000		154,863
6.30%, 09/15/17		45,000		52,765
5.20%, 09/01/20		70,000		77,616
4.05%, 02/15/22		100,000		102,097
Kinder Morgan Energy Partners LP
6.85%, 02/15/20		50,000		58,885
5.80%, 03/15/35		350,000		361,816
National Grid PLC
6.30%, 08/01/16		75,000		86,151
TransCanada PipeLines Ltd.
3.80%, 10/01/20		56,000		60,549
7.63%, 01/15/39		50,000		72,362
Williams Partners LP
6.30%, 04/15/40		50,000		61,187

				1,143,836

				3,838,804

Total Corporate Bonds
(Cost $32,478,480)				32,681,428




Foreign Securities 4.3% of net assets

Foreign Agencies 1.1%


Canada 0.1%
Export Development Canada
2.25%, 05/28/15		100,000		104,967
1.25%, 10/27/15		60,000		60,943

				165,910


Cayman Islands 0.1%
Petrobras International Finance Co.
6.88%, 01/20/40		180,000		210,273

				210,273


Germany 0.5%
Kreditanstalt fuer Wiederaufbau
1.88%, 01/14/13 (d)		250,000		253,145
2.63%, 02/16/16 (d)		175,000		184,170
4.88%, 01/17/17 (d)		50,000		58,333
4.50%, 07/16/18 (d)		375,000		436,591

				932,239


Republic of Korea 0.4%
Export-Import Bank of Korea
5.88%, 01/14/15		300,000		323,242

See financial notes 35

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
4.38%, 09/15/21		300,000		298,028

				621,270

				1,929,692

Foreign Local Government 0.5%


Canada 0.5%
Hydro Quebec
8.05%, 07/07/24		60,000		89,423
Province of British Columbia
4.30%, 05/30/13		109,000		114,721
Province of Ontario
2.95%, 02/05/15		460,000		484,788
Province of Quebec
7.50%, 09/15/29		68,000		102,032

				790,964

Sovereign 1.1%


Brazil 0.4%
Brazilian Government International Bond
6.00%, 01/17/17		250,000		292,500
8.25%, 01/20/34		150,000		226,875
7.13%, 01/20/37		100,000		138,500

				657,875


Canada 0.2%
Canada Government International Bond
2.38%, 09/10/14		250,000		262,704

				262,704


Mexico 0.3%
Mexico Government International Bond
5.88%, 02/17/14		84,000		91,140
8.00%, 09/24/22		200,000		280,500
6.05%, 01/11/40		150,000		184,125

				555,765


Peru 0.2%
Peruvian Government International Bond
7.13%, 03/30/19		250,000		315,625

				315,625

				1,791,969

Supranational 1.6%
Asian Development Bank
2.63%, 02/09/15		400,000		422,072
European Bank for Reconstruction & Development
1.63%, 09/03/15		100,000		101,636
European Investment Bank
1.63%, 03/15/13		425,000		427,513
4.63%, 10/20/15		400,000		443,702
2.50%, 05/16/16		80,000		82,808
Inter-American Development Bank
4.50%, 09/15/14		300,000		328,921
5.13%, 09/13/16		100,000		118,049
International Bank for Reconstruction & Development
3.63%, 05/21/13		50,000		52,304
0.50%, 11/26/13		200,000		199,852
2.13%, 03/15/16		200,000		210,216
1.00%, 09/15/16		125,000		125,606
International Finance Corp.
2.13%, 11/17/17		100,000		104,318

				2,616,997

Total Foreign Securities
(Cost $7,076,266)				7,129,622




Mortgage-Backed Securities 31.7% of net assets

U.S. Government Agency Mortgages 31.7%
Fannie Mae
4.50%, 09/01/24 to 05/01/41 (a)		2,401,241		2,558,693
3.50%, 10/01/25 (a)		184,741		193,421
4.00%, 01/01/26 to 01/01/41 (a)		2,414,428		2,542,080
5.50%, 05/01/38 to 07/01/38 (a)		2,844,149		3,099,779
6.00%, 05/01/38 (a)		1,073,181		1,187,089
5.00%, 04/01/39 to 05/01/40 (a)		1,585,884		1,714,816
3.63%, 03/01/40 (a)(b)		376,913		394,683
3.36%, 04/01/40 (a)(b)		237,257		248,440
3.60%, 05/01/40 (a)(b)		92,734		97,132
Fannie Mae TBA
3.50%, 01/01/27 to 02/01/42 (a)		1,700,000		1,767,500
4.00%, 01/01/27 to 02/01/42 (a)		2,100,000		2,208,688
4.50%, 01/01/27 to 02/01/42 (a)		3,100,000		3,299,625
5.00%, 01/01/27 to 02/01/42 (a)		2,300,000		2,481,859
5.50%, 01/01/27 to 02/01/42 (a)		500,000		542,734
6.00%, 01/01/27 to 02/01/42 (a)		1,000,000		1,098,578
6.50%, 01/01/42 (a)		800,000		890,250
7.00%, 01/01/42 (a)		100,000		114,281
Freddie Mac
6.00%, 10/01/37 (a)		774,882		852,398
6.50%, 11/01/37 (a)		396,762		445,256
4.50%, 02/01/39 to 06/01/39 (a)		1,059,792		1,124,303
5.00%, 02/01/39 (a)		832,523		895,641
5.50%, 02/01/40 (a)		1,148,704		1,248,179
4.00%, 11/01/40 (a)		579,644		609,003
3.00%, 05/01/41 (a)(b)		98,554		102,936
Freddie Mac TBA
3.50%, 01/01/27 to 01/01/42 (a)		1,100,000		1,145,359
4.00%, 01/01/27 to 02/01/42 (a)		2,100,000		2,203,156
4.50%, 01/01/27 to 02/01/42 (a)		2,900,000		3,073,359
5.00%, 01/01/27 to 02/01/42 (a)		2,100,000		2,255,142
5.50%, 01/01/27 to 01/01/42 (a)		900,000		975,954
6.00%, 01/01/42 (a)		400,000		439,313
Ginnie Mae
5.50%, 04/15/38 (a)		199,148		223,730
4.50%, 07/15/39 to 11/20/41 (a)		3,402,467		3,719,445
5.00%, 10/15/39 to 05/15/40 (a)		2,218,354		2,458,858
3.00%, 10/20/40 to 10/20/41 (a)(b)		877,014		915,272
4.00%, 07/20/41 to 11/20/41 (a)		1,379,633		1,478,626
Ginnie Mae TBA
3.50%, 01/01/42 (a)		200,000		208,937
4.00%, 01/01/42 to 02/01/42 (a)		500,000		535,953
4.50%, 01/01/42 to 02/01/42 (a)		400,000		435,594
5.00%, 01/01/42 to 02/01/42 (a)		300,000		332,157
5.50%, 01/01/42 to 02/01/42 (a)		900,000		1,010,000
6.00%, 01/01/42 (a)		700,000		792,422

36 See financial notes

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


Security	Face		Value
Rate, Maturity Date	Amount ($)		($)
6.50%, 01/01/42 to 02/01/42 (a)		300,000		340,969

Total Mortgage-Backed Securities
(Cost $51,834,156)				52,261,610




Municipal Bonds 0.9% of net assets

Fixed-Rate Obligations 0.9%
California
GO (Build America Bonds) Series 2009
7.55%, 04/01/39		250,000		305,930
Commonwealth of Massachusetts
GO (Build America Bonds) Series 2009
5.46%, 12/01/39		100,000		118,374
Los Angeles USD
GO (Build America Bonds) Series 2010
6.76%, 07/01/34		100,000		124,204
Metropolitan Government of Nashville & Davidson County
GO (Build America Bonds) Series 2010
5.71%, 07/01/34		20,000		23,474
New Jersey State Turnpike Authority
RB (Build America Bonds) Series 2010A
7.10%, 01/01/41		100,000		137,006
New York City Municipal Water Finance Authority
Water System RB (Build America Bonds) Series 2009
5.75%, 06/15/41		200,000		243,942
Yale University
Medium-Term Notes Series B
2.90%, 10/15/14		400,000		423,788

Total Municipal Bonds
(Cost $1,360,645)				1,376,718




U.S. Government and Government Agencies 40.4% of net assets

U.S. Government Agency Securities 5.8%
Fannie Mae
0.38%, 12/28/12		2,060,000		2,064,878
0.50%, 08/09/13		338,000		338,933
1.63%, 10/26/15	��	1,820,000		1,866,876
7.13%, 01/15/30		320,000		493,339
Federal Home Loan Bank
0.88%, 12/27/13		340,000		343,094
5.00%, 11/17/17		810,000		973,345
Freddie Mac
0.75%, 03/28/13		1,138,000		1,144,693
0.38%, 11/27/13		1,028,000		1,026,825
1.00%, 07/30/14		909,000		919,331
6.75%, 03/15/31		209,000		315,158

				9,486,472

U.S. Treasury Obligations 34.6%
U.S. Treasury Bonds
9.13%, 05/15/18		1,584,000		2,363,502
8.00%, 11/15/21		1,293,000		2,021,121
6.00%, 02/15/26		484,000		697,641
6.75%, 08/15/26		540,000		833,962
6.13%, 08/15/29		284,000		430,349
5.38%, 02/15/31		343,000		488,936
3.50%, 02/15/39		1,388,000		1,561,500
4.38%, 11/15/39		1,604,000		2,082,695
4.63%, 02/15/40		1,025,000		1,382,629
4.25%, 11/15/40		369,000		470,648
3.75%, 08/15/41		747,000		878,659
U.S. Treasury Notes
1.38%, 03/15/13		1,881,000		1,908,113
1.38%, 05/15/13		2,129,000		2,163,098
0.50%, 05/31/13		754,000		757,299
3.50%, 05/31/13		1,216,000		1,272,240
0.38%, 07/31/13		1,776,000		1,780,509
0.75%, 09/15/13		981,000		989,545
0.25%, 10/31/13		1,714,000		1,714,536
0.25%, 11/30/13		2,284,000		2,284,626
1.00%, 01/15/14		586,000		594,744
1.75%, 01/31/14		1,600,000		1,649,125
2.38%, 02/28/15		776,000		823,469
2.50%, 03/31/15		2,000,000		2,132,812
2.50%, 04/30/15		1,142,000		1,218,907
2.13%, 05/31/15		1,022,000		1,079,089
1.88%, 06/30/15		1,022,000		1,071,024
1.75%, 07/31/15		2,043,000		2,132,700
2.13%, 02/29/16		848,000		899,808
2.25%, 03/31/16		1,594,000		1,700,474
2.00%, 04/30/16		1,593,000		1,682,358
2.63%, 04/30/16		848,000		917,629
3.25%, 05/31/16		752,000		834,544
3.00%, 09/30/16		1,511,000		1,665,995
0.88%, 12/31/16		880,000		881,719
1.88%, 09/30/17		1,133,000		1,184,781
1.88%, 10/31/17		940,000		982,961
2.88%, 03/31/18		1,047,000		1,156,444
2.63%, 04/30/18		2,629,000		2,862,942
1.75%, 10/31/18		704,000		724,680
3.38%, 11/15/19		1,440,000		1,641,712
2.63%, 08/15/20		657,000		708,687
2.63%, 11/15/20		695,000		748,320
3.63%, 02/15/21		343,000		398,282
2.13%, 08/15/21		1,234,000		1,265,814

				57,040,628

Total U.S. Government and Government Agencies
(Cost $64,725,833)				66,527,100



	Number		Value
Security	of Shares		($)

Other Investment Company 0.3% of net assets

Money Market Fund 0.3%
State Street Institutional U.S. Government Money Market Fund		433,034		433,034

Total Other Investment Company
(Cost $433,034)				433,034

See financial notes 37

Schwab U.S. Aggregate Bond ETF

Portfolio Holdings continued


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

Short-Term Investments 16.2% of net assets

U.S. Government Agency Securities 10.8%
Fannie Mae
0.07%, 01/17/12 (e)		4,000,000		3,999,947
0.02%, 02/22/12 (e)		2,200,000		2,199,952
0.03%, 03/08/12 (e)		4,000,000		3,999,928
Federal Home Loan Bank
0.03%, 03/02/12 (e)		2,000,000		1,999,968
0.02%, 03/07/12 (e)		1,546,000		1,545,972
Freddie Mac
0.03%, 03/05/12 (e)		4,000,000		3,999,932

				17,745,699

U.S. Treasury Obligations 5.4%
U.S. Treasury Bills
0.02%, 05/10/12 (e)		5,000,000		4,999,510
0.02%, 05/17/12 (e)		4,000,000		3,999,512

				8,999,022

Total Short-Term Investments
(Cost $26,744,746)				26,744,721



End of Investments

At 12/31/11, the tax basis cost of the fund’s investments was $188,290,663 and the unrealized appreciation and depreciation were $2,896,427 and ($369,501), respectively, with a net unrealized appreciation $2,526,926.


(a)		The effective maturity may be shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called.
(b)		Variable-rate security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. 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 $155,534 or 0.1% of net assets.
(d)		Guaranteed by the Republic of Germany.
(e)		The rate shown is the purchase yield.


GO —		General obligation
RB —		Revenue bond
USD —		Unified school district

38 See financial notes

Schwab U.S. Aggregate Bond ETF

Statement of

Assets and Liabilities

As of December 31, 2011



Assets

Investments, at value (cost $188,281,333)		$190,817,589
Cash		216,937
Receivables:
Investments sold		5,204,623
Interest	+	1,014,145

Total assets		197,253,294

Liabilities

Payables:
Investments bought		32,168,566
Investment adviser fees		1,394
Distributions to shareholders	+	279,040

Total liabilities		32,449,000

Net Assets

Total assets		197,253,294
Total liabilities	−	32,449,000

Net assets		$164,804,294

Net Assets by Source
Capital received from investors		162,349,508
Net investment income not yet distributed		6,799
Net realized capital losses		(88,269	)
Net unrealized capital gains		2,536,256

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$164,804,294

3,200,001

$51.50

See financial notes 39

Schwab U.S. Aggregate Bond ETF

Statement of

Operations

For July 13, 2011* through December 31, 2011



Investment Income

Interest		$878,229

Expenses

Investment adviser fees		49,501

Total expenses	−	49,501

Net investment income		828,728

Realized and Unrealized Gains (Losses)

Net realized losses on investments		(17,818	)
Net unrealized gains on investments	+	2,536,256

Net realized and unrealized gains		2,518,438

Net increase in net assets resulting from operations		$3,347,166


*		Commencement of operations.

40 See financial notes

Schwab U.S. Aggregate Bond ETF

Statements of

Changes in Net Assets

For the current period only. Because the fund commenced operations on
July 13, 2011, it has no prior report period.


*7/13/11-12/31/11**
Net investment income		$828,728
Net realized losses		(17,818	)
Net unrealized gains	+	2,536,256

Net increase in net assets resulting from operations		3,347,166

Distributions to Shareholders

Distributions from net investment income		($892,380	)

Transactions in Fund Shares


		*7/13/11-12/31/11**
			SHARES	VALUE
Shares Sold			3,200,001	$162,349,508
Shares Redeemed	+		—	—

Net transactions in fund shares			3,200,001	$162,349,508

Shares Outstanding and Net Assets

		*7/13/11-12/31/11**
			SHARES	NET ASSETS
Beginning of period			—	$—
Total increase	+		3,200,001	164,804,294

End of period			3,200,001	$164,804,294


Net investment income not yet distributed				$6,799


*		Commencement of operations.

See financial notes 41

Schwab Fixed-Income ETFs

Financial Notes

1. Business Structure of the Funds

Each of the funds discussed in this report is a series of Schwab Strategic Trust (the “trust”), a no-load, open-end management investment company. The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust, including the funds discussed in this report, which are highlighted:



Schwab Strategic Trust (organized January 27, 2009)		Schwab U.S. Large-Cap Value ETF
Schwab U.S. TIPS ETF		Schwab U.S. Mid-Cap ETF
Schwab U.S. Short-Term U.S. Treasury ETF		Schwab U.S. Small-Cap ETF
Schwab U.S. Intermediate-Term U.S. Treasury ETF		Schwab International Equity ETF
Schwab U.S. Aggregate Bond ETF		Schwab International Small-Cap Equity ETF
Schwab U.S. Broad Market ETF		Schwab Emerging Markets Equity ETF
Schwab U.S. Large-Cap ETF		Schwab U.S. REIT ETF
Schwab U.S. Large-Cap Growth ETF

The funds issue and redeem shares at their NAV only in large blocks of shares, typically 100,000 shares or more (“Creation Units”). These transactions are usually in exchange for a basket of securities and an amount of cash. As a practical matter, only institutions purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the fund are not redeemable securities.

Fund shares may be bought and sold in the secondary market at market prices. Although it is expected that the market price of the shares of each fund will approximate its NAV, there may be times when the market price and the NAV vary significantly.

Schwab U.S. TIPS ETF, Schwab Short-Term U.S. Treasury ETF and Schwab Intermediate-Term U.S. Treasury ETF commenced operations on August 4, 2010. Schwab U.S. Aggregate Bond ETF commenced operations on July 13, 2011.

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

2. Significant Accounting Policies:

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

(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 the bid or 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: The Board of Trustees has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when a security is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Board of Trustees regularly reviews fair value determinations made by the funds pursuant to the procedures.

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

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

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to

Schwab Fixed-Income ETFs

Financial Notes (continued)

2. Significant Accounting Policies (continued):

the valuation (Level 3 measurements). If the funds determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

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


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The funds do not adjust the quoted price for such investments, even in situations where the funds hold a large position and a sale could reasonably impact the quoted prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the funds’ own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the funds’ investments as of December 31, 2011:

Schwab U.S. TIPS ETF

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total*

U.S. Government Securities(a)

$—

$286,628,753

$—

$286,628,753

Other Investment Company(a)

125,867

—

125,867

Total

$125,867

$286,628,753

$—

$286,754,620

Schwab Short-Term U.S. Treasury ETF

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total*

U.S. Government Securities(a)

$—

$181,080,233

$��

$181,080,233

Other Investment Company(a)

180,243

—

180,243

Total

$180,243

$181,080,233

$—

$181,260,476

Schwab Fixed-Income ETFs

Financial Notes (continued)

2. Significant Accounting Policies (continued):

Schwab Intermediate-Term U.S. Treasury ETF

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total*

U.S. Government Securities(a)

$—

$116,198,848

$—

$116,198,848

Other Investment Company(a)

2,454

—

2,454

Total

$2,454

$116,198,848

$—

$116,201,302

Schwab U.S. Aggregate Bond ETF


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

Corporate Bonds(a)		$—		$32,681,428		$—		$32,681,428
Mortgage-Backed Securities(a)		—		52,261,610		—		52,261,610
Foreign Securities(a)		—		7,129,622		—		7,129,622
Commercial Mortgage Backed Securities(a)		—		3,351,338		—		3,351,338
Municipal Bonds(a)		—		1,376,718		—		1,376,718
Asset-Backed Obligations(a)		—		312,018		—		312,018
U.S. Government and Government Agencies(a)		—		66,527,100		—		66,527,100
Other Investment Company(a)		433,034		—		—		433,034
Short-Term Investments(a)		—		26,744,721		—		26,744,721

Total		$433,034		$190,384,555		$—		$190,817,589


*		The fund had no Other Financial Instruments.
(a)		As categorized in Portfolio Holdings.

The funds’ policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no significant transfers between Level 1, Level 2 and Level 3 for the period ended December 31, 2011.

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

Securities Lending: Under the Securities Lending Program, a fund (the “lender”) may make short-term loans of its securities to another party (the “borrower”) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign government, or letters of credit issued by a bank. The initial collateral received by a fund is required to have a value of at least 102% of the current market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan and is marked to market daily. The cash collateral of securities loaned is invested in money market portfolios registered under Rule 2a-7 of the 1940 Act. Securities lending income, as disclosed in a fund’s Statement of Operations, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent which are subject to adjustments pursuant to the securities lending agreement.

If applicable, the value of the securities on loan as of December 31, 2011 and the value of the related collateral are disclosed in the Portfolio Holdings and the Statement of Assets and Liabilities.

Inflation-Protected Securities: The Schwab U.S. TIPS ETF invests in inflation-protected securities. Inflation-protected securities are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. Over the life of an inflation-protected security, interest is paid based on a principal value, which is adjusted for inflation. Any increase or decrease in the

Schwab Fixed-Income ETFs

Financial Notes (continued)

2. Significant Accounting Policies (continued):

principal amount of an inflation-protected security will be included as interest income on the Statement of Operations, even though investors do not receive their principal until maturity.

TBA Commitments: The Schwab U.S. Aggregate Bond ETF may enter into “TBA” (to be announced) commitments to purchase or sell securities for a fixed price at a future date. Payments or proceeds of TBA commitments are not delivered until the contractual settlement date. Unsettled TBA commitments are valued at the current market value generally according to the procedures describe above in Security Valuation section. The Fund’s use of TBA commitments may cause the fund to experience higher portfolio turnover and higher transaction costs.

(c) Security Transactions:

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

(d) Investment Income:

Interest income is recorded as it accrues. If a fund buys a debt security at a discount (less than 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 are charged directly to the fund. The investment adviser will pay the operating expenses of the funds, excluding interest expenses, taxes, any brokerage expenses, and extraordinary or non-routine expenses.

(f) Distributions to Shareholders:

The funds declare distributions from net investment income monthly and net realized capital gains, if any, once a year.

(g) 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 and these differences may be material.

(h) Federal Income Taxes:

The funds intend to meet federal income and excise tax requirements for regulated investment companies. 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.

(i) Indemnification:

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

(j) New Accounting Pronouncements:

In April 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Updates (“ASU”) related to accounting for repurchase agreements and similar agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The ASU modifies the criteria for determining effective control of transferred assets and as

Schwab Fixed-Income ETFs

Financial Notes (continued)

2. Significant Accounting Policies (continued):

a result certain agreements may now be accounted for as secured borrowings. The ASU is effective prospectively for new and existing transfers that are modified in the first interim or annual period beginning on or after December 15, 2011.

In May 2011, the FASB issued an update to requirements relating to “Fair Value Measurement which represents amendments to achieve common fair value measurement and disclosure requirements in US GAAP and IFRS.” The amendments include (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements relate to (i) measuring the fair value of the financial instruments that are managed within a portfolio; (ii) application of premium and discount in a fair value measurement; and (iii) additional disclosures about fair value measurements. The update is effective for annual periods beginning after December 15, 2011 with early adoption prohibited.

At this time, management is evaluating the implications of these changes and their impact on the financial statements.

3. Risk Factors:

Investing in the funds may involve certain risks, as described in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

Bond markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of the investments in a fund will fluctuate, which means that the shareholder could lose money.

The funds are not actively managed. Therefore, the funds follow the securities included in the index during upturns as well as downturns. Because of their indexing strategy, the funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the funds’ expenses, the funds’ performance is normally below that of their respective indices.

Interest rates will rise and fall over time. During periods when interest rates are low, the funds’ yields and total returns also may be low. The longer a fund’s duration, the more sensitive to interest rate movements its share price is likely to be.

The funds are subject to the risk that a decline in the credit quality of a portfolio investment could cause the funds to lose money or underperform. The funds could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations.

The value of inflation-protected securities, including TIPS, generally will fluctuate in response to changes in “real” interest rates. Real interest rates represent nominal (or stated) interest rates reduced by the expected impact of inflation. The value of an inflation-protected security generally decreases when real interest rates rise and generally increase when real interest rates fall. In addition, the principal value of an inflation-protected security is periodically adjusted up or down along with the rate of inflation. If the measure of inflation falls, the principal value of the inflation-protected security will be adjusted downwards, and consequently, the interest payable on the security will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed by the United States Treasury in the case of TIPS. For securities that do not provide a similar guarantee, the adjusted principal value of the security to be repaid at maturity is subject to credit risk.

To the extent a fund uses sampling techniques it may not fully replicate the index and may hold securities not included in the index. As a result, the fund is subject to the risk that the investment adviser’s investment management strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. Because the funds may use a sampling approach, they may not track the return of the index as well as they would if the funds purchased all of the securities in the index.

A fund’s returns may not match the return of its index due to differences between the fund’s securities and those in the index. Tracking error also may be attributable to a fund’s inability to match the securities’ weighting to its index or due to regulatory, operational or liquidity constraints. A fund also incurs fees and expenses while the index does not, which may result in tracking error.

A particular investment may be difficult to purchase or sell. The funds may be unable to sell illiquid securities at an advantageous time or price.

Schwab Fixed-Income ETFs

Financial Notes (continued)

3. Risk Factors (continued):

Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.

Fund shares may be bought and sold in the secondary market at market prices. Although it is expected that the market price of the shares of the fund will approximate the fund’s NAV, there may be times when the market price and the NAV vary significantly. Investors may pay more than NAV when they buy shares of the fund in the secondary market, and may receive less than NAV when they sell those shares in the secondary market.

Although fund shares are listed on national securities exchanges, there can be no assurance that an active trading market for fund shares will develop or be maintained. If an active market is not maintained, investors may find it difficult to buy or sell fund shares.

Schwab U.S. Aggregate Bond ETF may invest in U.S.-registered, dollar-denominated bonds of non-U.S. corporations, governments, agencies and supra-national entities to the extent such bonds are included in the fund’s index. The fund’s investments in bonds of non-U.S. issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be heightened in connection with bonds issued by non-U.S. corporations and entities in emerging markets.

With respect to the Schwab U.S. Aggregate Bond ETF, certain of the mortgage-backed securities in which the fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds. Small movements in interest rates — both increases and decreases — may quickly and significantly affect the value of certain mortgage-backed securities. Transactions in mortgage pass-through securities primarily occur through TBA transactions, as described in the fund’s prospectus. Default by or bankruptcy of a counterparty to a TBA Transaction would expose the fund to possible losses because of an adverse market action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA Transaction.

An investment in a fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

Please refer to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.

4. Affiliates and Affiliated Transactions:

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

For its advisory services to the following funds, CSIM is entitled to receive an annual fee payable monthly, based on a percentage of the fund’s average daily net assets as follows:

Schwab

Short-Term

Intermediate-Term

U.S. Aggregate

U.S. TIPS ETF

U.S. Treasury ETF

Bond ETF

0.14%

0.12%

0.10%

The investment adviser will pay the operating expenses of the funds, excluding interest expenses, taxes, any brokerage expenses, and extraordinary or non-routine expenses.

The funds may engage in direct transactions with certain other Schwab ETFs 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. During the period ended December 31, 2011, there were no security transactions with other Schwab ETFs.

Schwab Fixed-Income ETFs

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other Schwab Funds including Schwab ETFs. 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. The funds had no interfund borrowing or lending activity during the period.

5. Other Service Providers:

SEI Investments Distribution Co. (the “Distributor”) is the principal underwriter and distributor of shares of the funds.

State Street Bank and Trust Company serves as the funds’ transfer agent. As part of these services, the transfer agent maintains records pertaining to the sale, redemption and transfer of the funds’ shares.

State Street Bank and Trust Company also serves as custodian and accountant for the funds. The custodian is responsible for the daily safekeeping of securities and cash held or sold by the funds. The funds’ accountant maintains all books and records related to the funds’ transactions.

6. Board of Trustees:

Trustees may include people who are officers and/or directors of the investment adviser or its affiliate. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees.

7. Borrowing from Banks:

The funds have access to custodian overdraft facilities and to an uncommitted line of credit of $100 million with State Street Bank and Trust Company. The funds pay interest on the amounts they borrow at rates that are negotiated periodically.

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

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended December 31, 2011, purchases and sales/maturities of securities (excluding in-kind transactions and short-term obligations) were as follows:


	Purchases of Long-Term
	U.S. Government		Purchases of Other		Total Purchases of
	Securities Transactions		Long-Term Securities		Long-Term Securities

Schwab U.S. TIPS ETF		$48,503,005		$—		$48,503,005
Schwab Short-Term U.S. Treasury ETF		143,903,234		—		143,903,234
Schwab Intermediate-Term U.S. Treasury ETF		31,313,935		—		31,313,935
Schwab U.S. Aggregate Bond ETF		573,531,826		53,089,588		626,621,414


	Sales/Maturities of Long-Term
	Long-Term U.S. Government		Sales/Maturities of		Total Sales/Maturities of
	Securities Transactions		Other Long-Term Securities		Long-Term Securities

Schwab U.S. TIPS ETF		$51,556,263		$—		$51,556,263
Schwab Short-Term U.S. Treasury ETF		96,466,228		—		96,466,228
Schwab Intermediate-Term U.S. Treasury ETF		30,769,490		—		30,769,490
Schwab U.S. Aggregate Bond ETF		480,579,179		8,586,811		489,165,990

Schwab Fixed-Income ETFs

Financial Notes (continued)

9. In-Kind Transactions:

The consideration for the purchase of Creation Units of a fund generally consists of the in-kind deposit of a designated portfolio of securities, which constitutes an optimized representation of the securities involved in a relevant fund’s underlying index, and an amount of cash. Investors purchasing and redeeming Creation Units may pay a purchase transaction fee and a redemption transaction fee directly to State Street Bank and Trust Company, the administrator, to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units.

The in-kind transactions for the period ended December 31, 2011 were as follows:


	In-kind Purchases of Securities		In-kind Sales of Securities

Schwab U.S. TIPS ETF		$209,581,858		$20,478,832
Schwab Short-Term U.S. Treasury ETF		218,204,788		134,143,493
Schwab Intermediate-Term U.S. Treasury ETF		97,696,259		20,401,854
Schwab U.S. Aggregate Bond ETF		24,150,415		—

For period ended December 31, 2011, certain funds realized net capital gains or losses resulting from in-kind redemptions of large blocks of shares or multiples thereof (“Creation Units”). Because such gains or losses are not taxable to the funds and are not distributed to existing fund shareholders, the gains or losses are reclassified from accumulated net realized gains or losses to paid-in-capital at the end of the funds’ tax year. These reclassifications have no effect on net assets or net asset values per share. The net realized in-kind gains or losses for the period ended December 31, 2011 are disclosed in the funds’ Statements of Operations.

10. Federal Income Taxes

As of December 31, 2011, the components of distributable earnings on a tax-basis were as follows.


				Schwab			Schwab			Schwab
	Schwab			Short-Term			Intermediate-Term			U.S. Aggregate
	U.S. TIPS ETF			U.S. Treasury ETF			U.S. Treasury ETF			Bond ETF

Undistributed ordinary income		$21,451			$41			$1,117			$6,799
Undistributed long-term capital gains		—			—			—			—
Unrealized appreciation		16,465,678			522,639			3,437,109			2,896,427
Unrealized depreciation		(16,893	)		(2,071	)		(348	)		(369,501	)

Net unrealized appreciation/(depreciation)		16,448,785			520,568			3,436,761			2,526,926

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

For tax purposes, realized net capital losses incurred after October 31 may be deferred and treated as occurring on the first day of the following year. For the year ended December 31, 2011, the funds had no capital losses deferred and no capital losses utilized.

Capital loss carryforwards may be used to offset future realized capital gains, for federal income tax purposes. As of December 31, 2011, the following funds had capital loss carryforwards available to offset future net capital gains before the expiration date:

Schwab

Short-Term

Intermediate-Term

U.S. Aggregate

Expiration Date

U.S. TIPS ETF

U.S. Treasury ETF

Bond ETF

December 31, 2018

$39

$366

$2,072

$—

No expiration

219,200

13,697

38,432

78,939

Total

$219,239

$14,063

$40,504

$78,939

Schwab Fixed-Income ETFs

Financial Notes (continued)

10. Federal Income Taxes (continued):

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


			Schwab		Schwab		Schwab
	Schwab		Short-Term		Intermediate-Term		U.S. Aggregate
	U.S. TIPS ETF		U.S. Treasury ETF		U.S. Treasury ETF		Bond ETF

Current period distributions
Ordinary Income		$5,706,922		$543,241		$1,083,811		$892,380
Long-term capital gains		—		—		—		—

Prior period distributions
Ordinary Income		239,780		51,380		140,650		—
Long-term capital gains		—		—		—		—

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

Permanent book and tax basis differences may result in reclassifications between capital accounts and other accounts as required. The adjustments have no impact on net assets or the results of operations. As of December 31, 2011, the funds made the following reclassifications:


				Schwab			Schwab			Schwab
	Schwab			Short-Term			Intermediate-Term			U.S. Aggregate
	U.S. TIPS ETF			U.S. Treasury ETF			U.S. Treasury ETF			Bond ETF

Capital shares		$848,125			$759,174			$708,200			$—
Undistributed net investment income		450			—			—			70,451
Net realized gains and losses		(848,575	)		(759,174	)		(708,200	)		(70,451	)

Management has reviewed the funds’ tax positions taken for its open income tax period ended December 31, 2011, and has determined that no provision for income tax is required in the funds’ financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2011, the funds did not incur any interest or penalties.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (“the Act”) was signed by the President. The Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs.

Certain of the enacted provisions include:

Post-enactment capital losses may now be carried forward indefinitely, but must retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. The Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.

Finally, the Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.

Except for the simplification provisions related to RIC qualification, the Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.

Schwab Fixed-Income ETFs

Financial Notes (continued)

10. Federal Income Taxes (continued):

For the period ended December 31, 2011, the following funds reclassified non-taxable security gains and losses realized on the in-kind redemption of Creation Units (Note 9) as an increase or decrease to paid in capital in the Statements of Assets and Liabilities as follows:

Schwab

Short-Term

Intermediate-Term

U.S. Aggregate

U.S. TIPS ETF

U.S. Treasury ETF

Bond ETF

Net realized gains and losses reclassified to paid in capital

$852,960

$759,444

$708,200

$—

11. Subsequent Events:

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

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of:

Schwab U.S. TIPS ETF

Schwab Short-Term U.S. Treasury ETF

Schwab Intermediate-Term U.S. Treasury ETF

Schwab U.S. Aggregate Bond ETF

In our opinion, the accompanying statements of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab U.S. TIPS ETF, Schwab Short-Term U.S. Treasury ETF, Schwab Intermediate-Term U.S. Treasury ETF and Schwab U.S. Aggregate Bond ETF (four of the portfolios constituting Schwab Strategic Trust, hereafter referred to as the “Funds”) at December 31, 2011, and the results of their operations, the changes in their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 15, 2012

Other Information (unaudited)

Frequency Distribution of Discounts and Premiums

Bid/Offer Midpoint vs. NAV as of December 31, 2011

The following charts are provided to show the frequency at which the daily market price on the NYSE Arca, Inc. (“Exchange”), the secondary market for shares of each fund, was at a discount or premium to such fund’s daily NAV. The market price of each fund generally is determined using the midpoint between the highest bid and lowest offer on the Exchange, as of the time that the fund’s NAV is calculated (referred to as the “Bid/Offer Midpoint”). Each fund’s Bid/Offer Midpoint may at times be at, above or below its NAV. The discount or premium is the percentage difference between the NAV and the Bid/Offer Midpoint of a Fund. A discount is the amount that a fund is trading below the reported NAV, expressed as a percentage of NAV. A premium is the amount that a fund is trading above the reported NAV, expressed as a percentage of NAV. The NAV of each Fund will fluctuate with changes in the market value of its portfolio holdings. The Bid/Offer Midpoint of each fund will fluctuate in accordance with changes in its NAV, as well as supply and demand.


	Bid/Offer Midpoint Above NAV						Bid/Offer Midpoint Below NAV
	50-99		100-199		>200		50-99		100-199		>200
	Basis Points		Basis Points		Basis Points		Basis Points		Basis Points		Basis Points

Schwab U.S. TIPS ETF
Commencement of trading (8/5/10) through 12/31/11		3		—		—		1		—		—

Schwab Short-Term U.S. Treasury ETF
Commencement of trading (8/5/10) through 12/31/11		—		—		—		—		—		—

Schwab Intermediate-Term U.S. Treasury ETF
Commencement of trading (8/5/10) through 12/31/11		—		—		—		1		—		—

Schwab U.S. Aggregate Bond ETF
Commencement of trading (7/14/11) through 12/31/11		4		—		—		—		—		—

Investment Advisory Agreement Approval

The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

Initial Approval of Investment Advisory Agreement for Schwab U.S. Aggregate Bond ETF

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) called and held a meeting on May 16, 2011, in part, for the purpose of considering whether to appoint Charles Schwab Investment Management, Inc. (“CSIM”) as investment adviser to Schwab U.S. Aggregate Bond ETF (the “Fund”) under the investment advisory agreement between Schwab Strategic Trust (the “Trust”) and CSIM (the “Agreement”). In preparation for the meeting, the Board requested and reviewed a variety of materials provided by CSIM with respect to the services to be provided to the Fund under the Agreement. The Independent Trustees met in executive session outside the presence of fund management and participated in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees approved the Agreement with respect to the Fund. The

Board’s approval was based on consideration and evaluation of a variety of specific factors discussed at this meeting, including:


1.	the nature, extent and quality of the services to be provided to the Fund under the Agreement, including the resources of CSIM and its affiliates to be dedicated to the Fund;

2.	CSIM’s investment performance in managing other Fund having relevant investment objectives and strategies;

3.	the Fund’s estimated expenses and how those expenses compared to those of certain other comparable exchange-traded funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to management of other funds, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale may be realized as the Fund grows and whether fee levels in the Agreement relating to the Fund reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services to be provided by CSIM to the Fund and the resources of CSIM and its affiliates will dedicate to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered the fact that Schwab’s extensive branch network, Internet access, investment and research tools, telephone services, and array of account features may be expected to benefit the Fund and its shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services to be provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund supported approval of the Agreement with respect to the Fund.

Performance. With regard to Fund performance, since the Fund had not commenced operations and therefore did not have any performance of its own, the Board considered performance of other funds having comparable investment objectives in determining whether to approve the Agreement. The Trustees also considered both risk and shareholder risk expectations for the Fund and the appropriateness of the benchmark that would be used to compare the performance of the Fund. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of CSIM supported approval of the Agreement with respect to the Fund.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s estimated net operating expense ratio in comparison to those of other comparable

exchange-traded funds. The Board evaluated the Fund’s unitary fee through review of comparative information with respect to fees paid by similar exchange-traded funds tracking equity indexes. Following such evaluation, the

Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported approval of the Agreement with respect to the Fund.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates directly or indirectly. The Trustees also considered any other benefits derived by CSIM from its relationship with the Fund, such as whether, by virtue of its management of

the Fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the expected profitability of CSIM, albeit uncertain, is reasonable and supported approval of the Agreement with respect to the Fund.

Economies of Scale. Recognizing that the Fund had not yet commenced operations and had no assets, the Trustees considered the possible development of any economies of scale and whether those could be expected to be passed along to the Fund’s shareholders through various efficiencies that may result from increases in the Fund’s assets. The Board determined that such economies of scale will be shared by way of the relatively low advisory fee and unitary fee structure of the Fund, although the Board will continue to monitor fees as the Fund grows in size and assess whether breakpoints may be warranted. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund may be expected to obtain reasonable benefit from economies of scale if such economies develop.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, unanimously approved the Agreement as it relates to the Fund and concluded that the compensation under the Agreement relating to the Fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Approval of Renewal Investment Advisory Agreement for Schwab U.S. TIPS ETF, Schwab Short-Term U.S. Treasury ETF, Schwab Intermediate-Term U.S. Treasury ETF and Schwab U.S. Aggregate Bond ETF

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds a meeting each year that is dedicated, in part, to considering whether to renew the investment advisory agreement between Schwab Strategic Trust (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab U.S. TIPS ETF, Schwab Short-Term U.S. Treasury ETF, Schwab Intermediate-Term U.S. Treasury ETF and Schwab U.S. Aggregate Bond ETF (the “Funds”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the Funds at a meeting held on August 4, 2011, and approved the renewal of the Agreement with respect to the Funds for an additional one year term. The Board’s approval of the Agreement with respect to the Funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the Funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the Funds;

2.	each Fund’s investment performance and how it compared to that of certain other comparable exchange-traded funds;

3.	each Fund’s expenses and how those expenses compared to those of certain other comparable exchange-traded funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Funds, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Funds and the resources of CSIM and its affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the Funds and their shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that the vast majority of the Funds’ shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and

quality of services provided by CSIM to the Funds and the resources of CSIM and its affiliates dedicated to the funds supported renewal of the Agreement with respect to the Funds.

Fund Performance. The Board considered each Fund’s performance in determining whether to renew the Agreement with respect to the Fund. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other exchange-traded funds and appropriate indices/benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the Funds, the Trustees considered both risk and shareholder risk expectations for such Fund and the appropriateness of the benchmark used to compare the performance of the Fund. The Trustees further considered the level of Fund performance in the context of its review of Fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the Agreement with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each Fund’s operating expense ratio, in comparison to those of other comparable exchange-traded funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees also considered fees charged by CSIM to mutual funds that it manages. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Funds.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses. The Trustees also considered any other benefits derived by CSIM from its relationship with the Funds, such as whether, by virtue of its management of the Funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the Funds under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Funds by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Funds.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Funds’ shareholders by way of the relatively low advisory fee and unitary fee structure of the Funds. Based on this evaluation, and in consideration of the previously negotiated commitments made by CSIM and Schwab as discussed above, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Funds and concluded that the compensation under the Agreement with respect to the Funds is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Trustees and Officers

The tables below give information about the trustees and officers for the Schwab Strategic Trust which includes the funds covered in this report. The “Fund Complex” includes the Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 87 funds.

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

Independent Trustees


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

Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009.)	Retired. Consulting Managing Director, PIMCO (investment adviser) (January 2003 – December 2008); Managing Director, PIMCO (February 1999 – December 2002); President and Trustee, PIMCO Funds and PIMCO Variable Insurance Trust (investments) (February 1994 – May 2005).	17	Independent Director and Chairman of Corporate Governance/Nominating Committee, PS Business Parks, Inc. (2005 – present). Trustee and member of Nominating/Corporate Governance Committee, PIMCO Funds (investment company consisting of 84 portfolios) (1997 – 2008). Trustee and member of Nominating/Corporate Governance Committee, PIMCO Variable Insurance Trust (investment company consisting of 16 portfolios) (1997 – 2008). Director and Chairman, PIMCO Strategic Global Government Fund (investment company consisting of one portfolio) (1997 – 2008). Director, PCM Fund, Inc. (investment company consisting of one portfolio) (1997 – 2008).


Mark A. Goldfarb 1952 Trustee (Trustee of Schwab Strategic Trust since 2009.)	Founder and Managing Director, SS&G, Inc. (certified public accountants and advisers) (May 1987 – present).	17	None


Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009.)	Advisor (June 2008 – present) and Chief Executive Officer (January 1998 – January 2008), Asset International, Inc. (publisher of financial services information); Managing Partner and Co-Founder, Kudu Advisors, LLC (financial services) (June 2008 – present).	17	None

Interested Trustees


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

Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Strategic Trust since 2009.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	87	None

Officers of the Trust


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

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Strategic Trust since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010); Co-Head and Senior Portfolio Manager, Wells Capital Management (June 1999 – March 2007).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Strategic Trust since 2009.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present); Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007).


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


Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Strategic Trust since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008); Managing Director, Head of Market-Based Strategies State Street Research (August 2003 – Jan. 2005).

Officers of the Trust (continued)


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

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


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


Michael Haydel 1972 Vice President (Officer of Schwab Strategic Trust since 2009.)		Senior Vice President (March 2011 – present), Vice President (2004 – March 2011), Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Funds; Vice President, Schwab Funds (June 2007 – present) and Schwab ETFs (Oct. 2009 – present).


¹		Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The Trust’s retirement policy requires that independent trustees retire by December 31 of the year in which the Trustee turns 72 or the Trustee’s twentieth year of service as an independent trustee, whichever comes first.
²		Mr. Bettinger is an Interested Trustee because he is an employee of Schwab and/or the investment adviser. In addition to his employment with the investment adviser and Schwab, Mr. Bettinger also owns stock of The Charles Schwab Corporation.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Glossary

ask See “offer.”

asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage to help offset risks and rewards, based on your goals, time horizon and risk tolerance.

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.

authorized participant (AP) A large institutional investor that places orders for creation units with the funds’ distributor.

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

Barclays Capital U.S. TIPS Index (Series-L) A rules-based, market value-weighted index that tracks inflation-protected securities issued by the U.S. Treasury that have at least one year remaining to maturity, are rated investment grade and have $250 million or more of outstanding face value.

Barclays Capital U.S. Treasury 1 − 3yr Index An index that measures the performance of short term government bonds issued by the US Treasury.

Barclays Capital U.S. Treasury 7 − 10yr Index An index that measures the performance of U.S. Treasury securities that have a remaining maturity of between 7 and 10 years.

Barclays Capital U.S. Treasury Long Index An index that measures the performance of U.S. Treasury securities that have a remaining maturity of 10 or more years.

bid The price at which someone is willing to buy a security.

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.”

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.

commencement of operations The date that the first NAV was calculated.

coupon, coupon rate The annual rate of interest paid until maturity by the issuer of a debt security.

creation unit (C.U.) A basket of securities that is delivered by an authorized participant (AP) to the fund equal to the current holdings of the ETF, plus a designated cash component. In return, the APs receive a large block of ETF shares (typically 50,000 shares), which investors can then buy and sell in the secondary market.

credit quality The capacity of an issuer to make its interest and principal payments; an assessment typically rendered by an independent third-party organization.

credit risk The risk that a bond issuer may be unable to pay interest or principal to its bondholders.

duration A measure of an individual bond’s sensitivity to interest rates, expressed in years. Calculations of duration generally take into account the bond’s yield, interest payments, maturity date and call features.

weighted average duration A measure of the duration of all bonds in a fund’s portfolio, also expressed in years, based on the market value weighted average duration of each bond in the portfolio.

exchange A marketplace, or any organization or group that provides or maintains a marketplace for trading securities, options, futures, or commodities.

expense ratio The amount that is taken from the fund’s assets each year to cover the 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.

face value The value of a bond, note, mortgage or other security as given on the certificate or instrument. Face value is also referred to as par value or nominal value.

inception date The date that the shares began trading in the secondary market.

indicative optimized portfolio value (IOPV) A calculation disseminated by the stock exchange that approximates the fund’s NAV every 15 seconds throughout the trading day.

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 of 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 The ability to convert a security or asset quickly into cash.

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

market price return The return based on the change in market price per share of the fund over a given time period. Market price returns assume that dividends and capital gain distributions have been reinvested in the fund at market price.

maturity The date a bond is scheduled to be “retired” and its principal amount returned to the bond holders. Maturity of Investments will generally be determined using portfolio securities’ final maturity dates. However, for certain securities, maturity will be determined using securities’ effective maturity date. Except as discussed below, the effective maturity date for a security subject to a put or demand feature is the demand date, unless the security is a variable-rate or floating-rate security. If it is a variable-rate security, its effective maturity date is the earlier of its demand date or next interest rate change date. For variable rate securities not subject to a put or demand feature and floating-rate securities, the effective maturity date is the next interest rate change date. The effective maturity of mortgage backed and certain other asset-backed securities (as used in determining Weighted Average Maturity) are determined on an “expected life” basis by the investment adviser.

effective maturity Takes into account maturity shortening features, such as the interest rate reset date or demand features, instead of the final maturity date.

final maturity The date on which the principal amount of the bond is scheduled to be paid.

weighted average maturity (WAM) For mutual funds or ETFs, the maturity of all the debt securities 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.

mortgage-backed securities Bond or other debt securities that represent ownership in a pool of mortgage loans.

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

NAV return The return based on the change in NAV of the fund over a given time period. NAV returns assume that dividends and capital gain distributions have been reinvested in the fund.

offer (ask) The lowest price at which an individual is willing to sell a security.

open The price at which a security opened for trading on a given day.

outstanding shares, shares outstanding When speaking of the 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.

primary market The market that deals with the issuance of new securities.

replication If a fund uses a full replication method, the fund will invest substantially all of its assets proportionately in the securities included in the underlying index.

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

sampling If a fund uses a sampling method, the fund will not fully replicate the underlying index and may hold securities not included in the index. A fund that utilizes a sampling approach may not track the return of the index as closely as a fund that uses a full replication method.

secondary market The market in which investors purchase securities from other investors rather than directly from the issuing companies. Organized exchanges facilitate the trading of securities in the secondary market.

spread The gap between bid and ask prices of a security.

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

tracking error The difference between the performance of the fund and its benchmark index, positive or negative.

Treasury inflation protected security (TIPS) A United States Treasury bond whose principal increases at the same rate as the Consumer Price Index (CPI).The interest payment is then calculated off that inflated (adjusted) principal and repaid at maturity.

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.

PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT

A Commitment to Your Privacy

Your Privacy Is Not for Sale

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

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

How We Collect Information About You

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


•	APPLICATION AND REGISTRATION INFORMATION.

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


•	TRANSACTION AND EXPERIENCE INFORMATION.

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


•	WEBSITE USAGE.

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

How We Share and Use Your Information

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


•	to help us process transactions for your account;

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

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

State Laws

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

Safeguarding Your Information — Security Is a Partnership

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

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

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

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

Contact Us

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

Schwab ETF^tm direct investors: 1-800-435-4000

Notes

Schwab ETFs^tmare designed to be low-cost, diversified investments. Each fund follows broad market indices and provides exposure to specific segments of the market, making each a solid investment option for the core portions of an investor portfolio. The list to the right shows all currently available Schwab ETFs.

Investors should carefully consider information contained in the prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-800-435-4000 for a prospectus and brochure for any Schwab ETF. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.

Proxy Voting Policies, Procedures and Results

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

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

Schwab ETFs

U.S. ETFs

Schwab U.S. Broad Market ETF^tm

Schwab U.S. Large-Cap ETF^tm

Schwab U.S. Large-Cap Growth ETF^tm

Schwab U.S. Large-Cap Value ETF^tm

Schwab U.S. Dividend Equity ETF^tm

Schwab U.S. Mid-Cap ETF^tm

Schwab U.S. Small-Cap ETF^tm

Schwab U.S. REIT ETF^tm

International ETFs

Schwab International Equity ETF^tm

Schwab International Small-Cap Equity ETF^tm

Schwab Emerging Markets Equity ETF^tm

Fixed Income ETFs

Schwab U.S. Aggregate Bond ETF^tm

Schwab Short-Term U.S. Treasury ETF^tm

Schwab Intermediate-Term U.S. Treasury ETF^tm

Schwab U.S. TIPS ETF^tm

Investment Adviser

Charles Schwab Investment Management, Inc.

211 Main Street, San Francisco, CA 94105

Schwab ETFs^tm

1-800-435-4000

This report is not authorized for distribution to prospective investors

unless preceded or accompanied by a current prospectus.

Printed on recycled paper.

MFR60171-01

Item 2: Code of Ethics.


(a)		Registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and any other persons who perform a similar function, regardless of whether these individuals are employed by Registrant or a third party.

(c)		During the period covered by the report, no amendments were made to the provisions of this code of ethics.

(d)		During the period covered by the report, Registrant did not grant any waivers, including implicit waivers, from the provisions of this code of ethics.

(f)(1)		Registrant has filed this code of ethics as an exhibit pursuant to Item 12(a)(1) of Form N-CSR.

Item 3: Audit Committee Financial Expert.

Registrant’s Board of Trustees has determined that Mark A. Goldfarb, currently serving on its audit committee, is an “audit committee financial expert,” as such term is defined in Item 3 of Form N-CSR. Each member of Registrant’s audit committee is “independent” under the standards set forth in Item 3 of Form N-CSR.

The designation of Mr. Goldfarb as an “audit committee financial expert” pursuant to Item 3 of Form N-CSR does not (i) impose upon such individual any duties, obligations, or liability that are greater than the duties, obligations and liability imposed upon such individual as a member of Registrant’s audit committee or Board of Trustees in the absence of such designation; and (ii) affect the duties, obligations or liability of any other member of Registrant’s audit committee or Board of Trustees.

Item 4: Principal Accountant Fees and Services.

Registrant is composed of eleven series. Eight series have a fiscal year-end of August 31, whose annual financial statements are reported in Item 1, and three series has a fiscal year-end of December 31. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to each of the eleven series, based on their respective 2010 and 2009 fiscal years, as applicable.

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

Audit Fees

2010: $157,663 2010: 104,160

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

Audit-Related Fees

For services rendered to Registrant:

2011: $23,029 2010: None

Nature of these services: tax provision review.

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

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

Tax Fees

For services rendered to Registrant:

2011: $76,960 2010: $41,900

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

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

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

All Other Fees

For services rendered to Registrant:

2011: None 2010: None

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

(e)(1) Registrant’s audit committee does not have pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.

(2) There were no services described in each of paragraphs (b) through (d) above (including services required to be approved by Registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not applicable.

(g) Below are the aggregate non-audit fees billed in each of the last two fiscal years by Registrant’s principal accountant for services rendered to Registrant, to Registrant’s investment adviser, and to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant.

2011: $99,989 2010: $41,900

(h) During the past fiscal year, all non-audit services provided by Registrant’s principal accountant to either Registrant’s investment adviser or to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit committee’s pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant’s independence.

Item 5: Audit Committee of Listed Registrants.

The Registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act and has separately-designated standing audit committee established in accordance with Section 3(a)58)(A) of the Exchange Act. The Registrant’s audit committee members are Robert W. Burns, Mark A. Goldfarb, and Charles A. Ruffel.

Item 6: Schedule of Investments.

The schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form.

Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8: Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10: Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11: Controls and Procedures.

(a)

Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Marie Chandoha and Registrant’s Principal Financial Officer, George Pereira, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above.

(b)

During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting.

Item 12: Exhibits.


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

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Schwab Strategic Trust


By:		/s/ Marie Chandoha
		Marie Chandoha
		Chief Executive Officer

Date:		February 15, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By:		/s/ Marie Chandoha
		Marie Chandoha
		Chief Executive Officer

Date:		February 15, 2012

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

Date:		February 15, 2012

Operations